tag:blogger.com,1999:blog-7366878066073177705.post4804840842213791040..comments2024-02-09T18:16:45.614+00:00Comments on The Psy-Fi Blog: The Psychology of Dividendstimarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-7366878066073177705.post-65033835254063442572010-09-20T17:14:41.355+01:002010-09-20T17:14:41.355+01:00Anonymous and Parker Bohn have beaten me to it. Yo...Anonymous and Parker Bohn have beaten me to it. You don't need to be irrational to have doubts about non-dividend paying companies, you only need to appreciate that others may be "irrational" - and that makes other people's supposed irrationality entirely rational. Dividends are what prevent shares becoming an unconvertible currency of their own, or a currency which indefinitely floats free of any hard mechanism to force a rerating.<br /><br />Look at investment trusts and smaller companies that are undervalued on any sensible measure because they don't pay dividends. I've invested in some of these because they provide substantial opportunities. But I wouldn't invest in a company that had a stated policy of never paying a dividend (even after it became profitable in the future), any more than I would buy into a Ponzi scheme.mchlnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-31761119828127333612010-01-28T11:12:48.611+00:002010-01-28T11:12:48.611+00:00Suppose I told you I was opening a business, for i...Suppose I told you I was opening a business, for instance a restaurant, and that I was looking for capital. For the right price, you can own half the business.<br /><br />You would probably inquire how much income you could expect from this investment.<br /><br />Well, I would explain that you that according to our contract you will get no income (it will be reinvested into the business). However, you can sell your stake in the restaurant at any time to someone else, who also will never receive income.<br /><br />Oh, and if you like the sound of that, I've got some real estate on the moon that might also be of interest to you.Parker Bohnnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-17596720905094063192010-01-13T15:54:22.791+00:002010-01-13T15:54:22.791+00:00Interesting, except that it occurs to me that in a...Interesting, except that it occurs to me that in a world free of dividends, stock ownership would never result in a cash receipt. Then, it would not make sense for anyone to buy the stock, thus it would never appreciate, removing the opportunity to cash in via capital gains. A claim to a portion of a company's earnings is merely theoretical if cash is never received as a result of that ownership.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-80554331270434824732010-01-10T10:39:57.710+00:002010-01-10T10:39:57.710+00:00Tim,
Excellent blog.
Of course in a rational wor...Tim,<br />Excellent blog. <br /><br />Of course in a rational world payment of dividends is irrelevant. But, as Dan Ariely points out, we are predictably irrational. Rob Bennett is quite correct to say that a bird in the hand is worth two in the bush, just in case. <br /><br />Although it may not be fair, or even accurate, it is a reasonable working assumption for an investor (the principal) to assume the directors of the companies he is in invested in (the agents) are greedy liars and the sooner he can can get some money back the better.<br /><br />Companies exist for two reasons. Create cash for their owners and egos for their managers. Paying dividends boosts the first and reduces the opportunity for the agent to do the latter. Berkshire Hathaway, which has never paid a dividend, might be a good example.<br /><br />It is arguable that investing is simply about three things:<br />compound interest<br />maximising dividends<br />minimising fees<br /><br />That is the philosophy we follow at The Munro Fund, www.themunrofund.com which simply tracks the forecast gross cash dividends of companies in the FTSE 350.Rob Davieshttp://www.themunrofund.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-26804490926745622812010-01-09T21:45:49.113+00:002010-01-09T21:45:49.113+00:00My thought is that investors should prefer to rece...My thought is that investors should prefer to receive a portion of their payment for investing in a company through dividends because getting paid now is always better than getting paid later. And smart companies should realize that they are better off attracting the type of investors who like dividends because the companies benefit from having smart investors find their operations. So I take it as a definite plus to see that a company pays a good dividend.<br /><br />The other side of the story is that I take it as a definite negative to see that a company does not pay a dividend. So long as there are dividend payers to invest in, why not direct your money toward those?<br /><br />RobRob Bennetthttp://arichlife.passionsaving.comnoreply@blogger.com