Buy and Hold Stock Millionaires

Discussion of the Stock portion of the Permanent Portfolio

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jalanlong
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Buy and Hold Stock Millionaires

Post by jalanlong » Thu Feb 25, 2021 1:45 pm

I love stories like these below. Do you think this strategy is still valid in 2021 moving forward the next 20-30 years?

https://www.thecompoundinvestor.com/gra ... llionaire/

https://www.cnbc.com/2016/09/02/the-sma ... folio.html

https://www.etfguide.com/fortune-without-the-fame/
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Re: Buy and Hold Stock Millionaires

Post by dualstow » Thu Feb 25, 2021 2:00 pm

I read the first link about Abbott Labs dividend lady. Good stuff.
I was inspired by something I read on the net in the 90's. This guy wrote, "if you want to ensure that your children have plenty of income there is only one way I know of." You start with a million dollars and buy shares of many different companies that raise their dividends over time.

Putting aside the debate of whether that's healthy to give your kids a $100,000/year income -- I think that was the figure on the web page -- I thought it sounded feasible and I still do.

I hit something like $30,000 a year in dividend and long-bond interest income a few years ago, starting with maybe $250,000 long ago. I have since started dismantling some of those dividend payers to enlarge the total stock index fund core. Altria just didn't seem like something to hold onto when my dreams of them jumping on marijuana distribution infrastructure failed to materialize. But, all in all it worked well. If I hadn't gotten into indexing, and then the pp with its non-stock assets, who knows....
RIP Marcello Gandini
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Re: Buy and Hold Stock Millionaires

Post by Kbg » Fri Feb 26, 2021 5:18 pm

The biggest challenge is knowing in advance which stocks are going to be around for 30 years. I would definitely modify with something that tossed out stocks from time to time and selected new ones. If one didn't want the hassle of self managing a concentrated ETF that focuses on dividends with a good read of the prospectus to understand (and agree with the strategy) might be a good option and simply reinvest all distributions.

Companies, even big ones that have been around a long time, go out of business all the time. Another factor/problem is US tax law which greatly favors retaining earnings. The nice thing about owning stocks themselves is that you control when the tax man commeth.
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Re: Buy and Hold Stock Millionaires

Post by I Shrugged » Fri Feb 26, 2021 5:38 pm

What if she had worked for Sears instead of Abbot?

I'm with John Bogle. Index funds have not let me down. I learned this by first trying to pick stocks.
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Re: Buy and Hold Stock Millionaires

Post by vnatale » Fri Feb 26, 2021 6:15 pm

Kbg wrote:
Fri Feb 26, 2021 5:18 pm

The biggest challenge is knowing in advance which stocks are going to be around for 30 years. I would definitely modify with something that tossed out stocks from time to time and selected new ones. If one didn't want the hassle of self managing a concentrated ETF that focuses on dividends with a good read of the prospectus to understand (and agree with the strategy) might be a good option and simply reinvest all distributions.

Companies, even big ones that have been around a long time, go out of business all the time. Another factor/problem is US tax law which greatly favors retaining earnings. The nice thing about owning stocks themselves is that you control when the tax man commeth.


For a long time, it was only General Electric that was left from the original Dow Jones. Now that they are out of it there are no original companies left.

Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Buy and Hold Stock Millionaires

Post by sophie » Fri Feb 26, 2021 6:24 pm

Great stories, for sure.

But, for every one of those winners, there are probably at least 10 losers who bought stocks in companies that went bust. LIke, say, Enron. Or Eastman Kodak. Or Woolworths.

What would have happened to a person who bought the equivalent of an index fund instead of stock XYZ? They wouldn't have done as spectacularly, but they sure would have beat the pants off of 99% of typical investors.
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Re: Buy and Hold Stock Millionaires

Post by Xan » Fri Feb 26, 2021 7:54 pm

Clark Howard (haven't listened in a long time, but it's still relevant) always recommended that people aim to allocate zero percent of their portfolio to their company's stock. The rationale is that you have enough (too much, really) of your financial life tied to that one company already. If it goes under or has other problems, you could lose your job and your savings in one fell swoop.

Exceptions were made, IIRC, for any kind of matching or vesting which basically was free money, until such time as the stock could be sold.
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Re: Buy and Hold Stock Millionaires

Post by jalanlong » Sat Feb 27, 2021 10:51 am

vnatale wrote:
Fri Feb 26, 2021 6:15 pm
Kbg wrote:
Fri Feb 26, 2021 5:18 pm
The biggest challenge is knowing in advance which stocks are going to be around for 30 years. I would definitely modify with something that tossed out stocks from time to time and selected new ones. If one didn't want the hassle of self managing a concentrated ETF that focuses on dividends with a good read of the prospectus to understand (and agree with the strategy) might be a good option and simply reinvest all distributions.

Companies, even big ones that have been around a long time, go out of business all the time. Another factor/problem is US tax law which greatly favors retaining earnings. The nice thing about owning stocks themselves is that you control when the tax man commeth.
For a long time, it was only General Electric that was left from the original Dow Jones. Now that they are out of it there are no original companies left.
While technically true, only 1 of the original Dow stocks actually went out of business. The others merged into companies that still exist today. For example Chicago Gas is now part of Integrys Energy.
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Re: Buy and Hold Stock Millionaires

Post by dualstow » Sat Feb 27, 2021 10:56 am

Yes, in fact, i read an article that if you bought and hold the original Dow stocks you’d be better off than following the changes over years. I think it was the Dow.
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Re: Buy and Hold Stock Millionaires

Post by vnatale » Sat Feb 27, 2021 11:29 am

jalanlong wrote:
Sat Feb 27, 2021 10:51 am

vnatale wrote:
Fri Feb 26, 2021 6:15 pm

Kbg wrote:
Fri Feb 26, 2021 5:18 pm

The biggest challenge is knowing in advance which stocks are going to be around for 30 years. I would definitely modify with something that tossed out stocks from time to time and selected new ones. If one didn't want the hassle of self managing a concentrated ETF that focuses on dividends with a good read of the prospectus to understand (and agree with the strategy) might be a good option and simply reinvest all distributions.

Companies, even big ones that have been around a long time, go out of business all the time. Another factor/problem is US tax law which greatly favors retaining earnings. The nice thing about owning stocks themselves is that you control when the tax man commeth.


For a long time, it was only General Electric that was left from the original Dow Jones. Now that they are out of it there are no original companies left.


While technically true, only 1 of the original Dow stocks actually went out of business. The others merged into companies that still exist today. For example Chicago Gas is now part of Integrys Energy.


This is what this says:

https://www.investopedia.com/ask/answer ... panies.asp

Updated Aug 25, 2020
The Dow Jones Industrial Average (DJIA) was created in 1896 by Charles Dow and originally consisted of 12 companies: American Cotton Oil, American Sugar, American Tobacco, Chicago Gas, Distilling & Cattle Feeding, General Electric, Laclede Gas, National Lead, North American, Tennessee Coal and Iron, U.S. Leather, and U.S. Rubber.

At the time, these companies were among the titans of American industry. General Electric is the only company that has retained its place on the DJIA under its original name since the index's inception. Others were broken up, taken over, dissolved, or relegated to subsidiary status over the years.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Buy and Hold Stock Millionaires

Post by dualstow » Sat Feb 27, 2021 12:18 pm

jalanlong wrote:
Sat Feb 27, 2021 10:51 am
While technically true, only 1 of the original Dow stocks actually went out of business. The others merged into companies that still exist today. For example Chicago Gas is now part of Integrys Energy.
vnatale wrote:
Sat Feb 27, 2021 11:29 am
https://www.investopedia.com/ask/answer ... panies.asp
↳ investopedia wrote: ...original name since the index's inception. Others were broken up, taken over, dissolved, or relegated to subsidiary status over the years.

Right. Broken up, subsidiary, etc. Most of those still count, even if the name changed. If you hold Philip Morris and it spins off Kraft, PM International, etc, that still counts.
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Re: Buy and Hold Stock Millionaires

Post by jalanlong » Sat Feb 27, 2021 12:54 pm

dualstow wrote:
Sat Feb 27, 2021 12:18 pm
jalanlong wrote:
Sat Feb 27, 2021 10:51 am
While technically true, only 1 of the original Dow stocks actually went out of business. The others merged into companies that still exist today. For example Chicago Gas is now part of Integrys Energy.
vnatale wrote:
Sat Feb 27, 2021 11:29 am
https://www.investopedia.com/ask/answer ... panies.asp
↳ investopedia wrote: ...original name since the index's inception. Others were broken up, taken over, dissolved, or relegated to subsidiary status over the years.

Right. Broken up, subsidiary, etc. Most of those still count, even if the name changed. If you hold Philip Morris and it spins off Kraft, PM International, etc, that still counts.
https://www.forbes.com/sites/steveschae ... y-now/amp/
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Re: Buy and Hold Stock Millionaires

Post by dualstow » Sun Feb 28, 2021 9:02 am

Sure, I mean that's discussed frequently by bogleheads.
I've always enjoyed the income and the ~0% taxes I've been paying on those dividends.
Things may change with the new U.S. administration.
RIP Marcello Gandini
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Re: Buy and Hold Stock Millionaires

Post by vnatale » Sun Feb 28, 2021 11:56 am

dualstow wrote:
Sun Feb 28, 2021 9:02 am

Sure, I mean that's discussed frequently by bogleheads.
I've always enjoyed the income and the ~0% taxes I've been paying on those dividends.
Things may change with the new U.S. administration.


Plus during the mid- to late 90s to 2002, I'd invested $30,000 in my IRA, saw it peak at $130,000, and ended up selling it for $25,000 in January 2003 It was fortunate for me that there had been some dividends along the way to reduce the additional amount I would have lost absent there having been any dividends during that time period.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Buy and Hold Stock Millionaires

Post by jalanlong » Sun Feb 28, 2021 2:41 pm

tomfoolery wrote:
Sun Feb 28, 2021 1:28 am
dualstow wrote:
Thu Feb 25, 2021 2:00 pm
I read the first link about Abbott Labs dividend lady. Good stuff.
I was inspired by something I read on the net in the 90's. This guy wrote, "if you want to ensure that your children have plenty of income there is only one way I know of." You start with a million dollars and buy shares of many different companies that raise their dividends over time.

Putting aside the debate of whether that's healthy to give your kids a $100,000/year income -- I think that was the figure on the web page -- I thought it sounded feasible and I still do.

I hit something like $30,000 a year in dividend and long-bond interest income a few years ago, starting with maybe $250,000 long ago. I have since started dismantling some of those dividend payers to enlarge the total stock index fund core. Altria just didn't seem like something to hold onto when my dreams of them jumping on marijuana distribution infrastructure failed to materialize. But, all in all it worked well. If I hadn't gotten into indexing, and then the pp with its non-stock assets, who knows....
What if you bought non-dividend paying stocks that appreciated 10% per year and sold 3% of them to generate a “dividend” instead?

The idea of dividend payments seems silly to me because they generate taxable income you may not want, especially if you re-invest.

I do get the idea of not wanting the c-suite to sit on cash and take unnecessary expansion risks, so retuning capital to shareholders in the form of a dividend is a way to keep them in check.

But, why couldn’t the c-suite just use that same cash to do stock buybacks? So the cash is removed from their control, but no forced taxable event occurs.
I think because dividends are tangible. If you don’t pay it then everyone notices. On buybacks, companies are always announcing their intention to buy back stock. But people rarely follow-up to measure if the promises were kept. Plus companies tend to buy back shares at really high prices and sit on the cash when prices drop.
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Re: Buy and Hold Stock Millionaires

Post by jalanlong » Sun Feb 28, 2021 6:10 pm

tomfoolery wrote:
Sun Feb 28, 2021 4:49 pm
jalanlong wrote:
Sun Feb 28, 2021 2:41 pm

I think because dividends are tangible. If you don’t pay it then everyone notices. On buybacks, companies are always announcing their intention to buy back stock. But people rarely follow-up to measure if the promises were kept. Plus companies tend to buy back shares at really high prices and sit on the cash when prices drop.

Imagine a stock that is $100 per share and you have 100 shares of it. So $10,000 worth. And it pays a $2 dividend for 2%.

The day after it goes ex dividend you will have the same 100 shares but they are now worth $9800 and you will have a claim to $200 cash usually payable 4 weeks later.

You then use the $200 to buy ~2 more shares so you’ll have about the same $10k but instead of 100 shares you’ll have 102 shares.

But you have to pay $30 in taxes on the $200 in dividends.

Or if the company had an extra $200 cash, they used the cash to buy 2 shares of stock at the market price of $100 per share. And the stock price didn’t change at all because of all of the holdings, it just changed from holding $2 cash per share to holding $2 worth of stock per share.

The idea that the company bought back the shares when they were expensive seems silly because if you were planning to use the dividends to buy more shares, you’d be buying them at the same price as the company.

As far as whether the company kept its promise, there’s analysts out there watching and they notice. And then market makers push the stock price up or down depending on whether the management made the right move to either follow through on the buyback, hold cash, or reinvest into the business.

In absence of the absurd US tax law which taxes dividends, I’d say yeah, they’re swell. But given the taxation of then, I despise dividend stocks, for my taxable holdings. For my tax sheltered accounts, I like them.
This is from a Harvard Review on buybacks:

Companies typically engage in share repurchases when the firm is doing well and generating excess capital, often when the stock is at or near its peak—the opposite of “buy low, sell high.” From an investment point of view, it is best to do a buyback when market valuations are depressed— but rare is the company willing to announce a buyback program in the depths of a stock correction.

A 2019 study by Fortuna Advisors shows that 64 percent of companies in the S&P 500 had negative buyback effectiveness, implying that a company’s buyback return on investment (ROI), though positive, was lower than its total shareholder return (TSR), usually due to poor buyback timing and suboptimal capital allocation decisions.
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Re: Buy and Hold Stock Millionaires

Post by dualstow » Sun Feb 28, 2021 7:00 pm

We’ve had a thousand discussions about dividends, not even counting bogleheads. I will just say again that I do not pay that $30 on the dividend, Tom. It’s zero.
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Re: Buy and Hold Stock Millionaires

Post by Kbg » Mon Mar 01, 2021 9:21 am

jalanlong wrote:
Sun Feb 28, 2021 6:10 pm
A 2019 study by Fortuna Advisors shows that 64 percent of companies in the S&P 500 had negative buyback effectiveness, implying that a company’s buyback return on investment (ROI), though positive, was lower than its total shareholder return (TSR), usually due to poor buyback timing and suboptimal capital allocation decisions.
On the balance sheet, a share repurchase would reduce the company’s cash holdings—and consequently its total asset base—by the amount of cash expended in the buyback. The buyback will simultaneously shrink shareholders' equity on the liabilities side by the same amount. As a result, performance metrics such as return on assets (ROA) and return on equity (ROE) typically improve subsequent to a share buyback.

Other than tax reasons, there is really nothing special about a buy back other than it removes cash from the balance sheet, makes the company more levered and accordingly more risky (and usually helps with management's performance metrics for pay purposes with no improvement in the company's actual operational performance).

Bottom line line: You get "your" cash back for a more levered company going forward as cash is expended to reduce shares outstanding.
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Re: Buy and Hold Stock Millionaires

Post by jalanlong » Tue Sep 06, 2022 9:19 am

sophie wrote:
Fri Feb 26, 2021 6:24 pm
Great stories, for sure.

But, for every one of those winners, there are probably at least 10 losers who bought stocks in companies that went bust. LIke, say, Enron. Or Eastman Kodak. Or Woolworths.

What would have happened to a person who bought the equivalent of an index fund instead of stock XYZ? They wouldn't have done as spectacularly, but they sure would have beat the pants off of 99% of typical investors.
https://www.wsj.com/articles/the-fund-t ... 1576854661

This fund actually beats the indexes by doing nothing for almost 100 years!
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Re: Buy and Hold Stock Millionaires

Post by dualstow » Tue Sep 06, 2022 9:44 am

Pretty lucky. Some fund out there is bound to be.
That was an enjoyable read, though.
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Re: Buy and Hold Stock Millionaires

Post by whatchamacallit » Tue Sep 06, 2022 10:45 am

A Total stock market index fund seems to me the definition of doing nothing. I have become more and more a fan of total instead of any slice and dice stock funds.
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Re: Buy and Hold Stock Millionaires

Post by jalanlong » Tue Sep 06, 2022 11:23 am

whatchamacallit wrote:
Tue Sep 06, 2022 10:45 am
A Total stock market index fund seems to me the definition of doing nothing. I have become more and more a fan of total instead of any slice and dice stock funds.
I would disagree. Index funds are active funds as they add stocks when the corresponding index adds them and then they sell stocks with they are removed from the index. The index itself is an actively managed group of stocks. That is different than buying a group of stocks, evenly weighting them and then not touching them for 100 years which is what the fund in the article did.
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Re: Buy and Hold Stock Millionaires

Post by whatchamacallit » Tue Sep 06, 2022 2:36 pm

jalanlong wrote:
Tue Sep 06, 2022 11:23 am
whatchamacallit wrote:
Tue Sep 06, 2022 10:45 am
A Total stock market index fund seems to me the definition of doing nothing. I have become more and more a fan of total instead of any slice and dice stock funds.
I would disagree. Index funds are active funds as they add stocks when the corresponding index adds them and then they sell stocks with they are removed from the index. The index itself is an actively managed group of stocks. That is different than buying a group of stocks, evenly weighting them and then not touching them for 100 years which is what the fund in the article did.
I am not sure there would be a time that a total stock market index fund would sell a stock which is why I like it over the slice and dice.

A large cap fund would barely sell anything and it would only be the smallest stocks that fall out of market cap requirements so it would be a minuscule selling.

I do recall there was some reason that Tesla didn't make the SP 500 until later in it's life. I can't remember why but that is disappointing in that part being actively managed. I expect it was in the total stock market index much sooner.

The equal weight sp500 RSP etf comes to mind as something you might like but it would drop and add stocks based on sp 500 index like you said.

Maybe the direct indexing would be a good fit for you. I haven't looked at it much because it looks like there are fees involved. I am not sure If it lets you just buy the index at an equal weight and forget it after that.

https://www.fidelity.com/learning-cente ... t-indexing
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Re: Buy and Hold Stock Millionaires

Post by vnatale » Tue Sep 06, 2022 3:54 pm

jalanlong wrote:
Tue Sep 06, 2022 9:19 am

sophie wrote:
Fri Feb 26, 2021 6:24 pm

Great stories, for sure.

But, for every one of those winners, there are probably at least 10 losers who bought stocks in companies that went bust. LIke, say, Enron. Or Eastman Kodak. Or Woolworths.

What would have happened to a person who bought the equivalent of an index fund instead of stock XYZ? They wouldn't have done as spectacularly, but they sure would have beat the pants off of 99% of typical investors.


https://www.wsj.com/articles/the-fund-t ... 1576854661

This fund actually beats the indexes by doing nothing for almost 100 years!


The article was from nearly three years ago. Anyone done any updated analysis to see if the headline still holds true?
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Buy and Hold Stock Millionaires

Post by vnatale » Tue Sep 06, 2022 3:56 pm

jalanlong wrote:
Tue Sep 06, 2022 11:23 am

whatchamacallit wrote:
Tue Sep 06, 2022 10:45 am

A Total stock market index fund seems to me the definition of doing nothing. I have become more and more a fan of total instead of any slice and dice stock funds.


I would disagree. Index funds are active funds as they add stocks when the corresponding index adds them and then they sell stocks with they are removed from the index. The index itself is an actively managed group of stocks. That is different than buying a group of stocks, evenly weighting them and then not touching them for 100 years which is what the fund in the article did.


You are correct that index funds are not doing nothing. However, they are definitely not active but are passive. They are only doing something which keeps the fund following the index it's designed to follow. An active fund is one wherein the fund manager uses discretion to make purchases and sales.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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