Regarding Joseph’s comment. Unfortunately, if you already own the big 5 banks and you don’t want to buy any more resource stocks, you’re pretty much pooched in Canada. The plain reality is that there isn’t very much to buy on teh TSX. Now for me, I actually do like small and micro cap companies, but in reality it’s more like gambling than investing, so I don’t like to recommend any of them to anybody I like… But my point is that the NYSE and NASDAQ are chock full of wonderful businesses in all kinds of different sectors of the economy and most brokerages will allow Canadians to trade down there.

Personally, I don’t practice the Dogs of the Dow strategy; therefore my trading expenses and taxes are minimal due to low turnovers and the preferential tax treatments from dividend tax credits. There’s no reason to ever sell dividend stocks like Fortis, TransCanada or Royal Bank. I’m going to pass these stocks to my children anyway, so my investment time-horizon is forever.

For me, I appreciate the steady + rising paychecks steaming from a diversified dividend portfolio; so, even if I end up matching the benchmark by age 65, so what? I’m still better off, because my retirement income isn’t compromised by market hysterias.

But seriously, shouldn’t we be picking on daytraders instead of each other?

You say that I keep repeating myself. That’s because you never seem to agree that there were significant excess trading costs in the past that should be accounted for. In the paper I referred above, the authors estimate the Dow-10 trading costs as 0.59% per year and the Dow-30 costs as 0.02% assuming a 1% cost in the time period under study. We are talking about 150 basis points difference here and fully 1/3rd could be explained due to transaction expenses. But I do promise not to raise this point again

If you are talking about stock picking as a skill (I think that’s what you are taking about with Keynote Systems, which doesn’t pay a dividend), I don’t fall in the camp that it doesn’t exist. But then, it’s not a generic strategy anymore. It’s for every investor to track their performance and decide if they have good stock-picking skills and whether their results are skill or luck. My only claim is that beating the market is a not an easy gig and to beware strategies that tell you it is.

Once again, these studies are comparing Dogs’ net return versus DOW’s gross return. I don’t see how that’s a fair comparison. We should either compare gross vs gross, or net vs net.

BTW, all these talks about taxes aren’t applicable to most retail investors when they haven’t maxed out their 401k or RRSPs.

>>”But my view on the subject is that neither are investors always irrational and market inefficiencies that do exist are easily exploitable.”

Didn’t you just finish reviewing Predictably Irrational? Again, this falls into what I was saying before. It’s not easily exploitable because value investors must go against the crowd. Market participants are only irrational maybe 25% of the time, so this strategy requires both conviction and patience.

Take Keynote System for example. It was sitting on my watch list for 4 months, until a nasty downgrade by an analyst, sending the stock to a stunning 25% decline. Going against the exodus, I put down half a position. The other half never got filled because the stock is almost back to where it was before the downgrade.

http://financialjungle.com/?s=keynote&x=0&y=0

After waiting around for ~1.5 year, I finally bought a couple of REITs when the sector absorbed a 25% haircut. Back in 1999, I could not have done this because I didn’t have the stomach it. (I’m not trying to blow my horn. That’s not my style, and I’m learning something new almost everyday.)

Beside, the merits of dividend investing don’t depend on market beating performances. Dividend investing promotes good investing habits, and dividends are far less volatile than capital gains.

http://financialjungle.com/2008/04/24/dividend-increases/dividend-increases-steady-income-without-market-volatility/

Link

“We always come back to this: the theory that investors are always rational, and always exploiting market inefficiencies aren’t exemplified in the real world.”

I think we are in agreement that that’s not true (as the previous post talked about the validity of indexing even if markets are not efficient). But my view on the subject is that neither are investors always irrational and market inefficiencies that do exist are easily exploitable.