UK stocks doubts

Moe_The_Bartender

Another_Saver said:

Prism said:

RobHT said:

Another_Saver said:

Apodemus said:

Another_Saver said:

It doesn't need to go on forever, but world GDP has been growing slowly and steadily since the dawn of agriculture and civilisation...

Indeed, but the OP's comment (and my response) was about exponential growth...

Personally, I don't need exponential growth in my investments, my aims are much more modest - underlying portfolio growth that matches inflation, while being able to take income (for either expenditure or reinvestment) of 3% of inflation-adjusted historic portfolio value.  With reasonable expectations, the OP will find a world of investment opportunities available...including many in the UK.

... That is exponential real growth of 3%.

What do you mean? If you are 3% over inflaction, you are growing around 6%, or not?
Not many companies pay 6% dividents, let's start from there...

A company is unlikely to grow much if it doesn't spend at least some of its profits back on the business. What is left might get paid out as dividends.

True, as Edgar Lawrence Smith and later Keynes pointed out retained earnings add an element of compound interest, but on aggregate the marginal return potential per £ of retained earnings necessarily tends to 0 otherwise no co would pay out a dividend, and the statistics are that higher yielding, and higher payout ratio co's have tended to outperform the general market on a total return basis. This is retrospective of course but I think in unusual/bubble times when the market seems to depart reality, old truisms become more relevant.

Ok. Convince me. Show me the statistics that you are referring to.

Another_Saver

Moe_The_Bartender said:

Another_Saver said:

Prism said:

RobHT said:

Another_Saver said:

Apodemus said:

Another_Saver said:

It doesn't need to go on forever, but world GDP has been growing slowly and steadily since the dawn of agriculture and civilisation...

Indeed, but the OP's comment (and my response) was about exponential growth...

Personally, I don't need exponential growth in my investments, my aims are much more modest - underlying portfolio growth that matches inflation, while being able to take income (for either expenditure or reinvestment) of 3% of inflation-adjusted historic portfolio value.  With reasonable expectations, the OP will find a world of investment opportunities available...including many in the UK.

... That is exponential real growth of 3%.

What do you mean? If you are 3% over inflaction, you are growing around 6%, or not?
Not many companies pay 6% dividents, let's start from there...

A company is unlikely to grow much if it doesn't spend at least some of its profits back on the business. What is left might get paid out as dividends.

True, as Edgar Lawrence Smith and later Keynes pointed out retained earnings add an element of compound interest, but on aggregate the marginal return potential per £ of retained earnings necessarily tends to 0 otherwise no co would pay out a dividend, and the statistics are that higher yielding, and higher payout ratio co's have tended to outperform the general market on a total return basis. This is retrospective of course but I think in unusual/bubble times when the market seems to depart reality, old truisms become more relevant.

Ok. Convince me. Show me the statistics that you are referring to.

https://www.tandfonline.com/doi/abs/10.2469/faj.v62.n3.4157#:~:text=Market observers and investors often,indicates strong future earnings growth

https://www.aqr.com/Insights/Research/Journal-Article/Surprise-Higher-Dividends-Equal-Higher-Earnings-Growth#:~:text=Higher Dividends = Higher Earnings Growth,-January 2, 2003&text=At such levels, future long,forecast exceptional long-term growth

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/credit-suisse-global-investment-returns-yearbook-2020-summary-edition.pdf&ved=2ahUKEwjM5vjv4KftAhWKY8AKHVq_A6UQFjABegQIBBAJ&usg=AOvVaw2v5Hscm0orlRU0RLHZ-ACP (page 27)

Specifically in the UK Gervais Williams Slow Finance I know referred to some evidence of the same but I can't find my copy.

Moe_The_Bartender

Another_Saver said:

Moe_The_Bartender said:

Another_Saver said:

Prism said:

RobHT said:

Another_Saver said:

Apodemus said:

Another_Saver said:

It doesn't need to go on forever, but world GDP has been growing slowly and steadily since the dawn of agriculture and civilisation...

Indeed, but the OP's comment (and my response) was about exponential growth...

Personally, I don't need exponential growth in my investments, my aims are much more modest - underlying portfolio growth that matches inflation, while being able to take income (for either expenditure or reinvestment) of 3% of inflation-adjusted historic portfolio value.  With reasonable expectations, the OP will find a world of investment opportunities available...including many in the UK.

... That is exponential real growth of 3%.

What do you mean? If you are 3% over inflaction, you are growing around 6%, or not?
Not many companies pay 6% dividents, let's start from there...

A company is unlikely to grow much if it doesn't spend at least some of its profits back on the business. What is left might get paid out as dividends.

True, as Edgar Lawrence Smith and later Keynes pointed out retained earnings add an element of compound interest, but on aggregate the marginal return potential per £ of retained earnings necessarily tends to 0 otherwise no co would pay out a dividend, and the statistics are that higher yielding, and higher payout ratio co's have tended to outperform the general market on a total return basis. This is retrospective of course but I think in unusual/bubble times when the market seems to depart reality, old truisms become more relevant.

Ok. Convince me. Show me the statistics that you are referring to.

https://www.tandfonline.com/doi/abs/10.2469/faj.v62.n3.4157#:~:text=Market observers and investors often,indicates strong future earnings growth

https://www.aqr.com/Insights/Research/Journal-Article/Surprise-Higher-Dividends-Equal-Higher-Earnings-Growth#:~:text=Higher Dividends = Higher Earnings Growth,-January 2, 2003&text=At such levels, future long,forecast exceptional long-term growth

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/credit-suisse-global-investment-returns-yearbook-2020-summary-edition.pdf&ved=2ahUKEwjM5vjv4KftAhWKY8AKHVq_A6UQFjABegQIBBAJ&usg=AOvVaw2v5Hscm0orlRU0RLHZ-ACP (page 27)

Specifically in the UK Gervais Williams Slow Finance I know referred to some evidence of the same but I can't find my copy.

I'm genuinely interested in this because it’s counter intuitive. The more you pay out in dividends, the less is available for development of the business so you wouldn’t expect that such companies would produce higher growth.

The links that you have provided don’t do anything to support your statement. The first two are simply articles saying the same thing without any statistics to back them up. They relate to the US stock market where dividends are historically about half that of the FTSE100 and yet I doubt that anyone would seriously argue that the UK has been a better bet for investors over the past decade.

The third one is a 48 page document and, TBH, I don’t really have the time to Wade through it to find the bits that support you. If you can point me to the relevant bit, I'll be happy to take a look.

Prism

Another_Saver said:

The US is not a must when it's in dot com bubble valuation territory and the $ is this high.

Having worked through the dot com bubble and seeing some the damage that the false promise and ridiculous valuations did to the IT industry I would say today is nothing like that. Todays large IT companies are currently the most successful and profitable businesses there are and for the most part the valuations are much more reasonable than they were last time. Those with high valuations like Amazon have evidential examples of growth.

Most investors should have some exposure to the big US and Chinese IT giants if they want to be part of big future gains.

Another_Saver

Moe_The_Bartender said:

Another_Saver said:

Moe_The_Bartender said:

Another_Saver said:

Prism said:

RobHT said:

Another_Saver said:

Apodemus said:

Another_Saver said:

It doesn't need to go on forever, but world GDP has been growing slowly and steadily since the dawn of agriculture and civilisation...

Indeed, but the OP's comment (and my response) was about exponential growth...

Personally, I don't need exponential growth in my investments, my aims are much more modest - underlying portfolio growth that matches inflation, while being able to take income (for either expenditure or reinvestment) of 3% of inflation-adjusted historic portfolio value.  With reasonable expectations, the OP will find a world of investment opportunities available...including many in the UK.

... That is exponential real growth of 3%.

What do you mean? If you are 3% over inflaction, you are growing around 6%, or not?
Not many companies pay 6% dividents, let's start from there...

A company is unlikely to grow much if it doesn't spend at least some of its profits back on the business. What is left might get paid out as dividends.

True, as Edgar Lawrence Smith and later Keynes pointed out retained earnings add an element of compound interest, but on aggregate the marginal return potential per £ of retained earnings necessarily tends to 0 otherwise no co would pay out a dividend, and the statistics are that higher yielding, and higher payout ratio co's have tended to outperform the general market on a total return basis. This is retrospective of course but I think in unusual/bubble times when the market seems to depart reality, old truisms become more relevant.

Ok. Convince me. Show me the statistics that you are referring to.

https://www.tandfonline.com/doi/abs/10.2469/faj.v62.n3.4157#:~:text=Market observers and investors often,indicates strong future earnings growth

https://www.aqr.com/Insights/Research/Journal-Article/Surprise-Higher-Dividends-Equal-Higher-Earnings-Growth#:~:text=Higher Dividends = Higher Earnings Growth,-January 2, 2003&text=At such levels, future long,forecast exceptional long-term growth

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.credit-suisse.com/media/assets/corporate/docs/about-us/research/publications/credit-suisse-global-investment-returns-yearbook-2020-summary-edition.pdf&ved=2ahUKEwjM5vjv4KftAhWKY8AKHVq_A6UQFjABegQIBBAJ&usg=AOvVaw2v5Hscm0orlRU0RLHZ-ACP (page 27)

Specifically in the UK Gervais Williams Slow Finance I know referred to some evidence of the same but I can't find my copy.

I'm genuinely interested in this because it’s counter intuitive. The more you pay out in dividends, the less is available for development of the business so you wouldn’t expect that such companies would produce higher growth.

The links that you have provided don’t do anything to support your statement. The first two are simply articles saying the same thing without any statistics to back them up. They relate to the US stock market where dividends are historically about half that of the FTSE100 and yet I doubt that anyone would seriously argue that the UK has been a better bet for investors over the past decade.

The third one is a 48 page document and, TBH, I don’t really have the time to Wade through it to find the bits that support you. If you can point me to the relevant bit, I'll be happy to take a look.

The first paper I have found the full paper somewhere free I'll see if I can again.

The second link has a link to download the paper that has all the stats.

Until the 90s, the dividend yield in the UK and us were actually very similar normally 4%-6% (Barclays Equity Gilts Study, https://www.multpl.com/s-p-500-dividend-yield). 1990-2020 the FTSE 100 averaged 3.6%-3.7% ish, and the US 2.1% so it is a new phenomenon (first figure eyeballed from trustnet, difference in FTSE 100 price and total return 1/1/90-1/1/20 ^(1/30), second figure from https://dqydj.com/sp-500-return-calculator/, Jan 90-jan 20, total return/price index return).
It was only in the dot com bubble and since that the US yield has been so low, for a few reasons. 1 is Boomer retirement savings in general, and the US with their more developed and more widely participated in stock market have an investing population with a more domestic focus whereas in the UK only 45% of LSE listed equities are owned here. Secondly, through the dot com bubble, stock market indices dividend payout ratios fell from the historic norm of 50%-90%, to below 50%. This culture has maintained with the growth of the big capital intensive tech stocks and healthcare. In the Battle for the Soul of Capitalism, Jack Bogle who lived through this period with the benefit of being retired, argues the falling payout ratios, rise of executive compensation, managerial capitalism, managed earnings, dot com mania, lack of scepticism from investing professionals, and the fraud and corruption that became public particularly in 2002, are all part of the same problem and all damaging to shareholders (that's a simplified summary). The UK, perhaps because of the nature of co's listed here, governance, demands/expectations for income has carried on regardless paying out around 2/3 of earnings.

The FTSE 100 has obviously done crap this last decade, worst of all the major stock market indices (by which I mean world, europe, Asia Pacific, Japan, emerging, US).

In the credit Suisse global returns yearbook it's just page 27.

I cba going into anymore detail til I retire.

Another_Saver

Prism said:

Another_Saver said:

The US is not a must when it's in dot com bubble valuation territory and the $ is this high.

Having worked through the dot com bubble and seeing some the damage that the false promise and ridiculous valuations did to the IT industry I would say today is nothing like that. Todays large IT companies are currently the most successful and profitable businesses there are and for the most part the valuations are much more reasonable than they were last time. Those with high valuations like Amazon have evidential examples of growth.

Most investors should have some exposure to the big US and Chinese IT giants if they want to be part of big future gains.

I don't disagree, it is clearly different because these companies are actually profitable, established and ... Well they actually exist and do things which many dot-com investments didn't. And they're using the infrastructure that the dot com mania paid for - internet cables and the uptake of computers and phones and mobile internet masts. This TED talk explains better than I can how and why the fact that the internet/computer infrastructure has already been laid down (also the human capital of his damn many people are learning computing) is a reason to be optimistic about the future of tech ( https://youtu.be/sod-eJBf9Y0).

But the S&P's valuation is back in that kind of territory, the value stretch is back to those levels, and the same cause - Boomer retirement savings - is supplying the capital to make it possible (aside from all the problems that caused the dot com and GFC crashes, the latter coincides with 1946 Boomers being able to access their 401ks).

As for China that's a whole other post. Terry Smith has touched on it, I'm happy to own a bit of China via a global index fund and I'm happy with the China exposure via the earnings of co's in both my UK and global index funds, but I do have no interest in going out and buying a Chinese stock specifically.