Purpose: talk about some of my ideas about dividends vs growth in stock investments.
From a mathematical standpoint 2% growth in a stock every year is the same as getting a 2% dividend.
Additionally, I think the tax code favors growth over dividends for time periods longer than 1 year. It’s complicated so maybe I’m wrong, but if I’m wrong my next guess would be that they’re treated the same and I’d be quite surprised if dividends are taxed less than growth.
So I think in theory there’s no reason to prefer dividends over growth in the long term.
Two practical factors I think favor of dividends over the long term:
- Companies lie. They have a bunch of ways to make profit look bigger than it actually is, hide liabilities, and other accounting shenanigans. And they routinely use those methods to make themselves look better than they are. It’s relatively easy to make an earnings statement that says you had 2% growth when you didn’t. However, paying a dividend when you don’t actually have earnings is harder (not impossible, just harder because you actually have to get cash from somewhere to pay it). Dividends are a harder to fake indicator of financial fitness.
- Investors are faddish. They irrationally favor some companies or industries and disfavor others. These fads change over time. If you buy companies that are out of favor and hold them until they are back in favor you can make more than if you invest cap weighted or follow the crowd/hot stocks. In the context of an index of large companies (like the Dow or S&P 500) high dividends as a percent of stock price are an indication that a company and/or its industry is currently out of favor.
One practical factor I think disfavors dividends in the long term:
- Some people (like retirees) need regular income from their investments to pay bills. They find selling a percentage of their investments hard (emotionally or logistically) and prefer just getting a check without having to take any action. Traditionally those people invested in bonds, CDs, and other fixed income investments. But (until very recently) rates of return on fixed income investments have been both low and falling. As a result, a lot of those people have substituted dividend paying stocks for some of what would otherwise be their fixed income portfolio. These people have bid up the price if dividend paying stocks in excess of their value relative to growth stocks, because they have a specific preference for dividends over growth. This is kinda a “reverse fad” in favor of dividends, counteracting the effect of dividend stocks being generally out of favor for company or industry reasons.
I don’t know how the factors that favor vs. disfavor dividends actually play out in the market. As a result, I no longer either favor or disfavor dividends in my investments.
Notes on ~first half (through 17:33):
Money does not correspond well with productive achievement in today’s world.
Consumerism is wasteful and bad. Many businessmen are manipulating people into consumerism.
Poverty is bad. You want to have a comfortable margin for your survival (food and shelter).
Mass produced products and services are just about as good as the expensive/luxury goods and services.
Most luxury stuff is a waste because it’s meant to impress others.
Clutter is a problem but minimalism is not
Do your job at work but don’t to go over and above because companies don’t recognize value in people.
ET is semi-on-strike to avoid helping current power structures by providing his unique creativity to them.
Alex Epstein is an example of using his mind to provide special help some bad people.
Energy is good and industrial society is better than primitive society.
Helping big companies, like oil companies, banks, and pharma companies, without pointing out their flaws is bad.
The more virtue you have the more important it is to avoid helping bad people.
Doing science research that puts power in the hands of bad people is really bad. Weapons research is bad.
Nuclear power might be bad given the current state of the world.
Safely implementing potentially dangerous technologies relies on people having intergrity and work ethic over long periods of time.
Most “anti-establishment” people are actually just criticizing one small thing while endorsing other establishment ideas.
Philosophy and humanities are less dangerous to work on because they don’t translate into power for evildoers as easily. They would have to be better people to use the philosophy.
Improving the propaganda and public image of low value celebrities could be something to avoid too.
You don’t need to get really rich. It’s not really a sacrifice to not be rich.
Wealth and passive income are not safe in the long term.
Capability to earn is broadly safer than wealth.
Try to have a good life right now while earning the income you need for good life right now.
Two main points of the ~second half:
The government encourages consumerism through Keynesianism stimulus. They’re anti-saving.
Passive income is overrated. Passive income is usually only somewhat passive. Time value of money relationship between wealth and income.
META-COMMENT: I wrote the following primarily for fun but I’m not sure it’s very productive. That’s just a disclaimer and a sort of note to self.
Thoughts/comments on the idea of being partially on strike:
How on strike should people of the mind be today? How bad or dangerous is it to release powerful ideas into the world?
Is the main reason to be on strike because creative work is not properly rewarded or because bad people will use the creativity for their nefarious purposes? Or, are those problems inextricably linked by way the world is today?
My guess is that its still overwhelming good to try advancing certain ideas or technologies. If someone had developed a full cure for aging, should they still try to withold that from the rest of the world? I can understand why they might want to since it would probably be really really hard for them to get the full value that they deserve for that product. I can also see why someone would want to put that cure out there even if they thought that they would only get a thousandth or a millionth of the value that they should have gotten because they could be so many other follow on benefits for global progress, which they would presumably benefit from.
It makes sense that science and more general purpose technologies are dangerous because the range of evil that is possible with fundamental scientific discoveries. Would nanotechnology or molecular engineering be an area of research to avoid? On the face of it, that technology could have transformatively positive effects on the world by paving the way to super-abundance. I would guess that the industry would quickly get regulated and co-opted in the world as it is today but a lot of genuine progress would be made in the interim.