Ideas on how to become rich: The Dividends Issue, part 3!

Ideas on how to become rich: The Dividends Issue, part 3!

In the earlier two posts, I wrote about dividends and discussed the general idea of whether dividends would be able to make one rich. You can read about the discussion on dividend stocks in the earlier two posts here on this site. 

In this third part, I write about a counterargument to dividends, which I will expand on in the next series on my site here. The counterargument is, of course, quite naturally - a growth strategy focusing on capital gains. 

OK, when it comes to stocks, there are of course many approaches as we have seen already - technical analysis, fundamental analysis, and so on. In this series, I was looking at dividend plays. So here is the counterargument. Dividend plays may not be as good as a purely capital gains strategy. 

Some of the really astute investors note that a capital gains strategy is not necessarily at odds with a dividend play. That's true. That's because sometimes you can find a stock that delivers quite a good gain over time in capital appreciation, while also giving out a good and reliable dividend. However, that kind of stock is quite rare. In fact, usually the stocks that are needed for a capital gains strategy are those that are riskier and usually give no dividends whatsoever. 

The key point to note here is that capital gains are the way you get the huge capital base in the first case, if you are not already a high income earner, to pursue a purely dividend strategy! That is the rub. This means that if you are rich already, then using a purely dividend strategy where you reinvest dividends regularly would definitely work. However, for most of us, we do not have the sizable capital base in the first case, and therefore it would logically mean that a capital gains strategy would be the most appropriate strategy for us in the first case!

In the next post, I will be talking about the pros and cons of a purely capital gains strategy - and more on stocks and other favourite hot topics of mine (and yours too, presumably since you're reading this). Thanks for reading and cheers!

Ideas on how to become rich

Ideas on how to become rich: The Dividends Issue, part 2

Ideas on how to become rich: The Dividends Issue, part 2

I wrote a short investment piece on dividends in my last article. Here you go if you're interested in what I've written earlier on the topic: The Dividends Issue.

The difference between theory and practice in investment is what I will be examining today. Let's look at a few simple reasons why a pure dividend investment strategy won't work - or more accurately might not work - in practice. If we can find stocks that give out high dividend regularly and can pay somehow a very low price for them, then sit back and let the dividend come in to provide income for further reinvestment, then this system would really work. Compounding would set in fairly rapidly. However, in practice in investment things don't work this way.

First, we have to consider that the price of the stock might be higher than expected already due to the fact that this company gives out high dividends, and people know this.

Second, it is highly unlikely that the stock in question will rise much further since it is a consistent dividend giver and not a growth company. Therefore, a pure dividend strategy is highly unlikely to work if one thinks one can make money on capital gains.

Third, dividends in Singapore and in many other countries are - at most - given out four times a year, and at the least, assuming they give out anything at all, once a year. And this dividend can be cut at any point on time a recession or financial crisis hits, mind you. Thus, a pure dividend investment  strategy can help you become rich only when you're already rich. For those on the way there, a mixed investment strategy is more useful, I'd say.

Thanks for reading and cheers!

Short notice:

I myself don't like gambling or speculating - I like investing. However, I might consider writing about ways people have come up with to try to make money via gambling since there is a recent craze at MBS (Marina Bay Sands) Singapore where the casinos are. Even a group of Malaysian teachers in early 2011 went to the casino instead of taking care of their charges! What a craze. Is there or is there not a system to defeat the casino and make lots of money? We might find out in a future post! Thanks for reading and cheers.

Ideas on how to become rich!

Ideas on How To Become Rich - The Dividends Issue

Ideas on How To Become Rich - The Dividends Issue

I was surfing the net when I came across an investment blog dedicated to helping people learn about investing based entirely upon dividends. The author was arguing that one way of getting rich - definitely getting rich - was by having dividends accrue over time. He seemed to be arguing also that capital gains cannot be relied upon because of the famous EMH (if you didn't know what that was, it's the very famous and very falsified Efficient Market Hypothesis). I must say that I have a more than passing interest in the subject of investment, so here I am to give some opinions on dividend investing.

Can investing in dividend paying companies really make one rich? 

The investment literature is divided on this one, with some arguing yes and some saying no, so let's not look at that.

Let's look at the logic.

If dividends were 10% a year, and one merely reinvested dividends year after year in companies that paid the same percentage of dividends, this would be one great idea. It's definitely workable in investment theory.

But this assumes that inflation is low, taxes on the dividends are low or nonexistent, and certainly alsoassumes that you can always find companies that pay 10% dividend. I am a sporting person and would be willing to say that this is not possible (to consistently find high paying dividend stocks). In fact, it is hard enough as it is finding companies that pay dividends consistently. 

Aha, some people say, in investment you can always find companies that have consistently paid dividends over the years. Some call them dividend kings, others call them aristocrats of the stock market, others call them Coca Cola, bla bla bla. Yes, that seems workable and that seems true. 

But the issue is that if they are that reliable and always pay dividends, then the stock price would most likely reflect this.... which means that their payout rate has to be low, i.e. less than 5%, say 3-4%? The prices would reflect this high dividend payout. The rest is purely mathematical, with higher prices meaning that even high payouts have a low percentage return.

I have no reliable statistics on this. One Singaporean stock market site goes 8% in the long term but remember this is driving by the rear view mirror. As my favourite investor Buffet says, if all there was to stock picking is past performance, then the best investors would be librarians! Something like that; I am paraphrasing from memory and from impression.

So.... I'd say that dividends can make you have a regular income, and can discipline savings. Those are good things. This is because you regularly get a paycheck and you can be disciplined enough to reinvest and reinvest your dividends, in order to get compounding to work for you. Those are indeed good things.

BUT it is highly unlikely that a pure dividend investment strategy would work. Perhaps one can try a growth strategy that also pays minimal dividends.... you would be happy to wait for the growth whilst holding on to at least some small returns. A mixed investment strategy would definitely pay off better in the search to become rich rather than a fixation on dividend paying stocks.

This investment topic is quite complicated, so I will come back to it in a second post, on why dividend stocks may not grow as fast as growth stocks. Stay here with me; thanks for reading and cheers!

Ideas on how to become rich - today's topic: dividends

Ideas on How To Become Rich - Using Social Media and Youtube to Make Money?

Ideas on How To Become Rich - Using Social Media and Youtube to Make Money?

It wouldn't be much of an exaggeration to say that social media, such as facebook and youtube, have become a major part of our lives. Many people use social media to communicate with their friends, and to connect with other people. So, when I was watching a youtube video today, posted by some innovative chaps, I thought to myself - hey, that's an idea on how to make money! The question is: can the average Joe really use social media to make money and become rich?

The answer, or the problem, is that to make money using social media, it isn't that difficult; but to become rich, that's a whole different matter.

You see, to make money using social media, such as facebook and youtube, the main idea is to post some unique video or message or photos, and then put up advertisements. I will cite some examples: first, there are many individuals who post up a series of video blogs on youtube and then post up advertisements on those vlogs. They make money using economies of scale this way, when people view their sites. Second, there are many pretty girls who post up extremely erm - let's say tantalising - pictures of themselves on social media sites and then put up links to videos, blogs, vlogs and other such materials. They can make money too.

However, the best trending idea right now to become really rich is still to build a social networking site. It's true. Facebook founder Mark Zuckerberg is a good example. So the real money to be made is not in the small time posting of nice pictures or the extensive use of advertisements on social media, because of time, labour and creativity constraints. The true money is still to be made in the construction of the networking site, such as facebook and youtube, in the first case. To become rich in the world of internet connections and networking, it's better to own the network than it is to use the network to make money, but it's certainly better to use the network to make money than it is just to use social media for purely communicative purposes.

Thanks for reading and cheers!

Ideas on How to Become Rich!

PS I haven't been posting much, so I am back to remedy this issue! :) Haha.