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Comment by EliRivers | Hacker News Reader

"The benefit of the dividend is already priced into the stock, so they are no better than any other stock."

I hear this sort of thing a lot, and in my experience, everything already being priced in isn't true (both of dividend stocks, and stocks not paying dividends). This relies on the efficient market hypothesis being broadly correct, and based purely on my own experience, it isn't.

My findings are very much based on my own experience, but I have had no small success simply reading the news and seeing that a company is doing well or is looking at a brighter future, and buying shares in them and making a nice profit on it out of both increased share price and increasing dividends. The EMH suggests that it shouldn't work; that by the time I get round to buying the shares, the efficient market has priced all that in. But it just doesn't seem to be true, in my experience.

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>My findings are very much based on my own experience

In my experience, people think they're far better at stock-picking and investing than they really are. Have you calculated your actual, after-all-expense returns? Because if you are consistently beating the market, risk-adjusted, start a hedge fund. I'm only half joking.

It's important to interpret EMH "realistically", in that prices, on average, will reflect all relevant information. But it obviously doesn't occur instantaneously or perfectly. Everyone who has traded stocks has a few wins. The question is whether you can garner an advantage consistently.

"Have you calculated your actual, after-all-expense returns?"

Yes. I very rarely sell, so I can see it clearly, and the purchase costs listed in the interface include the purchase commission (I buy in lumps of 1000 GBP, so take a hit of about 1% on initial purchase). Holding charges comes out to a couple of hundred a year, which comes out of dividends.

In one account, I invested gradually over three years, from April 2012 to March 2015. That's up on the order of 50% as I look at it today - looking at it this very second (it's a little rough as I reinvest the dividends, which count as fresh purchases in the accounting - it's up exactly 46% if reinvested dividends are considered to be fresh money). Some of the early purchases are up 100 to 200 percent, later purchases less so. There are some losers in there as well. I have sold only once at a loss in that lot; some BP shares that I changed my mind on. All other losers are still in the mix, and I leave my worthless shares in KAZ there to remind me of my losses. Big winners - ARM, Nokia, a global smaller companies fund. Big losers - KAZ, Bonmarche Holdings, Tesco.

Another account that I opened (because I didn't want to exceed the government insurance limit) and placed money into for the last 15 months or so is currently up 20%. I've never sold anything from that. That is principally US and Japanese index funds, although some ARM in there is up 70% thanks to Softbank buying ARM.

An earlier investment from about 2009 (which was nothing but safety) is up a little over 50% today, but that really was safety. Likewise never sold anything.

I have done this by doing absolutely nothing special. Absolutely nothing. I simply took the common advice; low-cost index funds. I also read the news and sometimes buy into companies with brighter futures. A couple of years ago I read many articles about how GSK and AZN had been through tough times and were coming out of it. Bought some shares. Worked out well. That's all I do. For as long as I can remember, ARM has had nothing but growth in the news. Bought into them repeatedly.

I have significant advantages over hedge funds; they have to trade. I can sit and do nothing for month after month, and when I suffer a 20% drop, I can continue to sit still and do nothing. If anyone wants to pay me to tell them when I buy something, knock yourself out :)

This is not nearly enough evidence to conclude that EMH is invalid. Yes, it's not perfect, but to conclude from this evidence that dividends are not priced into the price of a stock is... well, it's not sound reasoning.

To quote myself, from earlier:

"The reason I believe this is not related to stock picking working for me."

So it seems we agree that my stock picking success is not evidence for my beliefs on dividends and stock pricing.

You're talking about two different things: Stock picking and whether dividends are priced in. Because stock picking works for you (let's ignore the sample size issue), doesn't mean dividends aren't priced in.

I believe that dividends are not priced in.

The reason I believe this is not related to stock picking working for me.

I believe it because the market is not efficient, and dividends being priced in relies on an efficient market. Any success I have in stock picking relies on this inefficiency; it's just a symptom.

If dividends weren't priced in then prices wouldn't dip when stocks go ex-dividend.

Sometimes they don't. Sometimes they go up. Lots of people think they're priced in, and the point at which they go ex-dividend is a convenient point to decide that it's now worth a bit less. Was it "priced in" before? No idea. Going ex-dividend is a single, identifiable point at which people can say it surely must be worth less now.

I personally value dividend paying stocks more highly than non-dividend paying stocks. A history of dividends makes the stock appear more valuable to me (given that the majority of companies are rubbish at investing in themselves, giving me the money and letting me reinvest it myself is preferable). If they just went ex-dividend, that's a excellent very fresh data point that makes the stock look more valuable to me.

>the point at which they go ex-dividend is a convenient point to decide that it's now worth a bit less.

The company has less cash ex-dividend, so as a matter of fact is worth a bit less.

Valuation isn't, however, a matter of fact, but of values. We distinguish descriptive facts from prescriptive valuations. It is an important distinction, lost on many Rijksbank "Nobel" prize-winning economists.

Valuation isn't, however, a matter of fact

No, but that variation caused by going ex-dividend clearly is.

And while I do care what it is worth, that is only one factor in what its price will be, and of those two, the latter is the one that counts.

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