Dividends are more reliable than accounts


#1

To say that the latest profit warning from Tesco came as a shock is an understatement. A 16% fall in the share price that was already 44% down on its
[See the full post at: Dividends are more reliable than accounts]


#2

Whilst I think there is definitely a time for passive investing I don’t think it is now when stock markets are going side ways.

The time to invest in passive is when markets are rising like almost no matter what you buy. That’s was the case for a couple of years up until the beginning of this year but it aint the case now, because with growth in company profits being nowt the markets are not moving too much at all.

You criticize active fund managers who buy Tesco and some of those other names but those active fund managers at least have the choice not to buy Tesco whereas passive funds following an index have to buy it because its in the index.

I’d much rather have a fund manager and a good one at that looking after my money in this type of market.

 


#3

I read this article and conclude that it is a very good idea to avoid smart beta products that rely on analysts’ forecasts of future dividends, because those forecasts can be unreliable. Therefore, the smart beta process can be unreliable.

Further, relying solely on dividends - forecast or historic - does not highlight those companies that have been increasing their levels of debt in support of the current level of their dividend. There might be a few shocks to come in some quarters over this.

In fact, it is quite naive to look just at dividends, as more than a few HYP investors have found to their cost.

 


#4

Since no one knows in advance when markets are about to rise or fall it is far too simplistic to say only buy passives in a rising market. In fact history tells us that they lag rising markets. Over the five years of this bull market all passives are in the fourth quartile. yet over the last year, in a flat market, there a 17 passives in the top two quartiles.

Since the majority of returns to equity investors come from dividends chasing capital growth is not very productive. Which is the point of the blog.

Identifying good active fund managers is difficult as these videos on this website demonstrate. www.sensibleinvesting.tv

Of course dividends can be a fallible guide to the future. But what the blog is pointing out is that virtually every other measure has flaws as well. The important point is that Tesco is still a large and profitable company and either these new managers will transform it or someone else will. Not holding it is a bigger risk than holding it. After all, how many companies are trading at book value these days? The question is how much to hold.

 

 


#5

I don’t understand why it needs to be an either or game. i.e. either active or passive. I use a combination of both. I invest with good fund managers in their investment trusts or funds and I have tracker funds.

The trackers return what the market returns or there abouts. I’m far from being an investment wizard but over time this blending of active and passive has served me well. I have more than three quarters of my investments in active including fixed interest, the remainder in trackers and one ETF.


#6

PaulS,

That approach is not uncommon. Many investors use trackers for their core holding of blue chips, companies that are well researched and hard to get an edge on, combined with active funds for fringe markets like small caps where research can add value.