by Doug Coulter » Mon May 09, 2011 8:58 pm
Errm, I've seen stocks both drop and not drop on ex dividend day, depends on if they're being traded actively by big guys for whom that little money adds up in big trades, or just held by a lot of little guys who just don't pay much attention and are long term holders, maybe check their statement quarterly if that. The markets aren't actually efficient (or free), that book learnin's going to lead you astray...This is poker, not a computer algorithm simulation, or a casino like many say. The other players affect the outcomes vastly more than standard theory tends to indicate.
That's one reason I tend to trade stocks that are "off the radar" of the big boys -- with the less well known issues I can get a better feel for the other players and beat them better. The only way I play the majors is if I see the big boys manipulating them -- then I'll catch the middle of the move they create out of thin air, and be out again as quick as I can.
We get for example, all sorts of large moves where the fundamentals didn't really change one bit -- just mood, attitude, fear, greed. And momentum. In fact, those are how I make most of the money I make. I do have rules like "never short a good company" and also "don't go long a bad one" but also "the ticker is the truth, the rest is noise". I tend to play it like -- everything has to be green for me to go long, everything has to be red for me to go short. If I'm long, I'll get out on a mood shift (by the other players) usually as I don't know how far they're going to take it -- and tomorrow is another day, I can always get long again on the next dip-recovery. Yes I miss some profits that way -- but I also miss a lot of losses too. BTE is a good example of one that makes me feel dumb -- I was trading it from $12/shr. I only doubled my money since then -- it's a 5 bagger over that same time! But "who knew" and some of those dips were scary enough to trip me out.
Luckily, I can trade large enough blocks that a couple percent is worth the trade -- commissions are nil by comparison, and a few hundred or a few thousand per trade make me quite happy.
In other words, I can make OK money off moves most would consider market noise. I do that pretty well, actually, but if anything, it messes up my head for more normal "investing" as I tend to focus too short term.
100% of the dividend paying stocks I've traded so far have only counted what you held on the ex dividend day, period, no exceptions. The ones you're discussing might be different, I can't know without more homework, but I guarantee you no other stock magically looks at your day by day holdings to award dividends, like a bank does on "average held balance" (and heck, they cheat on that using long floats on deposits and instant withdrawals). If I hold 1000 shares of BTE (not uncommon), then buy another 500 during the month, then sell all but 300 by the ex dividend day -- say the day before, I get divvies on that 300, and that's all. No one pays on time, I see them in my account statements a week or more later -- not real bad, but not "on the day". Some other guy gets the dividend on the other 1200 shares I sold before the ex day. In fact, selling on the ex divvie day is risky -- you may lose it all, and it's happened to me. Theory is one thing -- actuality is what controls what you make.
Sounds like those REITs have some very significant risk factors, which is probably why they have to pay out so much (else they are just stupid, and I doubt it). Interest rates -- they're dead. Fannie or Freddie restructuring (which is under discussion), they're dead. Some major change in the lawsuits to force bad loan buybacks, they're dead. More downturns in the housing prices so that so many people walk away strategically that the backers back out (could happen), they're dead. So it's a fine balance on a knife edge there. Back when things were failing quick, and the government was being even more interventionist than now, they were doing things like this over weekends so that the markets could "digest" the news of a major bank shutdown, or whatever.
What that resulted in was huge gaps down on Monday for lots of things, some of them only mildly related to the news -- I know, I got hammered on a couple of those -- and there is absolutely nothing you can do about it. If you had stops, they tripped. If you didn't, you could at least wait for the dead cat bounce after all those other guys stops tripped and the bargain hunters came in. But you still lost a lot. Having to hold a whole quarter on something that basically never goes up, but can go down instantly isn't real attractive to me personally -- someone else might find that fine. That's a very skewed risk distribution and it's not in your favor unless everything really goes right. Hence the need to pay out so much -- no one would bother with their equity otherwise. When things get that extreme, it's a sign to me to not fool with it, personally. I know I'm not smart enough to really understand the risk profile -- so I have to be smart enough to avoid it.
I don't worry the tax implications, as I have a non taxable account for my bigger trades -- an IRA, which provides most of my income -- I pay tax only on distributions I take, and I don't take much. I also have a cash account that I do cowboy stuff in, but am careful not to make too much easy to tax money in it (and as a business owner, can spend profits from there on tax deductible stuff) -- I rarely hold dividend stocks in it long enough to collect any of those. I've actually experienced having taken a loss, but having to pay taxes because of dividends. I'm not going to let that ever happen again! This was in a mutual fund, which I held before I learned better.
I think the risks of a continuing downturn in housing prices, and the stuff that's going to hit the rotary air moving device soon around whatever happens with the end of QE says, if you're going to fool with these, wait for a more-stable time to do it. June isn't that far off after all....we can see what eventuates then.
We can discuss what's really going on with the low interest rates and the stealth continuing bank bailout where one hand washes the other. Banks can borrow at near zero, then buy bonds, forcing up their prices -- one hand washes the other (and the bonds are good collateral for their margin accounts, sweet deal, eh?). So they borrow at 1/4 and get paid at 4 - not bad, risk free for them, and the government suddenly has a buyer for all its debt. Slick, if kind of dishonest. Remember mark to market -- all the big banks are one FASB rule away from being actually insolvent -- they are now allowed to "mark to fantasy" on all that bad debt -- many of those houses are abandoned and worthless, yet they still carry the loans on the books as good debt.
Yeah, right.
It's kind of funny that way -- they are actually insolvent now, but as long as we're not told that in so many words, and they have this pal over in treasury, we can keep the fantasy going.
Makes you wonder sometimes....And you know, if they hadn't been so paranoid about setting a precedent in taking a haircut on underwater mortgages, we'd be in a lot better shape now, and so would they...They are playing the same game mentioned above -- we'll take an actual haircut by being paid in ever more worthless dollars, fine, but not one that looks like a haircut in nominal bucks. Stupid-human trick by paper and number worshipers.
According to ToddH, there are literally several multiples of world GDP out there in bad paper of various sorts -- CDS's and other insurance type derivatives that we all know are bad -- the issuing entities could never pay if their markers were called in. Me, I say, let them fail, we don't need them despite their protests to the contrary, and look what they've done for us, or would that be "to us" anyway. No one protects me from MY bad bets, I have to take my medicine. And now I'm having, as a taxpayer, to take medicine for someone else's bad bets too. I don't like that very much. But they are better than taxpayers -- they make campaign contributions and better, provide all the thinking and sound bites for our lawmakers -- so they get pretty much what they want. I've worked in politics up to house of representative levels, I saw how it works in reality.
I think that the knowledge of this is perhaps why the big financials are in the crapper and didn't recover when everything else did. Lots of cheerleaders are saying that means buy them -- surely they'll catch up and gain 100% in the next year. I kinda doubt that's a good move at this point, because it's obvious that people in the real know aren't doing it -- these same guys are the ones who easily drive prices around, and they can't manage it on their own industry? Pretty big "tell" if we keep the poker metaphor.
At any rate, I'm going for risk-adjusted rewards, or at least trying to learn to do that. I already have the high risk/high reward thing going on in these physics projects -- what's fusion worth if we make it work? What are the chances we do? That's pretty defining. For the rest, I am just trying to fund the physics (because as John's, or for that matter Jon's, recently posted movies point out - it's fun), and can't withstand any big drawdowns, as I'm past the point of reinvesting my winnings - I'm living on them, so my philosophy has to be different than someone with a longer time horizon. I could probably just quit trading and live off my stake for as long as I'll live -- but that word probably doesn't get it for me -- hyperinflation might hit, you never know, so I try to keep the stake intact at least, which requires fairly high, but not ridiculous, returns on it.
I'm past the point of going out and getting another job -- I'm too overqualified, I know, I've tried it. No one wants a wildman CEO right now that I know of (and having had that job a couple times, I don't really want it again anyway). Lesser jobs -- no one will hire me for, they think (probably correctly) that I'll leave if something nicer turns up. So I have a different set of circumstances than most do, I suspect, I've got to make this stake do it for the rest of my life, or start another successful business, and since I know how tough that is, I'm not going to do it on whim -- and you have to have done it already by the time you need the income, most of them don't make profit on the first day, you know.
The thing about risk-adjusting rewards reminds me of some lines by CS Lewis about a blind man climbing a cliff -- maybe an apt analogy. He says you'd see this guy taking insane risks sometimes, and sometimes going very slow where there was clear climbing -- because he can't see. That is kind of how we are now -- we can't see the future too well. We can see big clouds on the horizon moving in, and can guess there will be a storm soon -- but we don't know when, how bad it will be, or if it will dissipate before getting here. As a guy who used to do sailboats, I've sure seen all those outcomes. I think the cure for this ignorance is learning -- and broad based at that. Not just which companies should do well, or where the economy is going, but also investor psychology, who's bribing who for the best laws money can buy, who's hurting in the polls and what they'll do about it -- everything. Specialization is for insects, as Heinlein said.
Posting as just me, not as the forum owner. Everything I say is "in my opinion" and YMMV -- which should go for everyone without saying.