Friday, October 20, 2023

#2 The Missing Billionaires - How grown-ups discuss tech vs dividend stocks

I've grown accustomed to trolls from many of my public appearances, so I always plan to engage them in public. This appearance on Money Mind was slightly different because the attacks were not as personal as the ones I faced twenty years ago when I first appeared on the Sunday Times.

Apparently, some so-called wannabe influencer has a beef against dividends investing and thinks investors like AK71 are dinosaurs. I will not dignify their attempts by identifying who they are because this is childhood playground antics - like playing with GI Joe action figures. My Storm Shadow is better than the Snake Eyes discussion. I even went into the dividends forums to ask whether any of them bullied this influencer, to which they said that his issues have a much longer history than the forums.

Why do folks want to pick on AK71 anyway? He's a business rival as we back different training schools, but he has always been generous with his sharing. 

We can use the earlier Merton's shared discussion to discuss the merits of dividends investing versus tech investing. They are not mutually exclusive, and there's room in many portfolios to contain both.

If you are confronted with numerical statistics of a tech ETF compared to a dividends-focused ETF, what proportion of your net worth is ideal. 

So, from Portfolio Visualizer, I compared two ETFs. The famous Cathie Woods ARKK ETF and the Vanguard International Dividends Appreciation ETF. Numbers are shown here based on 5 years of data.

Clearly, ARKK has better returns, but it comes with a much higher risk. Since the Kelly Criterion will reduce the allotment to an ETF by four times for every doubling of standard deviation, taking :

 (returns - 3%) / (standard deviation) ^ 2

3%, being close to the yield of treasuries and even our SSBs.

Allocation of net worth to ARKK is 63.9%
Allocation to VIGI is 168%

In other words, the trader who plays the Kelly Criterion is encouraged to apply leverage on a dividend portfolio!

But we are not crazy Kelly Criterion traders like SBF. We are ordinary people, so the rational thing is to put up to 31% into ARKK or 84% into VIGI.

This is the problem technology investors face if they ever wish to walk into any Dividends chat group to talk down dividends investing and talk up tech stocks. 

Suppose we apply the mathematical models from the trading floor to both strategies. In that case, it is more rational to put more into dividend stocks than tech stocks simply because they are less volatile than tech counters. ( For technical details, look up the concept of volatility drag )

This even accounts for higher returns of Tech stocks.

Of course, readers are free to play with different ETFs to come to a different conclusion, but this is a much better discussion than name-calling.

Finally, I've spent a day fooling around in the Dividends Telegram groups, and they are generally good, rational people. 



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