Monday, November 22, 2021

Interesting encounters in my line of work...

One of the dilemmas about investment training is which target market you would like to pitch your product to. 

My approach is to build a course with actionable ideas and hands-on practice so some amount of maths and financial theory is unavoidable. To earn more, I can widen my reach and even increase my price if I water down my material - one approach is to make my material more motivational just like the property gurus, but I suspect I won't be able to sustain this as I would feel that the material belongs to someone else. Also, doing this would put me up against someone with a much bigger budget, who can really get in your face every time you visit Youtube. 

So with a more targeted niche audience, sometimes I get more interesting encounters that put an interesting spin on the materials I present to the public.

Last week, a fairly sophisticated attendee commented about how my presentation is a unique spin on M&M and almost flat-footed me during Q&A. Fortunately, I remembered that M&M stood for "Modigliani and Miller" who came up with their idea that the company value is unaffected by its dividend policy. This idea of dividends irrelevance arises from the idea that issuing a dividend reduces the firm value by the same amount.

I've got financial advisors trolling me in the past, almost all are intellectual light-weights, and this is the first time someone brought up M&M in my talk so I felt that a better answer from my session last week is in order.

While I do emphasise the employment of dividends for early retirement, the yield of my student portfolios are really nothing to crow about, it's about 5%, just a tad higher than ETFs. You can easily beat my 5% if you lump HPH Trust, Asia Pay TV Trust, United Hampshire REIT and Elite Commercial REIT in a portfolio and buy it in equal shares. In my program, we try to optimise the Sortino ratio, so we max out our risk-adjusted returns to make it friendlier for financial leverage, and it just happens that the high-dividends factor currently works in Singapore. 

I can't read the mind of the attendee, maybe as our models employ capital gains and dividends, maybe an argument can be spun that we align with M&M because we rank capital gains in the same category as dividends.

Now, that being said, after some thought, I can possibly put up an argument that dividends can be superior to capital gains in Singapore. If you sell your stock to free up cash for personal expenses, you will need to pay a brokerage fee. A dividends investor gets the dividend delivered into his bank account for free. This is not a strong argument in the world of equities, but it may be very consequential in the world of cryptocurrency when gas fees in the ETH blockchain are killing crypto bros. 

Anyway, I doubt that I managed to sell an actual ticket to the attendee, even though I'd admit that I do want more students of that calibre. I've trained CFA trainers, Phds and MAS regulators and someone like this can possibly teach me a thing or two about finance theory. Having more folks like this will also raise the level of my community which is getting closer to 600 in size.

But trainers like me are doomed to stay small and niche. 

I can imagine myself trolling some options guru in the Y2K-era and talking about Modigliani and Miller and at least one famous guy from that era is known to say to his critics," That's why you don't have the mindset to be a millionaire."

Anyway, don't lose any sleep if have no idea what I'm talking about in this article. 



  1. Mathematically it's the same if the focus is on total returns.

    But there're likely differences once you bring in volatility between growth-oriented and dividend-oriented groups of stocks.

    Of course there're non-dividend payers with dividend stock-stability (think Berkshire or Novo Nordisk), but they're the rare exceptions.

    The other factor which is probably under-researched, is the behavioural aspect. Will investors behave better in a market crash if they know that dividends will continue? Do dividends give the psychological edge in bear markets, especially longer ones, where retirees would be staring at negative sequence risk if forced to sell too much of non-dividend paying stock at depressed prices?

  2. Very generally speaking, dividends still play a role in Singapore and Australian equities and generates high risk adjusted returns. Sadly this does not apply to SREITS.