Replies to post #136584 on Biotech Values

[DewDiligence]

Re: WSJ on dividend stocks as a bond proxy

Weren't we just discussing a similar point?!?

Yes, we did (if you’re referring to preferred stocks). Most preferred stocks are callable by the issuer, which means the holder is making a 1-way bet on interest rates—i.e. you lose capital if interest rates go up, but you do not gain commensurately if rates go down because the stock will be called.

The premise of this WSJ article is somewhat silly, IMO; for instance:

Lewis Altfest, principal adviser at New York-based Altfest Personal Wealth Management…suggests a 70% to 30% stock-to-bond portfolio now, if clients can tolerate the volatility in the stock portion. If they can't, he suggests 60% to 40%.

Having 40% of your portfolio in bonds won’t get you very far these days.

The 30% stake in bonds, meanwhile, would be divided among various maturities of Treasurys, convertible bonds, high-yield U.S. corporate bonds (those with below-investment-grade credit ratings) and emerging-markets bonds.

No munis? That’s an odd omission.

dividend-paying stocks aren't always an ideal source of capital growth. The stocks are often mature, and when investors tap them for income they aren't reinvesting dividends to maximize their returns.

Vacuous and tautological.

…the biggest advantage of actively managed funds is the expertise behind them: A professional manager can judge when a company is financially solid enough to maintain, or even raise, its current dividend, and it might be tough for casual investors to make that call.

More silliness.

While you are collecting periodic income distributions from a dividend-oriented stock fund, the share price of that fund will be moving up and down, sometimes resulting in periods when the overall return is negative.

No kidding.

Unless you have several hundred thousand dollars to invest, you probably can't buy enough individual stocks to get reasonable diversification in your portfolio.

That’s nonsense. Now that there is no longer any commission penalty for buying “non-round” lots, a small stock portfolio can be diversified just as easily as a large one. Diversification is more of an issue for small portfolios consisting of individual bonds, where you typically do pay a higher transaction cost for small transactions.

p.s. The one point I thought the article would surely make—that bond funds are riskier than individual bonds since one cannot avoid interest-rate risk by simply holding to maturity—is left unsaid.