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Letters to the Editor

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Comments Posted On-Line to “The Dividend Puzzle: The Relationship Between Payout Rates and Growth,” by Stanley Block, May 2009:

Dividend yield is a ratio. There are two components in it: the dividend and the stock price. Higher dividend yield might not be caused by higher dividend but lower stock price. “The Dividend Puzzle” might not be a puzzle caused by a high dividend but a puzzle caused by a lower stock price when the dividend yield is calculated. If it is a lower stock price puzzle, then it is not a puzzle anymore because the initial lower valuation of the stock by investors may not have been justified by the

Ganghuai Wang From USA

I’m always suspicious that corporate execs hold back dividends because the price of their personal stock options appreciates more if cash is retained in the business (i.e., shareholders would prefer a 3% dividend to retaining cash in a business growing at 2%). But if executives can grow book and stock price (linked to options), why be ethical?

Louis From Ohio


Comment Posted On-Line to “Graham’s Defensive Investor Screens: An Intrinsic Approach for Stormy Times,” by Wayne A. Thorp, CFA, May 2009:

Graham’s principles are timeless. This, to me, is the starting point—particularly in today’s environment where there are many bargains to be had. He did not consider future growth prospects to be as important as having a margin of safety, so he found as many companies as possible meeting his requirements and bought them. This gave him a greater margin of safety.

My approach is more like Buffett. Why can’t you buy undervalued cash cows with great growth prospects? This way, you get the best of both worlds. Cash is king. In my opinion, determining the discounted future net cash flows is the best way. If you have an undervalued company that is out of favor and it generates lots of owner earnings cash and has great growth prospects, you may have a winner. Combine Buffett and Graham and, over the long term and without living in fear of the short term, you will be successful.

Vickie From Louisiana


To the Editors:

Sam Stovall’s May article [“Don’t Fight the Fed: Interest Rates and Their Impact on the Stock Market”] begins: “I have frequently been asked, ‘What is the one thing an investor should monitor in order to gauge the health of the economy and the direction of the stock market?’ My response is ‘interest rates.’ The mandate of the Federal Reserve is twofold: to promote economic growth and to keep inflation under control.”

Really? Right at this point there should have been a graph illustrating the point. By watching it could we have stayed out of trouble? What was Stovall saying in early 2008?

G. Mueden


To the Editors:

Your latest issue surprises me concerning the articles about DRPs and your obvious pro-position for their services [“Lowering Your Costs: How to Take Advantage of Direct Purchase Plans,” by Maria Crawford Scott, June 2009 AAII Journal]. My experience with over 75 accounts in most all of the firms you list is negative.

DRPs offer resolution to paperwork problems formerly handled by the respective stock company shareholder services offices. However, I suggest they are a cop-out and hardly friendly to stockholder interests. For the last year or so, they have started to charge fees that are competitive with, if not more than, charges by discount brokers—yet they claim they are not brokers. Furthermore, not all stock companies are willing to intercede on the stockholder’s behalf, which suggests more dilemma. As an investor, these negatives are important aspects to an investment that is handled much more willingl

Andrew Welden


To the Editors:

Is there any data source of 15-year and 20-year returns of funds that have been around that long?

Joseph Folk

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The Editors Respond:

Morningstar’s Advanced version of Principia software offers annualized returns for 15 and 20 years. Steele System’s Mutual Fund Pro Plus offers individual-year returns going back to 1962. However, the programs charge substantial subscription fees.


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