What's with dividend fetishes?

[Bignate603]

No. Reduced vol comes from the nature of the business. If a bluechip bought stock instead of paying divs they would realize the same vol. It's true that being a bluechip is correlated with the decision to pay dividends, but I see no reason that this should be true.

Let's take a look at a big dividend paying company to see how your theory works... Take Honeywell, they consistently pay a quarterly dividend. Even during the depths of the recession that dividend never was reduced, every quarter the stock holders got their full dividend. Now that the recession is over they've started to increase it noticeably.

Now look at their stock price. They're selling for about $58 right now. During the bottom of the recession they went down into the 20's.

Do you want to reconsider your theory about volatility?

 

[Juked07]

OP works at an options desk and thinks economics is how people should behave!

Wow... Epic behavioral finance training fail. Open a Strat book and look up "path dependency"

No: the perception of buybacks is tainted in the minds of some that buy div paying stocks so a stock that pays div does so because it alwase has and that it alwase has is the reason people purchased the stock. This means that if the company changes it will upset share holders thus losing value for the owners.

Path dependency.

BTW every assumption of the economic model is dead wrong.

You're clearly oversimplifying. I can hope for a rational world while striving to understand the irrational one we operate in. There is no contradiction here.

Rational economics are not "wrong." They are conclusions drawn from a certain set of assumptions. The extent to which real world behavior deviates from those assumptions is an interesting and profitable realm to understand, but that doesn't really take value away from understanding the base..

Edit: And I'm not sure you're talking about path dependency in a pertinent way.. In finance this term usually refers to differences in outcomes under the same terminal points due to differences in path. For example, SDS (the S&P 500 double short ETF) is a path dependent derivative of the S&P 500 index. SP500 can go from 1300 -> 1400, and depending on how it got there, SDS will have different values. Not sure how saying "Path dependency." makes any point at all in this discussion.

 

[Juked07]

Let's take a look at a big dividend paying company to see how your theory works... Take Honeywell, they consistently pay a quarterly dividend. Even during the depths of the recession that dividend never was reduced, every quarter the stock holders got their full dividend. Now that the recession is over they've started to increase it noticeably.

Now look at their stock price. They're selling for about $58 right now. During the bottom of the recession they went down into the 20's.

Do you want to reconsider your theory about volatility?

Not at all.

Honeywell was more volatile than they would have been if they had held the cash instead of paying it out. The fact that they could pay a div and still be consistent is a testament to their strong, steady business model, or whatever the fck they do to do well consistently.

The fact that handing out cash means greater vol (in every case) is not really up for debate. If you can't understand this and you care to know more about it, let me know and I'll see if I can find any good resources that would be helpful.

Sorry to sound arrogant here. I'm sure you're perfectly intelligent and all that, just not well informed on this particular issue.

EDIT: Perhaps a toy example will help:

Company XYZ has $100 worth of non cash assets they use to conduct business. They also hold $100 in cash, which they would use if they need to invest in something or run into a contingency. Let's say their business has an expected return of [who cares] in the next year, with some distribution that has a standard deviation of $20.

As a $200 company ($100 + $100 = $200), their company has 10% expected volatility ($20 / $200). If they paid out a $100 dividend and became a $100 company, what would happen? Let's assume their business remains just as stable despite the fact that they don't have excess savings for contingencies. Their business still has a standard dev of $20 this year, but now they are less valuable. Guess what happens to vol? $20 / $100 = 20%. 20% > 10%. But they're a pretty sick company, and 20% is still pretty low vol, so kudos to their stability.

 

[Juked07]

Companies want people to buy their stock correct, do we agree with this? Stock buybacks promote selling of company stock, dividends promote buying. One entices holders to sell, the other entices to hold/buy. It's easier to divy up profits across all shareholders and to keep share price stable than it is to give a minority a reason to sell/unwind while the majority hold at a higher and more volatile price.

Companies do not in every circumstance want people to buy back stock. Think about what selling shares is for. If you guessed raising capital, you're right. You want to sell (issue) shares when raising capital is more valuable than the value you give up do to the underpricing of newly issued shares.

Guess when you want to pay a dividend? It's when you have excess capital, and want to pay it out to investors. This is not a time when companies want the marketplace to be looking to buy more shares in aggregate. This is a time where they would be happy to buy back shares for fair if possible, or if not possible due to regulations, shitty execution, timing, investor perception of corporate actions, etc, they pay a dividend.

Besides, unless dividends are inherently financially beneficial in some way, they should not be a reason to buy a stock. I agree that we see they ARE a reason to buy a stock as we see the world today. But in a hyper rational economy with the right regulatory environment, they would not be. As for "give a reason to buy [sell]", I'm assuming you're referring to the psychological (read: non rational) effects of announcing different corporate actions. These do have a real impact in the real world, but in an efficient hyperrational economy they have no place. Expected (after tax) returns (taking into account issues like liquidity, etc) and risks are the only rational inputs for investment decisions.

And to be clear, when I say "rational" and "irrational", I don't mean good and bad. They are simply the decisions that fall out of different sets of assumptions - probably we could refer to them as the assumptions of classical vs behavioral economics.

 

[Bignate603]

Not at all.

Honeywell was more volatile than they would have been if they had held the cash instead of paying it out. The fact that they could pay a div and still be consistent is a testament to their strong, steady business model, or whatever the fck they do to do well consistently.

The fact that handing out cash means greater vol (in every case) is not really up for debate. If you can't understand this and you care to know more about it, let me know and I'll see if I can find any good resources that would be helpful.

Sorry to sound arrogant here. I'm sure you're perfectly intelligent and all that, just not well informed on this particular issue.

Go look at the large multinational companies that don't pay dividends. There are a few that weathered the recession better than others but pretty much across the board their prices went down drastically, even with this reduced volatility that you're claiming by not giving dividends.

On the other hand, the companies that did dividends had a predictable payout for their investors, no matter what the market did.

I agree that for the long term growth of the company it would be better if they reinvested the money. However, your argument about volatility is a bunch of crap. They can reinvest the money and in theory that would increase the value of the company. However, the stock price varies quite a bit due to the perception of investors about many things that are out of the company's control. Even with that reinvestment the stock price can be all over the map, which basically torpedoes your "reduced volatility" theory.

Cliffs:
In long term reinvestment will build the best growth.
In the short term due to uncontrollable things in the market a dividend is less volatile.

 

[Juked07]

Go look at the large multinational companies that don't pay dividends. There are a few that weathered the recession better than others but pretty much across the board their prices went down drastically, even with this reduced volatility that you're claiming by not giving dividends.

On the other hand, the companies that did dividends had a predictable payout for their investors, no matter what the market did.

I agree that for the long term growth of the company it would be better if they reinvested the money. However, your argument about volatility is a bunch of crap. They can reinvest the money and in theory that would increase the value of the company. However, the stock price varies quite a bit due to the perception of investors about many things that are out of the company's control. Even with that reinvestment the stock price can be all over the map, which basically torpedoes your "reduced volatility" theory.

Cliffs:
In long term reinvestment will build the best growth.
In the short term due to uncontrollable things in the market a dividend is less volatile.

Please see the toy example I amended to the post you quoted. Your anecdotes are not only statistically insignificant, they demonstrate a misunderstanding of correlation vs causation. Dividend paying is CORRELATED to low volatility stocks, low vol is not caused by dividend paying. Reinvesting money could cause higher volatility, but not paying dividends != reinvesting. These are separate decisions. It seems like you're comparing paying divs and reinvesting again.. I never prompted or cared to weigh in on which is better. It's obviously company/environment specific.

Hopefully this will be clear if you take a moment to understand it. I'll copy my toy example again in case you can't be bothered to scroll up:

"Perhaps a toy example will help:

Company XYZ has $100 worth of non cash assets they use to conduct business. They also hold $100 in cash, which they would use if they need to invest in something or run into a contingency. Let's say their business has an expected return of [who cares] in the next year, with some distribution that has a standard deviation of $20.

As a $200 company ($100 + $100 = $200), their company has 10% expected volatility ($20 / $200). If they paid out a $100 dividend and became a $100 company, what would happen? Let's assume their business remains just as stable despite the fact that they don't have excess savings for contingencies. Their business still has a standard dev of $20 this year, but now they are less valuable. Guess what happens to vol? $20 / $100 = 20%. 20% > 10%. But they're a pretty sick company, and 20% is still pretty low vol, so kudos to their stability."

If you're astute you'll probably also notice that if you hold their expected profit constant, their expected return in % space is higher after paying the dividend.

 

[darkxshade]

Companies do not in every circumstance want people to buy back stock. Think about what selling shares is for. If you guessed raising capital, you're right. You want to sell (issue) shares when raising capital is more valuable than the value you give up do to the underpricing of newly issued shares.

So in a perfect world, what you recommend is that a company issue stock to raise capital and when they become profitable, you want to see them buy them back and go private? That's pretty much what it is when you put it into context taking everything else out of the equation.

 

[sandorski]

some companies just have no chance for significant growth, so they give dividend

This. Take a Mine for eg. It needs Investors to raise the Capitol to begin operation, once operating it has an estimated Lifespan, the Stock itself might rise/fall depending on Commodity Pricing, but in the end the Stock will fall to 0 once it is depleted. In light of that, Paying a Dividend is how the longterm Investor makes their Returns.

 

[Juked07]

So in a perfect world, what you recommend is that a company issue stock to raise capital and when they become profitable, you want to see them buy them back and go private? That's pretty much what it is when you put it into context taking everything else out of the equation.

That's a tough question.

In some cases I think the answer is yes. If you need capital, you give up equity to get it. If your company is good, you're really that profitable, you'd like to own as much as you can. If you don't need capital, why let others own your equity?

In some cases I think no. You need cash moneys to be ballin in real life, not stocks. Besides, most people probably don't care to hold so much equity in one stock. It's antidiversifying.

Anyway, the shares you buy back is just like any other asset. You can use it to compensate employees (and not just the top dawgs), donate it to charity, whatever. Plus it's a better asset to hand out in some way because whoever hold it now has an incentive to see your company do well. If you give someone cash they have less of a reason to care how you do going forward.

@sandorski: I like your use of capitalization. <- see what I did there? Guffaw guffaw. Anyway you were addressing the comparison of reinvesting vs paying divs, and like I said before I don't care..

 

[Bignate603]

Please see the toy example I amended to the post you quoted. Your anecdotes are not only statistically insignificant, they demonstrate a misunderstanding of correlation vs causation. Dividend paying is CORRELATED to low volatility stocks, low vol is not caused by dividend paying. Reinvesting money could cause higher volatility, but not paying dividends != reinvesting. These are separate decisions. It seems like you're comparing paying divs and reinvesting again.. I never prompted or cared to weigh in on which is better. It's obviously company/environment specific.

Hopefully this will be clear if you take a moment to understand it. I'll copy my toy example again in case you can't be bothered to scroll up:

"Perhaps a toy example will help:

Company XYZ has $100 worth of non cash assets they use to conduct business. They also hold $100 in cash, which they would use if they need to invest in something or run into a contingency. Let's say their business has an expected return of [who cares] in the next year, with some distribution that has a standard deviation of $20.

As a $200 company ($100 + $100 = $200), their company has 10% expected volatility ($20 / $200). If they paid out a $100 dividend and became a $100 company, what would happen? Let's assume their business remains just as stable despite the fact that they don't have excess savings for contingencies. Their business still has a standard dev of $20 this year, but now they are less valuable. Guess what happens to vol? $20 / $100 = 20%. 20% > 10%. But they're a pretty sick company, and 20% is still pretty low vol, so kudos to their stability."

If you're astute you'll probably also notice that if you hold their expected profit constant, their expected return in % space is higher after paying the dividend.

I didn't address your example because you cooked it up after I already hit the quote button. Anyways, it's useless example for the following reasons:
1. Volatility estimates are notoriously bad because there is plenty of things that can't be reliably predicted. What volatility numbers predicted the huge loss in value at the beginning of this recession?
2. In your example in the short term it doesn't matter whether the company pays the dividend or holds on to the cash. The value to the stock holders is identical. Either it's $100 in value of the stock + $100 in dividend = $200 or its $100 in value of the stock + $100 in cash/reinvestment = $200. It only makes a difference in the long term, which is exactly what I said.

As for the volatility, I never said that the volatility of the stock had anything to do with paying a dividend. I'm talking about volatility of the return on investment. In a stock that doesn't pay dividends these are essentially the same thing. In a stock that does, you can sit on the stock and know pretty accurately how much you're going to be getting each quarter, no matter what the stock value does. The value of the return on investment in that case is very stable.

I agree that in the long term the dividend will reduce the company's growth potential and harm it's long term value. However, in the short term you cannot deny that it's return on investment is more stable because you know fairly well what you'll be getting paid each quarter.

 

[Juked07]

I didn't address your example because you cooked it up after I already hit the quote button. Anyways, it's useless example for the following reasons:
1. Volatility estimates are notoriously bad because there is plenty of things that can't be reliably predicted. What volatility numbers predicted the huge loss in value at the beginning of this recession?
2. In your example in the short term it doesn't matter whether the company pays the dividend or holds on to the cash. The value to the stock holders is identical. Either it's $100 in value of the stock + $100 in dividend = $200 or its $100 in value of the stock + $100 in cash/reinvestment = $200. It only makes a difference in the long term, which is exactly what I said.

As for the volatility, I never said that the volatility of the stock had anything to do with paying a dividend. I'm talking about volatility of the return on investment. In a stock that doesn't pay dividends these are essentially the same thing. In a stock that does, you can sit on the stock and know pretty accurately how much you're going to be getting each quarter, no matter what the stock value does. The value of the return on investment in that case is very stable.

I agree that in the long term the dividend will reduce the company's growth potential and harm it's long term value. However, in the short term you cannot deny that it's return on investment is more stable because you know fairly well what you'll be getting paid each quarter.

1. Vol estimates are a non factor here. If 20% is the wrong vol for the business, we can replace it with any other vol and the example holds. Not sure how you can think that it matters what vol you use. Having less cash = increased vol
2. What is this arbitrary distinction between short and long term? Because of the secondary marketplace (which for reasonable stocks is active and gives a fairly tight indication of the value of your investment), gains can be realized at any time simply by selling hopefully near the fair stock price. The only requirement is that the marketplace knows the information that should result in a gain in firm value.

As for vol of stock vs variability of returns.. a couple of things. First of all, "volatility" in this context always refers to the annualized volatility of the stock. If you want to talk about a different thing, that's totally fine, but no one will know what you mean unless you specify.

And I don't know why you're stuck on this reinvest for growth vs pay dividend issue. I really don't care about it. Everyone knows that sometimes reinvestment is the right choice, and sometimes redistributing cash is the right choice. I expressed interest in HOW the cash is redistributed only.

Furthermore, the "steadiness" of the dividend does not steady your returns. Your overall return is a function of both the dividend and the share price. Even if we hold the dividends completely constant (they'll never cancel or have unexpected changes in dividend amounts?), that only means that the dividend stream does not contribute vol of returns. Your share price still varies by exactly the amount that the marketplace perceives the company's value has changed. Which is equal to the amount the marketplace would perceive the company's value changed if they were holding onto cash instead of paying dividends.

Please tell me this is clear now ><

 

[Gothgar]

Never heard of that fetish, though different strokes and all that...

 

[Juked07]

I never said this is a practice I perform, but it does happen. Stock volumes are usually higher days prior and after the ex-div dates. Anyway out of curiosity how much money do you have invested in the market? What are you invested in? How are those investements doing? Just asking to make sure you're putting your money where your mouth is, and not just trolling us.

Ah you work at an options desk. This explains ALOT. Most dividend paying stocks have a low beta. This makes option prices kinda shitty, and the chance that you'll end up "in the money" relatively low. On top of that you have to worry about the stock price fluctuation around the ex-div time. I'de shun dividend paying stock too if I was in the business of options trading. Growth stocks are where its at for making money(or losing your ass) in options.

To address the first half of this post:

As I alluded to at some point, I think nonprofessionals, by which I mean people who do not devote full time attention to picking stocks, should not trade stocks short term or make bets on individual names. I do indeed put my money where my mouth is.

I have not been in the working world for long, but I contribute the federal max to a 401k and max out a Roth IRA. These accounts hold broad funds and I do not "manage" them actively. I think the cost of transactions would outweigh any edge I could get by doing trades/changing my holdings. I don't really care how they do. I happen to be doing well simply because of how the broad market behaved over the last several months, but that has little to do with any decisions I made. Like I said, I'm not picking individual names or trying to "generate alpha." I just put capital at risk to earn expected return through the risk premium, while hoping to mitigate risk through the magic of diversified holdings.

I think the decision to actively choose stocks is a mistake for most people, and perhaps this would be a good topic for another rant/discussion thread. I'll think about it.

 

[darkxshade]

That's a tough question.

In some cases I think the answer is yes. If you need capital, you give up equity to get it. If your company is good, you're really that profitable, you'd like to own as much as you can. If you don't need capital, why let others own your equity?

Lets go with this... you invest in a company on day one, they become profitable and buy shares back and go private. You no longer have a stake in the company, they continue to stay profitable... sucks to be you, well not so much, you made out ok. You are now stuck with the decision of finding another company that issues stock. You find one and buy it, they go under, you lose your equity. In total, you break even. That company though for all intents and purposes ended worse than they started but they're still around, you can try again with a 2nd offering.

In this world, all profitable companies will go private, it doesn't make sense not to[by buying back shares]. What does this do? It kills the incentive to invest. The market will now be saturated with very little choices as the choices you're left with are either questionable companies or those who can't manage since all that do have cashed out.

Compare this to a market where investors are rewarded... they spread the wealth across shareholders, not just to those willing to part ways, nice doing business with ya, good luck with your endeavors. Investors believed in your company, don't screw them.

 

[bruceb]

I will take the dividends any day. My account can generate $40K in interest and dividends easily. The worst thing a company can do is a stock buy back. The best they can do is pay dividends. This why a lot of companies do it and some of them, have been for many, many years, raising them each year and are still growing as a company.

 

[Juked07]

Lets go with this... you invest in a company on day one, they become profitable and buy shares back and go private. You no longer have a stake in the company, they continue to stay profitable... sucks to be you, well not so much, you made out ok. You are now stuck with the decision of finding another company that issues stock. You find one and buy it, they go under, you lose your equity. In total, you break even. That company though for all intents and purposes ended worse than they started but they're still around, you can try again with a 2nd offering.

In this world, all profitable companies will go private, it doesn't make sense not to[by buying back shares]. What does this do? It kills the incentive to invest. The market will now be saturated with very little choices as the choices you're left with are either questionable companies or those who can't manage since all that do have cashed out.

Compare this to a market where investors are rewarded... they spread the wealth across shareholders, not just to those willing to part ways, nice doing business with ya, good luck with your endeavors. Investors believed in your company, don't screw them.

If this company is really so great that staying invested in it is really valuable, you're right, it's not desirable to sell shares. Therefore the company will really have to pony up and overpay to get the shares. The transaction won't happen unless the level is agreeable.

And have you looked at how little equity a lot of large firms actually have in themselves? It would take forever to buy back so many shares that they become private. Large public companies in this hypothetical world would surely stay public for long periods of time, before paying up big time for shares that people don't want to sell. Besides, there are exogenous factors like not wanting to tie up that much capital which will discourage buybacks of huge companies.

I don't understand your call to compare two worlds.. Investors are rewarded in both. If I invest in a company and it grows and grows and grows, then one day they want to pay up 22% above fair value to buy back the remainder of shares and become private, I'm ecstatic. I fail to see how this is not a reward.

 

[Juked07]

I will take the dividends any day. My account can generate $40K in interest and dividends easily. The worst thing a company can do is a stock buy back. The best they can do is pay dividends. This why a lot of companies do it and some of them, have been for many, many years, raising them each year and are still growing as a company.

Oooh, I get it now. The reason buying stock back is bad is because it's the worst thing they can do. And dividends are good because it's the best thing they can do. Alright, this thread is resolved.

 

[darkxshade]

Sigh and clearly you have it all figured out despite no one actually agreeing with you and the markets not doing what you suggest should be done. The world has it all wrong and you are its savior.

 

[Juked07]

Sigh and clearly you have it all figured out despite no one actually agreeing with you and the markets not doing what you suggest should be done. The world has it all wrong and you are its savior.

Huh? We've discussed multiple factors that keep dividends going in the market place. *Looks up* Yup there they are.. Some are valid/make sense in a world with nontrivial constraints, regulations, etc. Some are wrong or misguided. Some are off topic but very correct and even interesting. Some are off topic and wrong. We've discussed a great number of ideas and I have found it enjoyable..

What are you talking about?

Besides, there are actually a lot of things that are suboptimal that continue occuring because no one cares enough to change it. For example, holding very short rate stocks (stocks that are hard to borrow) is generally negative expectancy. I can demonstrate this in greater length if there is interest. People should try not to hold stocks that are very hard to borrow. But people do, and most of the time they don't even notice. Clearing firms and brokerages could inform people about this, but the investors haven't asked for it, and they make boatloads of money lending out these shares to for shorting and charging through the nose for them. This is clearly suboptimal for the investor, but it hasn't changed for decades. Does that mean the suboptimality of the condition is not correct? Not at all. It's just that nothing substantial has been done to correct the situation. Another example of suboptimal behavior is choosing individual stocks without substantial edge. People who know equal to or less than the marketplace (almost all people imo) do not gain expectancy by picking stocks instead of investing in broad funds. They do however incur extra transaction costs and higher risk due to less diversification. People do it anyway. That doesn't mean it's not a mistake.

Obesity is usually the result of mistakes. Look around you. Plenty of obesity. I could go on and on.. "The world does it" is a horrible shitty argument for thinking something is right.

Additionally, let's assume we're both reasonably intelligent. I see no obvious reason this shouldn't be true. But my background and profession are more closely tied to this topic, and I have spent more time thinking about and discussing the issue than you. Why wouldn't we expect me to be more likely to understand it better? Obviously there is some probability I simply made mistakes despite putting in effort, but on average this shouldn't be the case.

 

[darkxshade]

What are you talking about?

That besides the valid arguments made, that you still inherently believe that stock buybacks is significantly superior to issuing dividends. Which is what everyone is apparently unable to convince you otherwise. I am done with this thread.

 

[Juked07]

That besides the valid arguments made, that you still inherently believe that stock buybacks is significantly superior to issuing dividends. Which is what everyone is apparently unable to convince you otherwise. I am done with this thread.

Where in my recent posts do I say that "stock buybacks is significantly superior to issuing dividends"? I update like a well behaved Bayesian. I seem to recall recognizing that several factors can make buybacks SHITTY AS HELL. Can I say it louder? SHITTY AS FCKING HELLL AHHH!!!! These include:

1. Psychological factors which matter, really matter, in a world that does not adhere to classical economics
2. Regulations -> announced buybacks -> shitty executions -> loss of value
3. Some other stuff I don't feel like repeating because being a broken record is overrated

These do NOT include the following, which are not correct:

1. Paying dividends reduces volatility
2. A popular answer: Companies shouldn't reinvest (this does not address the question)
3. Some other stuff I don't feel like repeating because being a broken record is overrated

Do you see me updating my viewpoints when new cool interesting possibly correct ideas are mentioned? Do you see me trying to address misinformation, being critical and skeptical about things that may or may not be correct?

I strive for the answers to these questions to be yes and yes. How else can we learn and be confident in the shit we learn?

 

[Bignate603]

1. Vol estimates are a non factor here. If 20% is the wrong vol for the business, we can replace it with any other vol and the example holds. Not sure how you can think that it matters what vol you use. Having less cash = increased vol
2. What is this arbitrary distinction between short and long term? Because of the secondary marketplace (which for reasonable stocks is active and gives a fairly tight indication of the value of your investment), gains can be realized at any time simply by selling hopefully near the fair stock price. The only requirement is that the marketplace knows the information that should result in a gain in firm value.

As for vol of stock vs variability of returns.. a couple of things. First of all, "volatility" in this context always refers to the annualized volatility of the stock. If you want to talk about a different thing, that's totally fine, but no one will know what you mean unless you specify.

And I don't know why you're stuck on this reinvest for growth vs pay dividend issue. I really don't care about it. Everyone knows that sometimes reinvestment is the right choice, and sometimes redistributing cash is the right choice. I expressed interest in HOW the cash is redistributed only.

Furthermore, the "steadiness" of the dividend does not steady your returns. Your overall return is a function of both the dividend and the share price. Even if we hold the dividends completely constant (they'll never cancel or have unexpected changes in dividend amounts?), that only means that the dividend stream does not contribute vol of returns. Your share price still varies by exactly the amount that the marketplace perceives the company's value has changed. Which is equal to the amount the marketplace would perceive the company's value changed if they were holding onto cash instead of paying dividends.

Please tell me this is clear now ><

It is clear now, you are beyond hope. I'm abandoning this thread.

 

[Juked07]

It is clear now, you are beyond hope. I'm abandoning this thread.

Abandoning the thread is probably right if you were just discussing from an academic perspective - being wrong costs nothing. But if you're going to use these ideas for investment decisions, please please please get better educated.

See you in another thread bro.

 

[Dr. Zaus]

Path dependency is a psychological thing that says people get used to and then dependent on repeating previous actions. This is worse in organizations because
1) people expect you do behave a particular way, if you don't they divest
2) people in the company do things they way "they have always done it" if you try to change that you run into a myriad excuses and stories
3) stake holders cause problems for you if you try to change
4) you lose the perception of legitimacy in the eyes of normative institutions if you change behavior

Psychological path dependency on an institutional level is called structural inertia.


I highly suggest reading the strategic management journal; The work on top-management teams and executive compensation is highly interesting. I don't believe in transaction cost economics, but you might and it would offer a perspective from your paradigm that explains the situation a little better. I'm more interested in institutional theory and moving past the linear thinking of general/open systems theory.

Psychological factors which matter, really matter, in a world that does not adhere to classical economics

no world ever adhered to classical economics: nor wold it, ever, because every economic assumption is dead-wrong.

Do you see me updating my viewpoints when new cool interesting possibly correct ideas are mentioned? Do you see me trying to address misinformation, being critical and skeptical about things that may or may not be correct?

Yes. This thread has gone from fail to win.

 

[EagleKeeper]

the dividends are built into the stock price.

everytime they release a dividend, the stock price drops by that amount. then you add other market factors to get to the final stock price of the day.

Stock price loss followed overall market. For 3 years, held steady at 9 until 2001 crash. Was bouncing between 8 and 9 over next six years, then in '09 lost the last dollar.

Overall, the average looks like loss due to dividend, but tracks closer to market slope.