Pension recovery performance 2020

[Deleted User]

randompenitent said:

The problem with profit as a measure is that it is very manipulable.  Amazon chooses to make a small profit, or so I have read,  it could reduce investment and make a big one at a cost to its fairly spectacular growth. So to suggest that it’s small profit margins indicate it is just scraping along on the verge of bankruptcy is absurd. You can argue with the valuation, but that’s a different matter.
I read that Tesla is roughly cash flow positive now, so it too may have a sustainable business. And it’s producing a product that colleagues who are customers rave about. So what’s it worth? The market has taken a view and doubtless will have a different one tomorrow.

As others have said, this isn’t like dot coms in 1999. Amazon and Tesla are real companies with real products and real customers. Valuations are extraordinary, but with interest rates at zero or less and central banks printing money, where’s the money going to go? Bitcoin? Gold? Some, sure, but not all.  And not mine ;-)

I did not say Amazon is on the verge of bankruptcy. Yes, Amazons chooses to stay unprofitable. That’s true.  But why? Because it has a choice between fast growth and profit. It prefers growth.  Without growth competition will move in fast. Share price will collapse. Its a unique business model.  Not only does it screw Amazon’s profits, it hurts all retailers. Which causes political risks for Amazon. Sooner or later it will stop growing. Will it reinvent itself like Microsoft, disappear like Blockbuster, become boring like IBM or be forced to split like Standard Oil? 

Now... Dividends is something companies can easily manipulate one way or the other. And they do. 

randompenitent

Remember that in the US, dividends are less attractive than capital gains for tax reasons.  So US companies (or companies with US shareholders) often prefer buybacks for that reason. 

Linton

ISTM Amazon is pretty secure from competition now thanks to its global infrastructure and its massive range of products.  Anyone planning to take on Amazon will have to be prepared for many years of expensive investment - it doesnt sound like something to excite the investing public.  Yes, in the UK there are an increasing number of local and niche  suppliers, particularly in groceries where Amazon at the moment does not have a major presence and may be at some stage Alibaba or JD could be important globally.  But none of these are in a position to challenge Amazon as a whole in the medium term future.

Yes, at some stage Amazon will become a boring Value company, but boring is where the real long term profits are made.  In theory it is the boring long term profits that justifies investing in growth.

Another_Saver

Dividends can't be manipulated but they can be overpaid or underpaid and the reasons for that can be manipulative. That's why I prefer valuing by the dividend yield at an index level, historically it has been a baseline predictor of the real total return over the next 10 years so you can plan around at least that return.

itwasntme001

I have a feeling tech has a lot more room for further upside.  I can't see anti-trust issues harming them yet.  They have fat margins.  They have just had THE best marketing campaign for free during the pandemic.  It is a permanent shift and yet most/all of these tech companies haven't captured all of the potential market.

Amazon is as much a logistics company as it is an online retailer (amongst other things).  It has added value by re-routing the delivery process in a more cost and time efficient manner.  It can only be a good thing for the high street as it will mean cheaper ex-high street stores that can be re-purposed for better uses such as restaurants and bars.  Cheaper commercial real estate makes it easier for this.  Also re-purposing to residential property.

[Deleted User]

Another_Saver said:

Dividends can't be manipulated but they can be overpaid or underpaid and the reasons for that can be manipulative. That's why I prefer valuing by the dividend yield at an index level, historically it has been a baseline predictor of the real total return over the next 10 years so you can plan around at least that return.

Dividends are somewhat related to value but today are a very poor indicator of anything.  As @randompenitent points out, US companies caring about shareholders pay them in the form of share buybacks.  That’s what we prefer as shareholders for taxation reasons but is otherwise no different from dividends.  Also, the cult around dividends in some countries  has created a strong  incentive to borrow (at the current cheap rates) and keep increasing the dividends even as profits fall.  That’s not a good indicator of long term returns.   On the other hand companies like Berkshire Hathaway have delivered great returns without ever paying a dividend. 

Your approach would have kept you out of the US market over the last decade. How did that work out for you? 

Another_Saver

Deleted_User said:

Another_Saver said:

Dividends can't be manipulated but they can be overpaid or underpaid and the reasons for that can be manipulative. That's why I prefer valuing by the dividend yield at an index level, historically it has been a baseline predictor of the real total return over the next 10 years so you can plan around at least that return.

Dividends are somewhat related to value but today are a very poor indicator of anything.  As @randompenitent points out, US companies caring about shareholders pay them in the form of share buybacks.  That’s what we prefer as shareholders for taxation reasons but is otherwise no different from dividends.  Also, the cult around dividends in some countries  has created a strong  incentive to borrow (at the current cheap rates) and keep increasing the dividends even as profits fall.  That’s not a good indicator of long term returns.   On the other hand companies like Berkshire Hathaway have delivered great returns without ever paying a dividend. 

Your approach would have kept you out of the US market over the last decade. How did that work out for you? 

...
Berkshire is unique, but they still own dividend paying stocks and companies, and Buffet has commented on why it is appropriate for them and not for Berkshire so long as the conglomerate believes it can generate more than a dollar of value per dollar retained. At the index level the marginal utility of retained earnings necessarily tends to 0, otherwise the dividend yield would be 0 and that would somehow make earnings and so the economy grow by more than any hypothetical/potential dividend payout. Newspapers and tobacco aren't exactly going to grow by withholding dividends.

Share buybacks are newish, becoming popular in the 80s and essentially reward existing owners the by the same amount as an equal dividend. Shiller, author of the CAPE ratio has created a payout adjusted CAPE, but the data very closely match the normal CAPE (http://www.econ.yale.edu/~shiller/data.html).
As for borrowing I'm not aware of examples of dividend payout ratios exceeding 100% at the level of a national index, though obviously corporate debt is very high due to negative real interest rates and earnings can be manipulated to make the payout ratio seem lower.
Going through annual dividend yield and returns data for the UK and US, the dividend yield is almost always below the real total return of the next 10 years. I see it as a conservative return estimate to plan with, not a return predictor as the inverse of the CAPE, the cyclically adjusted earnings yield may be considered as.
As for the US, no one expected after the dual crashed of the 2000s, that the S&P 500 valuation could stay that high for that long, no one expected after that decade, a decade of 7.2% real earnings growth. Besides which, the UK and US yields were much closer then, 3.2% and 2% respectively than they are today, the FTSE all share started the year on 4.1%, the S&P on 1.8%.

Thrugelmir

Another_Saver said:

Deleted_User said:

Another_Saver said:

Dividends can't be manipulated but they can be overpaid or underpaid and the reasons for that can be manipulative. That's why I prefer valuing by the dividend yield at an index level, historically it has been a baseline predictor of the real total return over the next 10 years so you can plan around at least that return.

Dividends are somewhat related to value but today are a very poor indicator of anything.  As @randompenitent points out, US companies caring about shareholders pay them in the form of share buybacks.  That’s what we prefer as shareholders for taxation reasons but is otherwise no different from dividends.  Also, the cult around dividends in some countries  has created a strong  incentive to borrow (at the current cheap rates) and keep increasing the dividends even as profits fall.  That’s not a good indicator of long term returns.   On the other hand companies like Berkshire Hathaway have delivered great returns without ever paying a dividend. 

Your approach would have kept you out of the US market over the last decade. How did that work out for you? 

...

 the FTSE all share started the year on 4.1%, the S&P on 1.8%.

Which is accounted for by the company mix and weighting. Plenty of energy companies, utilities, banks etc in the S&P 500. As there is in the FTSE. 

[Deleted User]

Another_Saver said:

Deleted_User said:

Another_Saver said:

Dividends can't be manipulated but they can be overpaid or underpaid and the reasons for that can be manipulative. That's why I prefer valuing by the dividend yield at an index level, historically it has been a baseline predictor of the real total return over the next 10 years so you can plan around at least that return.

Dividends are somewhat related to value but today are a very poor indicator of anything.  As @randompenitent points out, US companies caring about shareholders pay them in the form of share buybacks.  That’s what we prefer as shareholders for taxation reasons but is otherwise no different from dividends.  Also, the cult around dividends in some countries  has created a strong  incentive to borrow (at the current cheap rates) and keep increasing the dividends even as profits fall.  That’s not a good indicator of long term returns.   On the other hand companies like Berkshire Hathaway have delivered great returns without ever paying a dividend. 

Your approach would have kept you out of the US market over the last decade. How did that work out for you? 

...
Berkshire is unique, but they still own dividend paying stocks and companies, and Buffet has commented on why it is appropriate for them and not for Berkshire so long as the conglomerate believes it can generate more than a dollar of value per dollar retained. At the index level the marginal utility of retained earnings necessarily tends to 0, otherwise the dividend yield would be 0 and that would somehow make earnings and so the economy grow by more than any hypothetical/potential dividend payout. Newspapers and tobacco aren't exactly going to grow by withholding dividends.

Share buybacks are newish, becoming popular in the 80s and essentially reward existing owners the by the same amount as an equal dividend. Shiller, author of the CAPE ratio has created a payout adjusted CAPE, but the data very closely match the normal CAPE (http://www.econ.yale.edu/~shiller/data.html).
As for borrowing I'm not aware of examples of dividend payout ratios exceeding 100% at the level of a national index, though obviously corporate debt is very high due to negative real interest rates and earnings can be manipulated to make the payout ratio seem lower.
Going through annual dividend yield and returns data for the UK and US, the dividend yield is almost always below the real total return of the next 10 years. I see it as a conservative return estimate to plan with, not a return predictor as the inverse of the CAPE, the cyclically adjusted earnings yield may be considered as.
As for the US, no one expected after the dual crashed of the 2000s, that the S&P 500 valuation could stay that high for that long, no one expected after that decade, a decade of 7.2% real earnings growth. Besides which, the UK and US yields were much closer then, 3.2% and 2% respectively than they are today, the FTSE all share started the year on 4.1%, the S&P on 1.8%.

Thats all true, except that after a poor decade on the stockmarket in the zeros, it would have been reasonable to expect the US to bounce back.  Just like after a poor decade for value, I wouldn’t bet against value right now. So “nobody expected” isnt accurate.
...but my point was that dividend is an easy but poor screen for anything. There are much better ways to screen for value, quality and profitability. 

Cus

If you are a passive investor investing solely in equity indices, how do decide which to choose?  Do you go with a truly global properly weighted index, or do you do research and choose regions etc. If so, would that be classified as timing the market, making active decisions etc?