Summary
It's fun for some people to make outrageous statements.
Everyone's doing it, so it must be fun or why would they do it?
Or perhaps they just don't know any better as we become dumber as a nation, relative to critical thinking.
Introduction:
These days, I read a lot more Seeking Alpha articles than ever before. At the risk of sounding like an old fuddy-duddy, one of the things that I notice more and more is how many authors will make a statement that causes me to stop, scratch my head, and think, "Seriously?"
You've all seen those kind of comments and they generally end up creating quite the comment thread as the pro and con types come out of the woodwork and argue over the comment.
It would be preferable for the "seriously" statements to be fleshed out in more detail, but they tend to get ignored by the author, unless he/she gets called out about the comment, but often times that doesn't happen and what remains is the incessant arguments over a statement that probably should have never been made in the first place.
A Little Clarity:
We have all read (and maybe I've even said it) where a DGI will say that they don't worry about the price of a given stock in their portfolio or that they don't worry about the overall value of their portfolio, because income is their goal.
Then the total return guys come out and ask, "How can you not be concerned about the value of your portfolio when that should be the only thing you should be concerned with?"
Now both sides of the argument have thrown down the gauntlet and the entire conversation goes completely off the rails. Then some "fool" steps into the thread and offers up a rational argument for one side or the other and that's when the s**t really hits the fan.
Why do we do this to ourselves?
An Example:
In an article that I read, the other day, the author had his bullet points (those little things that come before the article, that SA editors love so much.)
One of his bullet points for the article said this:
A dividend cut is one of the worst things that could happen to a dividend investor.
Now, before appearing to be a real jerk about this statement, let me give the author the "benefit of a doubt" as to the meaning behind his statement.
I don't know if the thought was just something that randomly occurred to him.
I don't know whether or not he even realized how silly a statement like that actually is.
I don't know that it was nothing more than just an honest mistake.
But what I do know is that we need to be a bit more careful when we say things like this, especially if we are Dividend Growth Investors, because this sentence and so many more that are made by "DGI" are just plain wrong.
What I Know:
A dividend cut is not the end of the world. Having your doctor tell you that you have Stage 4 Lung Cancer, can be the end of the world, for you.
What You Should Know:
But, getting back to investing and stocks If you have a portfolio that is rebalanced on a regular basis, the impact of a dividend cut is relatively meaningless.
Think about it. Pick a number for the dollar value of your portfolio. Is it a $50k, $75k, $100k, $500k, or a million dollar portfolio? How big is it?
Then you have to ask yourself, what is the dollar amount of the average holding within this portfolio. Do you own 30 companies? Is the portfolio broken out in a relatively balanced dollar amount between those 30 companies or does on company make up the bulk of the portfolio allocation?
So, let's assume you have a $500k portfolio, with the average size of each position (30 of them) is around $16k per position and your cash position is $20k which is $500k.
You owned General Electric (hey pick whatever you want) and you bought the company at around $20 a share, back in 2015. That would mean that your $16k position would have around 650 shares. That dividend was cut twice, since 2015, once in late 2017 (which could have been a trigger point to sell) ad the stock dropped to around $15 a share.
That would have been a fairly significant loss in value. From $16k down to $9750. Ouch, that hurts.
But what happened with the other 29 stocks in your portfolio? Did they all suffer catastrophic losses? How big of an impact does the decline in GE have on your $500k portfolio, net?
Well if your other stocks just sat there doing nothing since 2015, then the loss would have been $6250 for a portfolio worth $500k. I don't know about you, but where I come from $6250 on a $500k portfolio is "chump change."
But Let's Take It A Bit Further:
Blanket statements are often just plain silly once you begin to think about them. The key to making a blanket statement worthy of considering is to make sure that you don't look at all the facts, relative to the blanket statement.
When you see a statement on Seeking Alpha and that statement makes you stop and say, "What in the hell is this guy saying?" then it's perfectly fine to go ahead and make a comment that "corrects."
But keep in mind, there are a lot of people who don't have light bulbs go off in their heads when someone points out an alternative point of view to the one they hold.
There in lies the conundrum. We have failed as a culture to be able to discuss things in a factual manner, but instead prefer to discuss things with emotional constructs that solve nothing. Those emotional constructs are hot air and a waste of everyone's time.
So when ever any investor makes bold and sometimes irrational statements, let the statement roll around in your head for a while and then see if it makes sense or not.
You'll save yourself a lot of grief.
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