If dividend stocks are dead, where do you find the winners?
Friday, 14 September 2018
By Sam Volkering
- ‘Beyond crypto’
- Bye bye dividend stocks
- Fishing in the big pond
People say crypto is risky. They say it’s volatile. They say it has no value because it’s not backed by anything.
There’s some good evidence to back that up. After all, we saw the second biggest crypto, ether, plummet to under US$170 this week. A month ago it was over US$320. Three months ago it was over US$540. And in January it was over US$1,400.
The reports doing the rounds now are the ‘crypto crash’ is worse than the dot-com bubble. Ouch.
Of course, that depends on your time frame. But we’re not here today to get into the detail of crypto and whether it’s over or if it’s just getting started. You can find out all about our views on that in Secret Crypto Network and Crypto Tech Investor.
Today is ‘beyond crypto’. After all, while I cut my teeth on crypto eight years ago, it was 23 years ago I cut my teeth on stocks and stock market investing. So today’s essay is to let you in on a little secret…
Stocks can be equally as volatile, risky, and equally as rewarding as crypto.
First off, the markets.
Overnight the Dow Jones Industrial Average closed up 147.07 points, or 0.57%.
The S&P 500 gained 15.26 points, or 0.53%.
In Europe, the Euro Stoxx 50 index finished up 7.08 points, or 0.21%.
Meanwhile, the FTSE 100 fell 0.43%, and Germany’s DAX gained 0.19%.
In Asian markets, Japan’s Nikkei 225 is up 217.16 points, or 0.95%. China’s CSI 300 is up 0.046%.
In Australia, the S&P/ASX 200 is up 42.10 points, or 0.69%.
On the commodities markets, West Texas Intermediate crude oil is US$68.84 per barrel. Brent crude is US$78.36 per barrel.
Turning to gold, the yellow metal is trading for US$1,205.59 (AU$1,673.76) per troy ounce. Silver is US$14.26 (AU$19.79) per troy ounce.
One bitcoin is worth US$6,559.17.
The Aussie dollar is worth 72.15 US cents.
Do you like to make money on stocks?
No matter what I might say or explain to some, people they’ll never invest in crypto. That’s fine. The numbers mentioned above are enough to put any seasoned investor off their game.
But often people will tell me they see stocks as a better asset class. Of course it’s far easier to believe in what you already know.
It’s far easier to invest in stocks, because you’ve always invested in stocks. And it’s far easier to invest in stocks because you can analyse the risk with greater transparency.
Except, it’s getting harder to invest in and make big money from stocks.
If you glance at the Australian Financial Review headlines today you’ll see in all its blazing glory,
‘Labour election win to hurt high dividend stocks’
We all know the Labor Party powerbrokers aren’t fond of franking credits. And should we soon change our PM (again) to Prime Minister Shorten, there could be some pain to come for high yielding stocks.
The likes of Telstra, CBA, and Fortescue may quickly become less attractive to investors. Not only could the franking credits dwindle away, but it could also drive investors away from the stock.
According to the Australian Financial Review article and Citigroup research, kiss goodbye to as much as 5 to 10% of the stock value.
We’re talking about billions wiping off the face of the big end of the ASX. That in itself could be enough of a headache to squeeze the whole market lower.
Of course it wouldn’t just apply to the big end of town. Any kind of fully franked dividend stock could be in for a world of hurt. Heck, a new government could see an absolute rout on ASX.
I don’t think that means the end of stock opportunities on the ASX. But the reality is it might be a whole lot harder to find the massive winners.
Lets go fishing
Think of the ASX like a pond. And there are 2,100 fish in it. Of those there are maybe a couple hundred really big ones. A couple hundred that you really, really want to land. Those fish are the ones you can dine out on for years, they’re so big.
However under new leadership maybe that couple of hundred becomes 80 or 90. There are still fish in that pond, still 2,100 of them. But this time it’s a damn sight harder to snag one of those 80 or 90 really big ones.
They’re still there, just harder to catch.
However right next to the pond is a bigger pond. It’s roughly 20.7 times bigger than the pond you’re currently fishing in.
It’s just as easy to fish in this other pond. In fact all you have to do is just drop another line into it. You don’t even need to stop fishing in your current pond. Just get another rod and reel, drop in a line and try to hook a winner.
This other pond has around 45,000 fish in it. And the big ones, the ones to dine out on for years, now tally in the thousands. All you have to do is just drop in another line.
Two ponds, right there, right in front of you. Both easy to fish in. And when you fish both you exponentially increase your chances of landing a whopper.
This of course is how you should view investing. And if the ASX is only going to get harder and more challenging to find massive winners in, then the logical answer is to start fishing in another pond.
That’s global markets. Markets in the US, UK, Canada, Europe, Asia. These markets are much easier to invest in now than the past. Through online brokers (typically the big four bank online broking systems) you can quickly and easily invest on multiple overseas markets.
Doing this as an investor expands your horizons. It means if the Aussie market does get harder to fish winners from, you have thousands of other companies out there to potentially win from as well. You’re not just limited to the ASX.
I think it’s the only way to properly invest. I think it’s the only way to intelligently manage political risk in Australia.
Of course it’s still risky, it can still be volatile. And you should always be aware of all the risks involved.
But if you’re smart, ready and willing to throw out that extra line, I think it may be the smartest investment move you’ll make.