Aug 23, 2022Liked by Adam Mead

Great article. But let’s invert the problem.

What is the value of, say, Google? Total market cap? Nobody will ever be able to buy the whole business (because it’s too expensive) and Google can create new shares as they see fit. And they will probably never pay a dividend.

So what is the value of such a business that cannot be bought by anyone else (to use the “buying a private business” analogy) and will never pay a dividend?

Isn’t that called a frozen corportation? Or a Ponzi scheme?

Why does Buffett favor companies that pay a dividend?

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Aug 14, 2022Liked by Adam Mead

A couple of comments:

1. DRIPs are really for drips: they amount to selling at wholesale (book value) and repurchasing at retail (market). The dividend is paid out of cash—book value—and reinvested at market, which in today’s market can be multiples of book. And then a tax is due in April. The price you DRIP at is the market price on payday. Why should one assume that one will drip four times a year at an attractive price? Surely a little patience and flexibility could do better.

2. Until the inflation of the ‘70s non-profit institutions generally lived off of income. It was considered a sin to dip into principle. To increase spendable funds, institutions invested heavily into high-yielding stocks and, particularly, bonds. Inflation decimated principle. Since then prudent institutions have separated nominal, total, return from real, after-tax, return. Portfolio investment focused on total return, while the institution prudently focused on a budget of real return.

The individual investor would be wise to follow this practice. First, you focus on accumulating assets to achieve a reliable 5% annual payout. At this level t is not terribly hard to produce an average turnover of 5% of a portfolio over several years. This turnover can be topped up with opportunistic sales.

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Great article Adam. You should jump on The Closingbell Show to discuss! We have 60,000+ in our community who'd love to learn from you. We recently had on Alex Morris, Ayesha Tariq and Tyler Okland :)

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