Don’t Go Chasing Yield with Investment Talk
FEATURING: INVESTMENT TALK
1) Someone reached out the other day and asked me what i thought of $DIV (Global X Superdividend ETF
It largely depends what you want from your investments. Are you reaching for yield?
Why do you want yield?
This ETF yields about 9.7% compared to $VOO ‘s 1.68%
But why? pic.twitter.com/0rcC9mkKq6
— Investment Talk (@InvestmentTalkk) October 24, 2020
Q: Tell us about the Investment Talk Newsletter. What kind of content and analysis do you provide for your subscribers and Twitter followers?
A: The Investment Talk Newsletter is something I began earlier this year as a passion project, one that I really enjoy. The range of content typically oscillates between pieces that cover: investment education, accounting education, guest articles and interviews, market insights, company ‘deep dives’, as well as frequent glimpses into my own portfolio and how I make investment decisions. More than anything, it is a place to learn and ingest thought-provoking pieces surrounding the current market environment and specific companies. I largely cover positions that I have exposure to, but recently I implemented a ‘subscriber’s choice’ segment, based on subscriber recommendations. This segment allows readers to vote for four companies they would like me to evaluate, and once they are complete, we vote again on the company I will cover. I’m happy with the continuous improvement of my newsletter as time passes and feedback rolls in.
Q: How does your community shape the way you think about investing, for both deep fundamental analysis and portfolio strategy?
A: Within any environment, whether at work or on Twitter, you should aim to surround yourself with people who are much smarter than you. If you are the smartest one in the room, then you should find another room, or you risk stagnation. That’s why I try to be a sponge, allowing myself to be porous to new information. I believe this approach only benefits your range of perspective and understanding in the longer term.
In terms of fundamental analysis and portfolio strategy, I aim to learn a thing or two by connecting with, and listening to, those with deeper wells of experience than my own. Sharing my holdings publicly holds me accountable to the decisions that I make, which helps me avoid making rash decisions.
Q: In the Twitter thread above, you broke down Global X SuperDividend™ US ETF (DIV) and the merits of investing in the ETF. What are some of the biggest mistakes investors make when they are chasing yields?
A: The intention behind that thread was to demonstrate that exact point: we should not chase yield. It’s a classic error that many ‘greener’ investors make, being attracted to crafting a portfolio that churns out dividend payments. If you follow the growth cycle of any business, there will be four typical stages from start-up, to growth, all the way to maturity and decline. What is typical of dividend-paying companies, is that they will be further along that path, closer to the maturity or declining phase. Whilst the yield might look attractive, you also have to consider the loss of principal.
When a company has a mandate that is heavily weighted towards paying a dividend, it is likely because they have no superior capital allocation alternatives, which is worth considering. One of the larger mistakes an investor can make is chasing an attractive yield, and failing to consider if the yield is sustainable over a longer time horizon. If the company is declining, and one of the business’s core shareholder functions is returning a dividend, then you have to ponder how they are going to continue paying that dividend into the future. Where will the capital come from? Divestment of assets? Debt? Always be diligent.
Q: In your thread, you leverage several visuals from our new ETF Quote Pages. What are your favorite features within YCharts? Can you share more details about how the platform powers your analysis?
A: I am a stickler for quality, so before YCharts, I pulled my data by sifting through SEC filings, which is something I still do from time-to-time. But when I want to quickly ‘scan’ a company’s financials, YCharts is a gigantic lifesaver. The platform facilitates those quick scans and allows me to cross-compare within industries with ease. Moreover, the visualizations that are available within the Fundamental Charts tool are superb.
My favorite function of YCharts is the ability to export the data from the financial statements into Excel, dated back numerous decades if need be. This is invaluable when I am performing deeper dives and want to really get granular and create charts, graphs, and so on. Exporting several competitors at once allows for some beautiful comparisons when you are interested in blending the financials into one visualization.
Q: Having started your Substack newsletter earlier this year, what are some of the biggest lessons you’ve learned over the first 6 months of blogging every day and growing your audience?
A: I am a huge believer in the philosophy that if you give someone a task and a time constraint, they can do super-human-like things to get the job done. Writing well over 3,000 words each day has taught me that I have more of a creative side than I ever imagined. Moreover, I have proved to myself what I am capable of. If someone had told me back in April that I would write a newsletter every single day for months on end, I would have struggled to believe them.
Additionally, I would say that feedback on my writing has been a powerful tool that I have slowly learned to harness. My writing serves two purposes: to educate and assist others, and to make myself a more complete analyst and investor. Feedback amplifies the growth rate of both of these goals. Having an ongoing dialogue with those who read my work has been the most valuable thing I have gained this year by far, and I look forward to continuing it.