Bruce,
You asked >>You mention micro/macro factors -such as the trading characteristics of institutional investors. But aren't these factors measured (imperfectly) by TA? Hence the need for us individual investors to apply our intuition and judgment?
My view is that not all proponents of TA agree. Perhaps the parameters of disagreement among TA methodologists are smaller than those who primarily use fundamental metrics, but, in itself, TA is not an objective operation. My understanding is that people make reasoned applications/deductions about statistical patterns as they attempt to understand the future.
>>Are you advocating the elimination of the double taxation of dividends? I, of course, agree with that. But then, would that simple change make investment decisions in the real world any easier?
My view is that we should have a constant tax rate all income quartiles. All income, LT, ST, dividends, interest, etc., should be taxed at the same rate.....as should wages, royalties, and other streams of income. You ask, "...would that simple change make...decisions ...any easier?"
Perhaps. What I was trying to explain is that because so few US corporations pay reasonable dividends (in comparison to Canadian Royalty Trusts), it is difficult to define a root value to a stock (a gross RoR). Thus, as we speculate about how low the price of XYZ might trade, the premium of a future dividend is rarely part of our decision making process. Why? The amount is so small that it has no material effect.
With CRT's, by contrast, risk-takers --as owners-- are paid directly for their risk. They are usually paid monthly and some corporate crook can't re-state a dividend that has been paid.
As I attempt to define risk for owning XYZ, or as I speculate about how low a stock price may fall, I have no root metric for determining what the stock is inherently worth in terms of its monthly/yearly direct return to me. Without a substantive dividend, the nature of the risk of owning a security really is a reflection of the greater fool theory (in other words, the contextual value that others "place" on the paper.) Without a dividend, the risk is much greater. I don't have a quotient for measuring risk, but to me, it is much greater.
Take Apple or MSoft. If their profits double, what material effect will it have on me as an owner? Will they send me a larger check each month? Are they obligated to send me (part owner) a larger dividend? No.
So, except that their "story" sounds better...a doubling of earnings won't really affect me unless I can find a buyer who is willing to pay more for a PR release.
A stock declines, I believe there is much greater volatility and risk for holding securities that don't pay reasonable dividends. For any number of reasons, your capital can decrease by 50% on any given day. ELAN is an extreme example, but recent history has many others. In return for this qualitatively different dimension of risk, I think it is difficult to make a reasoned judgment about the price below which a stock is likely to decline.
This is not to say that stocks that pay dividends don't have risk or that dividends might not be suspended. I acknowledge that risk, but if, as in the case of many CRT's, if the price of the underlying commodity remains firm, I am much more inclined to hold a CRT than I am a stock that doesn't pay a dividend. Perhaps this is obvious to all, but I think not.
Pubic discourse about "over-sold" or "over-bought" is simply silly. "OVER -x" compared to what? Is there a standard? Without dividends, there is no standard.
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Net/net, that is why I like companies that pay owners for risk. They seem better candidates for reasoned analysis than some ABC tech stock that has a PE 88, one week, and 116, the next.
Again, this is not to say there aren't currency risks, commodity price risks, natural disaster risks, etc. Yes, all these still exist. However, in the universe of stocks, I would rather focus on those with 'real' returns, ceteris paribus, than those pay little or nothing.
Just a view of a humble student....
wp |
