Random Musings: Beating The Index, Do What You Love, And More

I read a lot and often come across ideas and concepts that are not really explained to my satisfaction.  Here are some things that I often think about.

Beating the Index

Many financial writers and advisers are touting the benefits of the passive investing strategy of an index-based portfolio for low cost and good performance.  When they state that it is difficult to beat the index, are they comparing index funds just to managed portfolios – specifically, actively managed mutual funds?

What about a portfolio that holds only individual stocks?

Related: How much does it cost to build a portfolio of individual stocks?

There are several stock picking strategies you could choose such as:

  • Dogs of the Dow
  • Hounds of Bay Street
  • Beating the TSX
  • MoneySense magazine’s annual All-Star’s list

These usually post excellent long-term gains and returns that regularly beat the index’s annual returns – often by a significant amount.

Do what you love and the money will follow

I am a big fan of self-help books, but statements such as this really frustrate me.  The goal is to identify your life’s purpose or passion and focus all your intent on achieving this goal to be happy.

While I am in awe of those people who know from an early age what they want to do with their lives, I’m not really one of them.  I’m not like the American Idol hopefuls who gush, “This is what I was born to do.  Singing is my whole life!”  In fact most of us aren’t born with one clear passion.  This is a strong concept that can set up an incredibly intimidating standard by which to evaluate your options.

Related: When doing what you love doesn’t pay the bills

Just what is my passion?

There are things that I like to do.  There are things that I can do really well.  I have a diverse range of interests and talents.  Some of my favorite activities are reading, sewing and doing jigsaw puzzles, but I can’t think of one career choice that any one of these would incorporate, let alone make me financially secure.

It is hoped that most people enjoy or are interested in most parts of their job, and sometimes you just have to do what you have to do because you need the income.

You can build an active life after work, instead.  Focus on the various interests and causes you find compelling.  Concentrate on the things you do really well and that make you smile.

Related: How to earn more money

Don’t let the quest for the “one and only” mythical passion derail you before you get started.  You are not destined for failure if you don’t find it.

The price/cost is too high

Why is it that people don’t want to pay for good service?  Most professionals will tell you that when they attend any type of gathering, people will ask for free advice.

Why do people think they can do a job just as well?

“I paid the plumber $200 and all he did was replace a washer.  I could have done that!”  But you didn’t do it.  How much water and money did you waste while your tap was dripping?

“My car wouldn’t start. I had to pay the mechanic a bundle and all he did was tighten the contact on the battery!”  After you cranked the ignition several times did you open the hood and look blankly inside before calling a tow truck?

“This new financial advisor just put my money into index funds.  What am I paying him for when I could have done that!”  Did you put all your money into Nortel during the dot.com bubble?  Did you transfer your entire portfolio to a savings account when the market crashed?  Did you jump from fund to fund, chasing returns?  If so, you probably lost a lot more that the fee you are now paying.

Related: How the behavior gap affects investor returns

Often you can pay once and get valuable information to enable you to continue on your own in the future – you change the washer yourself, check the car battery, do your own tax return, and confidently proceed with a financial plan.

Other times you have to consider the knowledge and expertise of the professional and pay the price.  Sure, you can learn to do almost anything, but think about whether you want to take the time to be proficient enough?

My husband knows how to change the oil in his car (for that matter, so do I), but we now choose to pay to have it done for us instead.

Don’t just go for the cheapest.  Go for the best you can afford.

Related: What’s busting your budget?

Final thoughts

Like the readers in the old National Enquirer ad – “this enquiring mind wants to know.”  I think about human behavior and what so-called “experts” want us to believe, and I wonder, why?  I don’t often get good answers.

Print Friendly, PDF & Email


  1. Alan on March 26, 2014 at 9:18 am

    Thinking you can beat the indexes by stock picking is an illusion. For a good explanation why, read Thinking, Fast and Slow by Daniel Kahneman.

  2. igra on March 26, 2014 at 10:19 am

    >These usually post excellent long-term gains and returns that regularly beat the index’s annual returns – often by a significant amount.

    Ditto Alan’s remark. It’s an illusion. Here is a decent article explaining why Dogs of the Dow don’t bark:


    And even if any of those strategies worked at some point in time, their mere publishing would cause any advantage to be arbitraged away very fast.

  3. Bernie on March 26, 2014 at 10:24 am

    Re: Beating the Index
    It irritates me to no end to hear the constant cry of the indexers…”you can’t beat the market so buy the market”. To me, that’s like a teacher telling one of his students that they’ll never amount to anything so don’t even try! The reason “most” don’t beat the market is because most don’t learn or want to learn about investing or even try in the first place because they’ve been told it’s almost impossible to do well.

    The four stock picking strategies you show above are excellent examples that it can be done! Having better returns than the index is quite achievable. You do not have to do it every year to be successful. Patience, knowledge & being able to filter out negativity is of prime importance!

    • igra on March 26, 2014 at 11:35 am

      I don’t think the argument is ”you can’t beat the market so buy the market” but rather “the probability of beating the market over a meaningful time period is very low so try at your own peril”.

      Sure, people win millions playing lottery every day but would one make lottery a part of their retirement stategy? I hope only as an overused joke.

      We’re psychologically predisposed to pay too much attention to low probability events with high payouts. And the financial industry and the media are all to eager to encourage us to gamble because it generates a lot a fees for them.

      • Bernie on March 26, 2014 at 11:59 am

        You make it sound like gambling. I’m taking about long term investing with solid steady blue chip dividend stocks…not trading. You’re much more likely to be successful over the long term with investing, not short term trading. The risk decreases with holding time. The market is not the holy grail…it is only the average of all the stocks, good & bad.

        • igra on March 26, 2014 at 2:37 pm

          >You make it sound like gambling.

          That’s because “An investing strategy that consists of buying the 10 DJIA stocks with the highest dividend yield at the beginning of the year” – Dogs of the Dow – sure does sound like gambling to me. 🙂

          >You’re much more likely to be successful over the long term with investing, not short term trading.

          I agree completely.

          >The risk decreases with holding time.

          Actually, it depends on the type of risk you’re referring to:



          >The market is not the holy grail…it is only the average of all the stocks, good & bad.

          Yes, the average that diversifies idiosyncratic, uncompensated risk away.

        • igra on March 26, 2014 at 4:20 pm

          >You make it sound like gambling.

          That’s because “An investing strategy that consists of buying the 10 DJIA stocks with the highest dividend yield at the beginning of the year” – Dogs of the Dow – sure does sound like gambling to me. 🙂

          >You’re much more likely to be successful over the long term with investing, not short term trading.

          I agree completely.

          >The risk decreases with holding time.

          Actually, it depends on the type of risk you’re referring to:


          >The market is not the holy grail…it is only the average of all the stocks, good & bad.

          Yes, the average that diversifies idiosyncratic, uncompensated risk away.

      • Bernie on March 26, 2014 at 3:56 pm

        Further to my comment here are some graphic examples to prove my point. Let’s say we purchased $1,000 of each of 7 commonly held U.S. blue chip stocks 25 years ago and then simply held on to them, nothing more. Each row below lists the stock, current value after 25 years ($) and average annual total return. The last row are the numbers had we purchased $1,000 of the S&P500 index.
        Coca-Cola(NYSE:KO) $20,236 12.79%
        Procter & Gamble(NYSE:PG) $24,863 13.70%
        Colgate-Palmolive(NYSE:CL) $49,434 16.87%
        Johnson & Johnson(NYSE:JNJ) $30,623 14.65%
        Kimberly Clark(NYSE:KMB) $22,938 13.34%
        Walgreen(NYSE:WAG) $41,255 16.03%
        Wal-Mart(NYSE:WMT) $25,623 13.84%
        S&P500 $8,686 9.03%

        In summation had we purchased $1,000 of each stock for $7,000 and held for 25 years our 7 stocks would now be worth $215,062 for an average annual total return of 14.46% or total return of 2,972.31% overall. In addition the dividends would have increased 2,216.52% in $ payout.

        Had we purchased $7,000 of the S&P500 index instead our current worth would be $60,804 for an average annual total return of 9.03% or total return of 768.63% overall.

        The key here is to buy quality, don’t put all your eggs in one basket and then hold on long term through thick & thin.

        • Gary on March 26, 2014 at 4:05 pm

          actually if you had bought walmart in 1972 — 100 shares at $15.00 each you would have over 15 million dollars today!

        • igra on March 26, 2014 at 4:34 pm

          >In summation had we purchased $1,000 of each stock for $7,000 and held for 25 years

          Well, the big question is had you?
          Did 25 years ago you have a way of knowing that these particular companies will bring such good returns? And did you then have a fortitude to hold these stocks through the good and the bad times?

          Hindsight is 20/20. And to me the above is a perfect example of data mining.


          • Bernie on March 26, 2014 at 5:05 pm

            I had the misfortune of being in mutual funds early on and then being with a financial advisor until I went DIY in 2008. It’s been a good ride since then, including the recession to begin my journey.

            You seem to be really negative igra! I’m speaking about my personal experiences besides making a point about low risk dividend growth investing. I’ve shared my returns on this space before. I don’t know what you choose to invest in but we’re here to learn from others so why don’t you share your story.

          • Bernie on March 26, 2014 at 5:11 pm

            I did mention those blue chip companies were commonly held back then & are still popular. I may not have held them for the duration if I was a DGI back then but I hold several of them now.

          • igra on March 26, 2014 at 5:22 pm

            It looks like we’re both recovering from working with financial advisors who sell expensive mutual funds! haha 🙂

            I went fully DIY in 2009 after starting to invest in low-cost index funds on the side in 2008. Since then I only invest in broad-based low-cost index funds and ETFs while adhering to an asset allocation which has appropriate risk level for my age and risk tolerance.

            My comment above wasn’t meant as negative against you. I was only trying to say that knowing what we know now it’s very easy to select several stocks that had fantastic returns over the past 25 years. This doesn’t mean that these same stocks will continue their stellar performance over the next 25 years though. And there is no way of knowing which 7 stocks will.

          • Bernie on March 26, 2014 at 8:17 pm


            Thanks for sharing your style of investing. You appear to have a well thought out plan that you’re comfortable with. I’m also very comfortable with my way. My way is a more hands on style, especially early on when much research is done in stock selection. You’ll find many seasoned DGIs hold a lot of the same steady eddies such as the one’s I mentioned. Once the stocks are selected it’s pretty much monitor and hold until changes are warranted. It’s best to have many stocks in the portfolio so if one falters (dividend freeze or cut) the net effect is minimal until the stock is sold & replaced with another.

            You’re absolutely right that it is not known which stocks will have or continue to have stellar results. That’s another good reason to carry many positions. I have 30 currently. Even if one had held those 7 through the 25 years and 4 went completely bankrupt, which is inconceivable, the 3 survivors would still have beaten the S&P500 results.

            In your investing you employ bonds for downside protection. Dividend growth stocks have lower beta than the overall market so they don’t have as much volatility. I go one step further by going with a mix that collectively outperformed in the past two recessions. My selections have long track records of increasing dividends regularly & well above rates of inflation. Down the road when I decide to tap into the portfolio for income I’ll be will to use the dividends exclusively without having to sell anything.

          • igra on March 27, 2014 at 7:35 am


            I’m sure there is more than one way of reaching one’s financial goals. And one’s rate of savings and discipline in executing chosen investing strategy are probably more important than many other factors. 🙂 I certainly share several of the same values that you seem to have like “don’t put all your eggs in one basket and then hold on long term through thick & thin.” 🙂

        • Bernie on March 26, 2014 at 8:23 pm

          igra & Gary,

          WMT had at least 8 stock splits since 1972 so it is quite possible they were $15 back then.

          • Gary on March 27, 2014 at 6:36 am

            igra & bernie: i should have looked up the info instead of going from memory. in oct 1970 wmt issued 300,000 shares at 16.50 ea. from then until 1999 there have been 11 — 2 for 1 splits. on 100 share you would now have 204,800 shares. it is on their web site. sorry for the confusion.

          • igra on March 27, 2014 at 7:25 am


            Thank you very much, for the clarification, Gary!

  4. Gary on March 26, 2014 at 11:43 am

    what a great post marie. i for one love to bounce ideas off of those that have been successful at what they do. our seniors have so much to offer — from doing your own plumbing to whatever made them successful investors. we call them our mentors!

  5. Wes on March 26, 2014 at 11:20 pm

    Hi guys, thank you for sharing your valued opinions here. I’m a recent reader of Boomer and Echo. I ditched my Financial Planners of 25 years and went DIY full-time. I sold all my mutual fund and ETF holdings in my portfolio and used all the strategies listed above in picking individual dividend paying stocks from both the US and Canadian Dividend Aristocrats.Last year my portfolio returned 26% and this year so far its up 24.46%. After the crash of 2008 my portfolio of mutual funds and ETF went down by close to 40%. Thanks to DIY financial write-ups like yours, I’m getting some positive results granted it won’t happen year after year.

  6. Bernie on March 26, 2014 at 11:40 pm


    Well done Wes, your numbers beat mine! I had 24.33% in 2013 & I’m up 7.34% YTD. I know I’ve been making a big deal about “beating the market” but, to me, total returns are secondary. They’re really only paper gains because I don’t intend to sell anything. My real focus is to maintain a reliable increasing income stream which beats inflation. I’ve been successful with this goal. There’s nothing more satisfying than to see those dividend increases come in like clockwork. I call them my pay increases 🙂

    I don’t know if you’re aware of it Wes but “Seeking Alpha” has quite a following of DGIs. I’ve learned much from that source.

    • Wes on March 27, 2014 at 10:53 am

      Hi Bernie,

      Thanks for the kind words. I’ve read postings in ‘Seeking Alpha’ and applied some investment concepts to my portfolio.

      I subscribe to The Dividend Growth Investors site and bought US stocks from his portfolio list. They’re from the US Dividend Aristocrats list.

      Thanks for the suggestion.

  7. Grant on March 27, 2014 at 9:45 am

    @Bernie: I really don’t understand why you say that total returns are only secondary. Surely your aim ought to be to have more money so you can retire better, or earlier or be able to give money away? You seem to saying you don’t mind giving up returns for the entertainment value of picking dividend paying stocks?

    • Bernie on March 27, 2014 at 10:00 am


      The mindset of a dividend growth investor is to maximize income that increases regularly at a rate in excess of inflation. While total returns are secondary they are typically quite good with these types of stocks. Performance is needed to provide the growth to fuel more dividend growth. Total return is not a focus, it’s a by-product…especially is the distribution phase. DGIs do not want to sell stock in retirement. They want to live off the income!

  8. Boomer on March 27, 2014 at 10:11 am

    Thank you Alan, igra, Bernie, Gary and Wes for your comments and opinions. It’s apparent that investors are PASSIONATE about their investing styles. I love a good discussion.

    Like I mentioned – I was just wondering ….

    Personally, for the past 30 years or so I have built a portfolio of mostly dividend paying stocks and I also have ETFs and, yes, mutual funds in areas where I don’t have individual holdings – a hybrid style, I guess. It works for me. As Bernie mentioned, I plan to use my dividends to boost my retirement income in the future.

    • Wes on March 27, 2014 at 10:34 am

      Thanks for the informative investing ideas. I decided to take an early retirement and am depending on the dividends from my portfolio to supplement my retirement income. So far so good.

  9. Grant on March 27, 2014 at 7:15 pm


    I understand the attraction of dividend investing, but I think it is important to take a total return approach in order to maximize funds for retirement. This article takes an interesting look at the behavioural reasons why we like to receive dividends rather than capital gains.


    This article looks at some of the issues with taking solely an income approach with your portfolio in retirement.


    That said, we must all find an investment strategy we are comfortable with in order to stay the course, as it is the behavioural pitfalls of investing that are most important of all. However, I think it’s helpful to understand as much as we can about the strategies we choose to follow.

    • Bernie on March 27, 2014 at 11:39 pm


      I agree you should go with what you’re most comfortable with. Gather as much knowledge as you can about the various different investing styles determine your goals then set your course. If you don’t feel confident about DIY then perhaps go with an advisor or money coach.

      I’m very biased about my investing style, but, it works for me…it may not for you. I don’t know anything of your situation so I can’t comment about which course to take. You indicated you prefer to focus on total return in your journey. That comes with more risk and volatility but you probably know that. If you have many years to save you could probably take on more risk.

      Don’t know what else to say. If you do want to know more about dividend growth investing I suggest you read “The Single Best Investment by Lowell Miller”. It’s one of the very best books on the subject. It’s available as a free pdf download here: http://www.mhinvest.com/files/pdf/SBI_Single_Best_Investment_Miller.pdf

      Hope everything works out for you and you reach your goals!

      • Wes on March 28, 2014 at 10:49 am

        Bernie, Grant:
        I started my investing journey over 30 yrs ago buying CSBs and GICs and putting the money back into more of the same until one famous financial educator ( now banned by the OSC )opened up my eyes about those Canada Sucker Bond and Guaranteed To Loose ‘Investments’ because of the effect of inflation. He was big on mutual funds. So through an independent financial planner, I bought mutual funds. In 25 yrs my portfolio didn’t do much except to pay for the planners lifestyle from the trailer fees and mers from my portfolio. I started reading about DIY and DGI investing after the Black Monday of 1999 -2000? I read Lowell Miller’s book and many others including The Investment Zoo by Jarislowsky, The Little Book Series on dividend investing, articles by David Stanley in the Canadian Moneysavers and Norm Rothery in the MoneySense mags and of course the DGI blogs online. They’re all great sources of investment idea. I’m still continuing to learn investment knowledge which I hope will help me and my family financially sustainable and independent. Thanks for the informative discussions.

        • Gary on March 28, 2014 at 12:01 pm

          boy does that sound familiar!

          • Bernie on March 28, 2014 at 1:53 pm

            Gary & Wes,

            Yep, almost the same as my story except I went 15 years DIY in mutual funds, 9 years with a full service financial planner to 6 years DIY in DG stocks.

            Gary, I’ve studied many different investing philosophies & DGI is the best risk/reward strategy I’ve come up with. I know many indexers swear by their couch potato journey, but let’s face it, it is very low risk, low reward with long term TRs in the 5%-6% range.

            Some actual CAGR TR numbers…
            Ticker 1-YrCAGR 5-YrCAGR
            VIG 28.87% 18.18%
            VYM 30.08% 20.80%
            SPY 32.31% 20.16%
            XIU 11.63% 13.07%
            XBB -1.31% 4.80%
            My RRSP 24.33% 22.52%

  10. Grant on March 28, 2014 at 4:17 pm

    Bernie, you are very passionate about investing, which is great to see!:) However, I must comment on some fundamental misunderstandings you have on passive index investing (the couch potatoe strategy)from your last comment.

    Passive indexing can be as high risk or as low risk as you want it to be determined by your asset allocation, and the higher the risk the higher reward. If you make it 100% stocks it will be high risk, if you make it 100% bonds it will be low risk, or anything in between with the corresponding high or low returns determined by the amount of risk you choose to take.

    The equity returns you list are, of course 100% equity, and only over 5 years during one of the strongest bull markets in history, so of course the returns will be high. Wait until the next big stock market crash, when XBB will go up, and see what the numbers look like.

    One of the good things about DGI is that with the focus being on dividends, it is easier for people to stay the course when stocks crash and stay invested, but dividend stocks are still stocks and a 100% equity portfolio is a very risky portfolio. Did you know that in the 1930’s dividends dropped 50%!

    looking at the evidence in the financial literature, I see that a passive index strategy (a total return strategy) is the best strategy. In addition it requires very little work to maintain once set up, allowing more time for the other important things in your life.

    However, I never try to talk anyone out of DGI, as it is very good strategy, a close second, even, to passive indexing!!:)

    • Bernie on March 28, 2014 at 5:47 pm


      The couch potato index portfolio with 40% in bonds is the one I was referring to when I said long term returns are 5 to 6%. Of course, the all equity index will do well over time but with beta near 1.0 it will have much greater volatility than dividend funds. No big deal if you have a long time frame to invest in!

      I didn’t really want to comment on the link you had yesterday to a Larry Swedroe article but what the heck, he always makes my blood boil. Mr. Swedroe is a well known anti-dividend prophet. He just doesn’t get or understand the dividend popularity with the masses. The DGI community on Seeking Alpha pretty much considers him to be the anti-Christ.

      As I said, I wish you well with whatever investing strategy you choose!

    • Bernie on March 28, 2014 at 6:48 pm


      I’m sorry I forgot to comment on your worst case scenario, ie-the 30’s. Yes that would have been very difficult times for dividend investors as well as investors who bought the market. If the DGIers,(or indexers) needed income they would have had to sell stock to make up the difference for the div hit. That said, their stock value wouldn’t have dropped as much as the market buyers as div stocks are lower beta. The stats show the worst years in the S&P500, or whatever they called it then, were 1930, 1931 & 1937 when they had returns of -25.12%, -43.84% & -35.34%. An index fund had it existed would have dropped roughly those percentages. My current portfolio has an overall beta of 0.54 so it would only have dropped 54% as much as the market.

  11. Unless you have a large portfolio over $100K where you can properly diversify, I think stock picking is a fool’s game. It’s a proven fact that management fees take a big bite out of your investment, that’s why I stick in my TD e-Series funds.

    • Bernie on March 28, 2014 at 6:01 pm

      I feel that figure should be $50K Sean but I’m sure we can agree to disagree. One can buy dividend ETFs like XDV.TO, CDZ.TO, VIG.N or VYM.TO in the interim. There’s not much dividend growth in them but they are nicely diversified.

      Many advisors and mutual fund sellers downplay stock investing because they can’t make any money off DIY investors.

  12. Wes on March 28, 2014 at 9:20 pm

    Well said. I had most of the ETFs from Barclay, Vanguard and BMO’s brands in my portfolio. Although the MERs are lower than equity and income/bond mutual funds, what burned me to no end was the fees I was paying regardless of how my investments were doing. I was paying these guys to look after my money but I came to the conclusion ( late mind you )that only yourself care about your investment money.
    There are well meaning financial bloggers/writers out there who are generous to share their research findings on a particular ‘blue chip’ stock who put their own money where their mouths are. They are DGIs and DIYs like us who had learnt the hard way.
    In a sense, I am a ‘Couch Potato’ kind of investor who buy and hold Dividend Aristocrat stocks based on my own stringent criteria, thanks to bloggers like Dividend Growth Investor, Rob Carrick, David Stanley and Norm Rothery to name a few.

  13. Louf on March 29, 2014 at 12:35 am

    I was reading all the comments and i am a DGI started as of 2012. I am interrested in the comment you made about posting the stocks you have and I believe results achieved. Where can i find this as i am a newby who finally got sick of being raped for trailing fees. I still am locked in for some back end fees but will be investing a considerable amount in blue chip dividend stocks soon. I have read on the Canadian Dividend Darlings and Achievers but want to diversify globally.

    Many thanks to all that have posted here as it is inspiring.

    • Wes on March 29, 2014 at 12:25 pm

      Hi Louf,
      Some of the US Dividend Aristocrat companies are operating globally eg. Coca Cola, Johnson and Johnson, Colgate Palmolive, WalMart, McDonalds to name a few. But if you need to find dividend paying companies based outside of the American Continent, you might want to try Morningstar.com site.
      I only have 2 international companies in my portfolio, Nestle and Royal Dutch Shell. They trade on the NYSE. Good luck in your quest to self independence.

      • Louf on March 29, 2014 at 9:16 pm

        Thanks Wes…I like that i know and understand these companies.

  14. Bernie on March 29, 2014 at 9:17 am


    Sure, no problem.

    “The Canadian Dividend All-Star List” which is a list of Canadian companies with five or more consecutive years of dividend increases can be found here:

    “The U.S. Dividend Champions” lists can be found here:
    Just click on excel spreadsheet or pdf format immediately below “U.S.Companies with 25+ Straight Years Higher Dividends”

    There are many to choose from in these lists which are maintained monthly. Happy investing!

    • Louf on March 29, 2014 at 9:15 pm

      Greatly appreciated Bernie.
      Thank you

  15. Grant on March 29, 2014 at 11:18 am


    You are mistaken if you believe that dividend funds are less volatile than total market equity funds. In 2008, CDV went down 30.49% and ZDV went down 30.84% (both including dividends) and the Canadian broad market ETF, XIC, went down 32.95%. Not much difference really. Compare that to a 60/40 stock bond indexed portfolio, in 2008 XBB went up 6.13%, so your portfolio would have gone down much less, plus you would have sold some bonds and bought stocks when they were cheap to rebalance, thus improving long term total returns.

    One aspect I like about Larry Swedroe is that anything he writes is backed by evidence from the peer reviewed financial literature. I think you ignore what he has to say at your peril.

    With regard to the 1930’s, I don’t think dividend stocks would have performed any differently to how they performed in 2008. You mentioned your portfolio has a beta of 0.54. Beta is measured over a preceeding period of 3-5 years. The last 5 years has not included a market crash. I think that in a market crash the beta of your portfolio would sky rocket, and the stocks would behave much like dividend stocks did in 2008.

    Value stocks, over the long term, have higher risk (more volatility) and higher expected returns, than the broad market. DGI is a form of value investing, so dividend stocks would be expected to behave as they did in 2008.

  16. Bernie on March 29, 2014 at 12:30 pm


    I’m pretty sure you mean CDZ & XDV. I don’t know what their overall betas were in 2008 but they currently are 0.56 & 0.61. I don’t care for ETFs personally, I prefer to cherry pick my own stocks. My current mix collectively would have returned -12.05% in 2008. Granted a higher bond content would have helped out in 2008 but it would also have slowed down the recovery in 2009 onward. I did experience one cut and two freezes (dividends) in my portfolio in 2008 but these stocks were quickly replaced with others. The remainder increased their dividends as they usually do so my dividend flow increased in unison. In the DG stock space the percentage of dividend aristocrats that cut their dividends during & after the recession was very small so many capable replacements were available to take their place.

    I have no respect for Swedroe. A lot of his assumptions are not backed up by facts. Checkout his article here (including comments): http://seekingalpha.com/article/2093953-dividends-and-the-magic-pants
    and reply article by Chuck Carnevale here (including comments):

    Your comments on the 30’s are your opinions as mine are. We cannot say for sure what would have transpired with our current portfolios.

  17. Grant on March 30, 2014 at 2:59 pm


    The fact that CDZ and XDV went done almost as much as the broad market XIC, in 2008, show that their betas were close to 1.0, and indicates how dividend stocks behaved at that time. I’m curious how you calculated the return of your current portfolio in 2008. Did the actual stocks return -12.05% that year?

    Thanks for the links to the Seeking Alpha articles. I had read the Swedroe article, but not the Carnevale article. Both articles are very interesting. However, I was a bit shocked at Carnevale’s obvious contempt for academic research. As a physician, I practice evidence based medicine every day, and like to practice evidence based investing also. Beside, Swedroe is not saying there is anything wrong with DGI, just that there are some issues – less tax efficient, less diversification, and that the value factor can be accessed more efficiently in other ways in many markets. However, he acknowledges the behavioural advantages of DGI – which is more important than anything else – which help investors stay the course and not sell when the market crashes. So I think DGI is a good strategy, just not the best, but we all need to find the strategy that works best for us and stick with it. All the best on your investing journey!

  18. Bernie on March 30, 2014 at 3:36 pm


    I used the annual performance feature in Morningstar to get the annuals.

    You should read Carnevale first Grant. He is a fair & credible man who is factual. He has no contempt for Swedroe or his substantiated facts. What he has issues with are his assumptions which are twisted to imply fact. There are many creative ways to state your case I suppose. Sometimes there is a fine line between fact & opinion.

    Anyway, thanks for the comments. We can agree to disagree & continue with what we believe in.

    All the best!

Leave a Comment

Join More Than 10,000 Subscribers!

Sign up now and get our free e-Book- Financial Management by the Decade - plus new financial tips and money stories delivered to your inbox every week.