Novel Investor

This week marked the 30th anniversary of Black Monday. There are a lot of lessons to take away from that day and the events that lead up to it (the elusive lesson for many of us is how we’d react in that instance).

For instance, Robert Shiller made an important point about the impact of putting so much focus on what everyone else is doing (emphasis mine):

The declines that had already occurred in October 1987 looked a lot like those that had occurred just before the October 1929 stock market crash. That graphic in the leading financial paper, along with an article that accompanied it, raised the thought that today, yes, this very day could be the beginning of the end for the stock market. It was one factor that contributed to a shift in mass psychology. As I’ve said in a previous column, markets move when other investors believe they know what other investors are thinking.

Warren Buffett said the same thing in his ’87 letter (again, emphasis mine): Continue Reading…

I wrote about the reach for yield a few weeks ago. Here’s the dividend stock edition for yield chasing.

Alliance Bernstein has a graph showing what investors are getting from dividend ETFs versus a growth stock counterparts.

Today, investors are currently paying growth stock prices for dividend stocks. That might be okay if dividend stocks got growth-stock-like earnings growth. But that’s rarely the case.

The reason most dividend stocks pay a dividend is that their earnings growth is limited. If they could reinvest more earnings to grow at a higher rate, they would. But they can’t. So they don’t. So they choose to pass a portion of earnings on to shareholders. Continue Reading…

Anytime Warren Buffett does a deal for Berkshire, he makes the rounds on business news. This week he made a deal and sat for the usual interview with CNBC (video and transcript linked below).

These interviews can be hit or miss sometimes because they want his perspective on everything. But two things stood out: the certainty of gravity and taxes.

The first is something he’s asked every time and fits with the last post. Interest rates act like gravity on asset prices.

But because interest rates have stayed low for so long, it becomes easier to ignore the risks interest rates pose. The longer things stay the same, the more investors expect it to continue: Continue Reading…