Charles Rotblut, CFA is a vice president at AAII and editor of the AAII Journal. Follow him on Twitter at twitter.com/CharlesRAAII.


Discussion

Michael Skinner from CA posted 12 months ago:

I have found that a "growth at a reasonable price" strategy both lowers risk (by bailing from or not selecting way above average p/e ratio stocks in the first place), enhances returns, generally leads one to emphasize midcaps (at a greater allocation to this area than total market weights) over the long term. Academic research, the performance of the AAII SI Pro screens, and my own 20+ year performance all validate this.

Likewise pursuit of high dividends from slow or no growth companies is a proven losers game. Better to target companies with growing earnings and dividends (even if the dividends are modest).


Charles Rynski from CA posted 12 months ago:

Many investors can augment their returns with the use of conservative options strategies having a limited risk.

AAII could serve the interests of its membership by providing insights regarding the use of simple options strategies to achieve higher returns.


Charles Rynski from CA posted 12 months ago:

Many investors can augment their returns with the use of conservative options strategies having a limited risk.

AAII could serve the interests of its membership by providing insights regarding the use of simple options strategies to achieve higher returns.


James Harless from TN posted 12 months ago:

I do not feel safe about options trading. I listened to an hour of Ameritrade on topic a couple years ago, and it seems a lot of trades and need a good math expert, and a high risk to me. If there are simple methods, why is it no offered or covered to help members, as suggested?? thanks. jim h. 9-3-2013


Richard Dubitsky from NY posted 12 months ago:

Buy broad based index ETFs and forget the rest. There are very few Warren Buffets or Peter Lynches among us.
The newsletters, CNBC, Wall St Week chattering class did not see the enormous gains ahead in 1987 or 2009.


Walter Johnson from NJ posted 12 months ago:

Reinvested dividends combined with regular contributions helps one dollar-cost average and build new positions. Keep your fees low and spread your risk. Keep a watch list that helps you tune out the daily noise.


John Duguid from NJ posted 12 months ago:

Always felt that value beats growth but the stock screens tab on this web sites shows that at least for mid and small-cap index, growth has outperformed value since 1998, even on a risk-adjusted basis. This is most noticeable for the S&P mid-caps. Not sure how to reconcile this observation with other studies.


David Smith from MI posted 12 months ago:

Thanks for the article and thougthfull comments that I agree with. I thought you might benefit form a lot of modeling I have done on dividend stocks to test my own myths and try to figure out why I was losing money with "high yield" stocks. Besides all the usual metrics like PEG, EPS growth, payout ratio & "moat width", one way to rank dividend stocks, for long term income & growth investing is to add the current yield (say 3%) to the dividend growth rate (say 5% over 5 yrs). So sum = 8% in this case. Let's stick with this particular 8% total example and assume dividend reinvestment through thick & thin.

Theoretically (in a smoothly growing market that does not exist) any stock with a combined yield + dividend growth of 8% should compound equally. For example 3% yield + 5% divi growth would compound at the same rate as 5% yield + 3% divi growth.

Using long term compounding models that account for downs and ups in stock price, I have found that the current yield imparts a slightly higher compounding effect over the divi growth. For example 5% yield + 3% growth would compound at a faster rate than 3% yield + 5% dividend growth during volatility. However I agree with your articles about the dangers of high yielding stocks (unless very well researched).

My experience after doing this for a while has led me to treat the long term dividend growth rate with a somewhat greater weight over current yield. This increases my probability of owning a reliable dividend growth stock.

Taking both theory and practice into account, as a recent retiree looking for relatively secure income + growth, I would prefer 3% yield with 5% divi growth over 5% yield with 3% divi growth.

I was inspired to test these ideas by AAII and in particular from Lowell Miller who you featured in the Journal. (I ended up reading his book The Single Best Investment).

They key to "beating the averages" is to employ above average numerical research and never panic.


Bernard Scoville from CA posted 12 months ago:

Don't forget high-yield bonds, if you want a return on your money. You can find them at www.finra.org and fidelity.com.


James Jennings from VA posted 12 months ago:

I take it that a value stock is a non-growth stock. What do I look for? P/E less that 5?


Brad Johnson from OH posted 11 months ago:

Hi James, there is no exactly right PE. In general, an aggressive growth investor doesn't concern themselves to much with valuation ratios like the PE, PEG, P/sales, Price/book, etc) as these stocks will tend to have ratios which are very high (50, 50, 125, etc...). Valuations metrics are, however, very important to a value investor. whose goal is to by a great company at the lowest price (hence, low PE, low PEG, etc...). Check out AAII's educational area for further info.
As an example, Warren Buffet is more of a value investor while William O'Neil is more of a growth investor.
Hope that helped some. It is confusing at first!

Brad


Joseph Folk from VA posted 11 months ago:

Dividend vs. non-dividend paying stocks--is that a typo that non-dividend paying stocks returned only 1.8% from 1972 to 2013?


James D Williams from OR posted 11 months ago:

I'm still learning and I really appreciate these articles. Thanks


Dave Gilmer from WA posted 10 months ago:

Charles,
When you talk about "Paper Losses Don't Matter", you only talk about Stocks, but is this not really true for most any investable asset.

There are some who think just because bonds have some built in intrinsic value that you should not be concerned about paper losses.

My thought is that on any day the asset needs to be sold you will turn the paper losses into real losses, for what ever unexpected reason you are forced to sell.

Even holding a bond to maturity only assures the original guarantee, it does not insure that the money you made over the 10-20 years will even be above zero in real dollar terms.

And if you own bond funds in your 401k or otherwise, they can certainly lose money.

fd


Fred from California posted 6 months ago:

I have found over the years that good dividend paying stocks that don't go up or down but continue to pay good dividends works well for me. I choose the automatic re-investment option and every month I own more shares. When I have a large enough share volume I turn off the automatic re-investment option and use the dividends to feed my other investments. I choose the best small, mid and large cap mutual fund I can find and add to my positions when possible. It also helps to buy when areas are beaten down. I have been in European funds for the last six months and they are doing very well. Gold is going to be this years big winner. I invested in the junior miners and they are up significantly year to date. While there are some set it and forget it portions of my portfolio I am always looking for other investments. A true value investor always buys when everyone else is selling.


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