Quote 5 The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Graham was not against active investing. He was an incredibly successful stock market investor in his day.
But he also knew that very few stood a chance of winning that game.
Quote 6 Much effort and ability are directed on Wall Street toward selecting stocks or industrial groups that in the matter of price will “do better” than the rest over a fairly short period in the future. Logical as this endeavour may seem, we do not believe it is suited to the needs or temperament of the true investor—particularly since he would be competing with numerous stock-market traders and first-class financial analysts who are trying to do the same thing. As in all other activities that emphasize price movements first and underlying values second, the work of many intelligent minds constantly engaged in this field tends to be self-neutralizing and self-defeating over the years.
Without proper training, discipline, and application, Graham felt that most forays into the stock market were just speculation and rarely ended well:
What would have happened to the world’s unluckiest investor?
21 October 2024
Even by buying in at the worst possible times, poor old Jim would have made stellar returns.
By Emma Wallis
News editor, Trustnet
Stock markets around the world have hit all-time highs this year, which begs the question of whether investors putting money into equities now are investing at the market’s peak.
Valuations look rich in the US – which makes up the majority of global equity indices – and there are reasons to believe volatility might increase from here, including the US presidential election and rising geopolitical tensions.
Yet despite these factors, financial advisers continue to recommend that most investors place a large chunk of their savings into the equity markets to have the best chance of achieving returns. Are they turning a blind eye to stock market peaks or is this sound advice?
To put that question to the test, Trustnet asked Vanguard what would have happened if an investor had committed capital at the height of every previous bubble, just before the stock market tanked.
If somebody got their market timing as wrong as possible, would they have been better off waiting on the sidelines in cash or did equities eventually reap rewards?
To answer that question, James Norton, head of retirement and managed services at Vanguard, told the story of the fictitious unlucky Jim.
“Jim has a long-term goal to grow his capital. He also understands that markets rise and fall and is committed to holding onto his investments through thick and thin. Unfortunately, Jim is also the world’s unluckiest investor, and has an uncanny habit of investing lump sums at market peaks,” Norton said.
Jim chose a passively managed, global fund tracking the FTSE All World index and made his first investment of £2,500 in September 1997, just in time for the Asian financial crisis. Within a month, he had lost £228.
Undeterred, Jim braced himself to try again and invested another £2,500 in July 1998, just in time for Russia to default on its debt and the US hedge fund Long-Term Capital Management to collapse. “This time he’s down more than £840 in a month, but clings on.”
Markets bounced back and Jim became more confident, putting £10,000 into equities in mid-2000. The dot-com bubble bursting, the 11 September 2001 attacks on the World Trade Center and the war in Afghanistan all contributed to stock markets falling almost 50% by September 2002.
Jim stuck to his guns, did not tinker with his investments and was ultimately rewarded by a stock market boom.
FTSE All World from mid-Sep 2002 to mid-Oct 2007
Source: FE Analytics
By October 2007, when markets peaked again, he had committed £15,000 and his savings were worth £21,153. Not a bad result given that his timing was so awful.
So Jim decided to invest an additional £5,000: “just in time for the US subprime debt crisis to kick off the global financial crisis”, Norton said.
“Jim’s steely calm remains, however, and by late 2019 he’s sitting on a pot of more than £75,000 and is ready to invest a further £10,000. Days later the Covid-19 pandemic unleashes the fastest bear market of modern times.”
By December 2021, markets had recovered, so Jim contributed another £5,000 – “perfectly timing the market peak, ahead of the Russian invasion of Ukraine, rising global inflation and monetary tightening”.
By the end of September 2024, after a 27-year investment journey, Jim had contributed a total of £35,000 and the value of his investments was £146,450, a return of more than 300% on his initial outlay.
Jim’s return was much lower than the FTSE All World index itself, which climbed 518.5% between 1 September 1997 and 30 September 2024. But even with the worst possible luck, his equity portfolio grew his wealth far in excess of anything that more conservative investments such as cash or bonds would have achieved.
The Bloomberg Global Aggregate index, a dollar-denominated bond market proxy, rose 155.3% in the same period.
Whilst market timing is notoriously difficult, the moral of the story is that time in the market counts for more than timing the market. “While no one can possibly know what’s around the corner, a disciplined, diversified, long-term approach can help even the unluckiest amongst us,” Norton said.
As for trying to ascertain whether the market has reached a peak, that too is extremely hard to tell. The S&P 500 index made headlines on Friday 19 January 2024 by hitting an all-time high, surpassing its previous peak on 3 January 2022.
Anyone trying to sell out at the top – or holding off on a new investment in late January 2024 – would have missed out on the US equity market’s subsequent 18.7% return (in sterling terms).
Performance of S&P 500 since 22 Jan 2024
Source: FE Analytics
Historical highs are not uncommon, according to John Plassard, senior investment specialist at Mirabaud Group. Between 1950 and January 2024, the US equity market hit 1,201 all-time highs, an average of nearly 16 records per year.
“The new highs reached by the markets are not as significant as some people think. They are often linked to continued growth in the economy and corporate profits. Although there are periods of economic and market slowdown, over time improvements in productivity and innovation have continued to propel markets to new heights,” he explained.
“Staying invested in the market for decades and taking full advantage of compound returns, including reinvested dividends, is a much surer route to prosperity than trying to anticipate the ups and downs of the market.”
Quote 3 The defensive (or passive) investor will place his chief emphasis on the avoidance of serious mistakes or losses. His second aim will be freedom from effort, annoyance, and the need for making frequent decisions. Indeed, Graham sketched out an asset allocation strategy that is still a perfectly sensible starting point:
Quote 4 He [the passive investor] should divide his funds between high-grade bonds and high-grade common stocks. We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consistent inverse range of between 75% and 25% in bonds. There is an implication here that the standard division should be an equal one, or 50–50, between the two major investment mediums. Of course, you couldn’t just buy a globally diversified ETF in Graham’s time. But his advice readily translates into the purchase of a large cap index tracker such as an MSCI World ETF and a high-quality government bond ETF. Beyond that, Graham was clearly an advocate of the buy and hold strategy:
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For he, read he, she, or any colour of the rainbow.
abrdn Asian Income Fund Ltd ex-dividend date abrdn Diversified Income & Growth PLC dividend payment date Bankers Investment Trust PLC ex-dividend date Brunner Investment Trust PLC ex-dividend date Chelverton UK Dividend Trust PLC ex-dividend date City of London Investment Trust PLC ex-dividend date CQS Natural Resources Growth & Income PLC ex-dividend date CQS New City High Yield Fund Ltd ex-dividend date Doric Nimrod Air Three Ltd ex-dividend date Doric Nimrod Air Two Ltd ex-dividend date Foresight Solar Fund Ltd ex-dividend date Henderson Far East Income Ltd ex-dividend date JPMorgan Global Core Real Assets Ltd ex-dividend date Law Debenture Corp PLC dividend payment date Pacific Horizon Investment Trust PLC ex-dividend date
Up to 16.8% yields! Here are the 10 highest-paying dividend stocks in the FTSE 350
Story by Zaven Boyrazian
So, what are the biggest opportunities I think are out there for income investors to consider right now?
Top 10 income stocks
In order of dividend yield, here are the largest payouts in the FTSE 350 that make me think they’re worth investors researching further.
Ithaca Energy – 16.75%
NextEnergy Solar Fund – 10.76%
Energean – 10.27%
SDCL Energy Efficiency Income Trust – 10.25%
Phoenix Group Holdings – 10.24%
M&G – 9.73%
TwentyFour Income Fund – 9.47%
Legal & General – 9.27%
Abrdn – 9.25%
British American Tobacco – 8.77%
It doesn’t take more than a quick glance to notice a lot of the income opportunities lie within the energy and financial services sector. Both industries are being riddled with uncertainty right now. The oil & gas sector is tackling supply chain terrors from the ongoing and horrendous conflicts in Ukraine and Gaza. Meanwhile, insurance and investment companies are at the mercy of interest rate fluctuations.
However, it’s not exactly a secret that by capitalising on unloved companies, tremendous returns can potentially be unlocked. After all, that’s often where some of the biggest bargains can be found.
So, is now the time to start thinking about snapping up these businesses while they’re still cheap? Not necessarily. Let’s take a closer look at the current pack leader, Ithaca Energy.
Risk vs reward
With the firm’s medium-term production output seemingly set in stone, management feels comfortable enough to return $500m of dividends to shareholders in 2024 and 2025, fuelling the stock’s impressive 16.8% dividend yield. But if that’s the case, why haven’t investors been rushing to buy its shares
The problem is a looming risk of equity dilution. Acquiring Eni’s oil & gas assets is going to require quite a bit of capital. And with debt being quite expensive right now, that likely means a whole bunch of new shares are likely to be issued, sending the stock price firmly in the wrong direction.
At the same time, the UK windfall taxes on energy companies are expected to take quite a toll on earnings in the current tax year. And profitability could come under further pressure if unforeseen complications emerge during the integration process.
In other words, Ithaca’s yield appears to be high due to high levels of uncertainty. If the company manages to defy expectations, opportunistic investors could reap tremendous returns. But the opposite is also true. And should the worst come to pass, a 16.8% yield may quickly evaporate.
Therefore, when exploring high-yield opportunities, investors must consider the risks attached to an investment. Otherwise, it’s easy to tumble into an income trap.
I think everything posted made a great deal of sense. But, think on this, what if you added a little information? I mean, I don’t want to tell you how to run your website, but suppose you added a title to possibly grab folk’s attention? I mean Compound growth: A powerful argument for investing long term. – Passive Income is a little boring. You could glance at Yahoo’s front page and watch how they create post headlines to get people interested. You might try adding a video or a pic or two to grab people interested about everything you’ve got to say. In my opinion, it might bring your blog a little livelier.
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Investing your hard earned for your retirement is a very serious topic.
Re-investing dividends can be boring but the biggest downside is that u virtually wishing your life away as u wait for your next dividends to accrue so u can invest in your Snowball.
There are no plans to add videos as there are plenty of videos sites available on the web at present. Tks for taking the time to post your comment.
Quote 1 Investment policy, as it has been developed here, depends in the first place on a choice by the investor of either the defensive (passive) or aggressive (enterprising) role. The aggressive investor must have a considerable knowledge of security values—enough, in fact, to warrant viewing his security operations as equivalent to a business enterprise. Graham typically referred to passive investing as “defensive”. He believed that most people should choose the passive route because only investing professionals could devote the necessary resources to active or “aggressive” investing:
Quote 2 It follows from this reasoning that the majority of security owners should elect the defensive classification. They do not have the time, or the determination, or the mental equipment to embark upon investing as a quasi-business. They should therefore be satisfied with the excellent return now obtainable from a defensive portfolio (and with even less), and they should stoutly resist the recurrent temptation to increase this return by deviating into other paths. In Graham’s book, passive investors were better off sticking to straightforward strategies that minimised error:
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For, he, read he, she, or any colour of the rainbow.
Next week I’ll publish some advice from Benjamin Graham that has stood the test of time.
Until then WB.
Perhaps no greater tribute can be paid to him than that written by Warren Buffett, who said:
“Ben Graham was far more than an author or a teacher. More than any other man except my father, he influenced my life.”
Investing aside, Buffett movingly said that of all Graham’s virtues, his greatest was generosity. That he was the kind of man who planted trees that others would sit under. By listening to Graham’s advice today, we can benefit from the fruits of his labour, planted years before we were born.
