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Old 08-28-2015, 05:17 PM   #61
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... if you work until your dividends are sufficient to cover your living expenses you are probably working longer than necessary.
+1

But just think of the fat estate you'll leave your heirs!
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Old 08-28-2015, 05:18 PM   #62
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That is weird.... most 401k statements that I have seen (ours, DD, DS, friend whose taxes I do) are akin to a mutual fund statement and explicitly show dividends and their reinvestment. Has she ever asked them about it?
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Old 08-28-2015, 05:19 PM   #63
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Yes, I think my explanation describes the type of investment approach.
The withdrawal approach could be quite different. For example, even though I am a dividend or income investor and this income is enough to fund a very nice retirement, I may at some point also start liquidating some of my gains. Maybe splurge on something or make a big gift,etc. I suspect few people can live solely on the div stream but I also have a big pension that augments my cash flow. I think when most people are talking about this stuff they are talking about the investment approach, not a withdrawal strategy.

For me it is an investment approach also, and it isn't just stocks. A few years ago when I bought some properties in Vegas it was because of the income they generate not the price appreciation. I saw a property that I could purchase for $55,000 that would generate $800/month or $9,600/year gross rents. 17%, what a fantastic rate of return. Now as it turned out I was somewhat optimistic about the rents I could collect, and extremely naive about the expenses I would incur.

What really bailed me out was the price appreciation as bargain hunters from all over the world (like China and IRRC Danmar (Canada)) went into places like Vegas, Arizona, Florida and bought up properties. Now at the same time I was buying, there were lots of buyers who's idea was to buy foreclosures, and fix them and flip them. They really don't care much about the rents a property might generate.

A total return investor in real estate would say, I'm counting on both collecting rents and also price appreciation.
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Old 08-28-2015, 05:19 PM   #64
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+1

But just think of the fat estate you'll leave your heirs!
and how often they will fondly remember you!
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Old 08-28-2015, 05:19 PM   #65
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I think the terms refer more to whether portfolio growth is income-tilted or capital appreciation-tilted rather than withdrawal oriented.
The Vanguard paper that someone linked to earlier clearly describes these terms as "spending strategies." And BTW, they use the word "principal" not capital appreciation to distinguish the total return approach.
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Old 08-28-2015, 05:30 PM   #66
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The Vanguard paper that someone linked to earlier clearly describes these terms as "spending strategies." And BTW, they use the word "principal" not capital appreciation to distinguish the total return approach.
But with reference to principal they dumbed down the Executive Summary and get more precise later in the paper (did you get past the first page? ):

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Investors spending from a portfolio often focus on its overall yield—the income received over a given period—rather than on the total return, which includes both the income and the increase or decrease in the portfolio’s value. A spending approach based solely on income ignores capital change, whereas an approach based on total return utilizes both the income and capital appreciation of the portfolio.

It’s important to note, however, that under the total-return approach, the income generated by the portfolio is the first source tapped to meet spending needs, and only when this source is insufficient does the investor liquidate some holdings.
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Also, often the capital appreciation on a diversified portfolio will exceed the income received; therefore, if an investor needs more than the annual cash flows from his or her investments, the total-return approach is the more prudent, and most likely only viable, long-term spending method.
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Old 08-28-2015, 05:52 PM   #67
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That is weird.... most 401k statements that I have seen (ours, DD, DS, friend whose taxes I do) are akin to a mutual fund statement and explicitly show dividends and their reinvestment. Has she ever asked them about it?
All of mine have always been as you describe as well. This is a rather small plan administrator with some other quirky practices and a small selection of high-ER funds. I can't wait to roll this account into Fidelity when she retires.

I called them once, but of course they wouldn't talk to me about it because I didn't sound like a female. DW called, but she didn't really understand the question well enough, so the answer was "everything is fine with your account." One day we'll get on the phone together and try to get an explanation.

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But with reference to principal they dumbed down the Executive Summary and get more precise later in the paper (did you get past the first page? ):
I did, but I was using their terminology referenced in the Executive Summary in my original post. But I won't quarrel with "dumbed down."
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Old 08-28-2015, 05:59 PM   #68
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On a company balance sheet, net earning is most important, not what they throw out to their investors, which is called dividend. Perhaps a prudent investor should also look to see how big a percentage of the earning that dividend is.

Occasionally, I have seen companies issuing dividends higher than their earnings. They are spending down their cash!
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Old 08-28-2015, 06:10 PM   #69
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On a company balance sheet, net earning is most important, not what they throw out to their investors, which is called dividend. Perhaps a prudent investor should also look to see how big a percentage of the earning that dividend is.

Occasionally, I have seen companies issuing dividends higher than their earnings. They are spending down their cash!
Not the get technical, but earnings aren't on the balance sheet. That is for assets and liabilities. Earnings are found on the income statement.

As for most important, some would say that cash generation is the key number, this is found on the Source and Application of Funds. Warren B focuses heavily on that number.
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Old 08-28-2015, 06:27 PM   #70
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Actually, cash generation is on the Statement of Cash Flows.... you're showing your age Michael.... the Statement of Changes in Financial Position (aka Sources and Applications of Funds) was changed the the Statement of Cash Flows around 1988.
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Old 08-28-2015, 06:27 PM   #71
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Obviously, I can learn from the more financially oriented guys, or someone with that background.

For example, I am not sure how the cash flow can be so important, if it does not result in earnings. Is it not what you keep at the end of the day that counts?

PS. I just thought of an example. Oh well. Most investors do not look this deep into it. And then, these statements only tell the status quo, not what is in the future for the company anyway.
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Old 08-28-2015, 06:33 PM   #72
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....I was using their terminology referenced in the Executive Summary in my original post. But I won't quarrel with "dumbed down."
Well, it was an Executive Summay after all.... what did you expect?
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Old 08-28-2015, 07:50 PM   #73
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Not the get technical, but earnings aren't on the balance sheet. That is for assets and liabilities. Earnings are found on the income statement.

As for most important, some would say that cash generation is the key number, this is found on the Source and Application of Funds. Warren B focuses heavily on that number.
Current Year Earnings have been on every balance sheet I ever submitted for a 10K filing to the SEC for required Retained Earnings balance sheet schedules. I would highly recommend a balance sheet review for anyone seriously looking at what a company is doing with/how they create their earnings. Not only in the shareholder equity section by the accruals/liability changes as well.

http://www.pginvestor.com/Cache/1001...T=&iid=4004124
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Old 08-28-2015, 08:16 PM   #74
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DW's 457b shows no dividend transactions in her S&P 500 index fund. I can look up the ticker on M* and find dividend declarations, but they are not reflected as transactions in her account. Instead, the share price has been adjusted up by the amount of cumulative dividends since she first bought that fund. I suspect we don't really own that ticker directly, but rather own shares in some non-ticker internal fund that simply absorbs the dividends. It weird, but I've gotten used to it.
My 401 was like that too, and it was a Hewitt managed 401 for a Fortune 500 corporation. Drove me nuts, and was one of the reasons I rolled it over as soon as eligible to do so.

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That is weird.... most 401k statements that I have seen (ours, DD, DS, friend whose taxes I do) are akin to a mutual fund statement and explicitly show dividends and their reinvestment. Has she ever asked them about it?
Can't say as I could put a finger on the specifics, but I'd been told the practice of not breaking out the dividends and fees, thereby preventing one from really understanding what was going on under the hood had become subject to further regulation, and was to come to an end, someday.
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Old 08-28-2015, 09:43 PM   #75
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Not the get technical, but earnings aren't on the balance sheet. That is for assets and liabilities. Earnings are found on the income statement.

As for most important, some would say that cash generation is the key number, this is found on the Source and Application of Funds. Warren B focuses heavily on that number.

When I took a graduate accounting class, the first class the professor had the financials of two companies on the board. With Company A net income of $1 million and Company B with a net loss of a million. He then asked class which company would we all like to be CEO of. We all raised our hands for "A". He then proceeded with the details to show it was the exact same company same reporting quarter with GAAP. It was all how the accounting was done. Thus, the saying "Accounting is an art, not a science".


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Old 08-28-2015, 09:54 PM   #76
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"Accounting is an art, not a science".
Reminds me of a joke circulating at the time of the demise of MCI WordCom who cooked the book.

It was about how a candidate got hired to be the CFO of a company: he simply said in the job interview with the CEO that the company's earning would be whatever the CEO wanted it to be.
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Old 08-28-2015, 10:06 PM   #77
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Reminds me of a joke circulating at the time of the demise of MCI WordCom who cooked the book.



It was about how a candidate got hired to be the CFO of a company: he simply said in the job interview with the CEO that the company's earning would be whatever the CEO wanted it to be.

American Greed had an episode about World Com. It was a good one. I understand some accounting, but only enough to be dangerous and enough to know I don't know where all the "art" is at. So being a conservative (chicken is a better word) I have most of my money in monopoly preferreds with a guaranteed ROE. If nothing else they can get higher rates approved to overcome an accounting scandal and give me my cumulative dividend in arrears!


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Old 08-28-2015, 11:23 PM   #78
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Most companies earnings are "managed" not really art unless there is outright fraud. You can control it with end of quarter specials, taking possession of inventory, forward sales, settling for cash law suits that you believe you probably could win but best to settle now with the great sales this quarter or in the other degree decided you are in the right and refuse to settle as no expense needs to be recorded, etc.... but eventually if the auditors are doing there job if the reality is not in the same realm the "story" will not be able to continue.

Back when Cisco was "the" growth company I believe they beat earning expectations every quarter by 1-2 cents for many years in a row, one quarter they only met expectations, the stock dropped 10 percent immediately and well in a few quarters you can go back and see the story. See once Cisco couldn't exceed expectations everyone knew there had to be trouble and there was, they had a severe inventory problem.

World Com merely committed fraud, they called maintenance expenses capital expense and depreciated those over long term instead of expensing as is. There is a lot of pressure on accountants to allow as fixed assets projects of repair that should be expensed and there is a lot of grey area on that topic
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Old 08-29-2015, 05:47 AM   #79
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Most companies earnings are "managed" not really art unless there is outright fraud. You can control it with end of quarter specials, taking possession of inventory, forward sales, settling for cash law suits that you believe you probably could win but best to settle now with the great sales this quarter or in the other degree decided you are in the right and refuse to settle as no expense needs to be recorded, etc.... but eventually if the auditors are doing there job if the reality is not in the same realm the "story" will not be able to continue.

Back when Cisco was "the" growth company I believe they beat earning expectations every quarter by 1-2 cents for many years in a row, one quarter they only met expectations, the stock dropped 10 percent immediately and well in a few quarters you can go back and see the story. See once Cisco couldn't exceed expectations everyone knew there had to be trouble and there was, they had a severe inventory problem.

World Com merely committed fraud, they called maintenance expenses capital expense and depreciated those over long term instead of expensing as is. There is a lot of pressure on accountants to allow as fixed assets projects of repair that should be expensed and there is a lot of grey area on that topic

The capitalization versus expensed and other "aggressive" accounting would be impossible for me to detect. I try to read the "little lines of worded information below the numbers" which can be quite informative though.
I own a stock (ARCPP, since renamed) last year had accounting fraud. Being a REIT one didn't know how bad it was. The fraud did cause a suspension of common div until just now and a major drop in price. However, since I just owned the preferred and not the common, there wasn't any material concern and dividends continued uninterrupted.


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Old 08-29-2015, 07:04 AM   #80
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Actually, cash generation is on the Statement of Cash Flows.... you're showing your age Michael.... the Statement of Changes in Financial Position (aka Sources and Applications of Funds) was changed the the Statement of Cash Flows around 1988.
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Obviously, I can learn from the more financially oriented guys, or someone with that background.

For example, I am not sure how the cash flow can be so important, if it does not result in earnings. Is it not what you keep at the end of the day that counts?

PS. I just thought of an example. Oh well. Most investors do not look this deep into it. And then, these statements only tell the status quo, not what is in the future for the company anyway.
The reason the cash generation is vital is because the buyer of a business wants to be repaid, and the source of the repayment is not profits, it's cash.

In the case of this thread, if you are expecting a dividend, you want to see the business generating enough cash to pay its debt obligations and invest for the future along with the dividend.

One really needs to see all three financial statements - income, balance sheet, cash flow - and then see how they change from one period to the next.

I don't think modern financial statements for most corporations are fraudulent or misrepresented. Most are legitimate efforts to take a snapshot in time of something that is big and dynamic. Exception to this are financial statements for the largest banks, which are IMHO undecipherable, mostly mountains of assumed valuations and predicted behavior.
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