05-06-2014, 05:04 PM
Sorry, but I just can’t seem to let this Chowder thing drop. I am tempted to just shut my trap because it seems to be very popular among plenty of people that I respect. But in the hope that perhaps you all can help me understand what I am missing, I’ll press on.
I was thinking about it in the car today, and this analogy struck me: Say you’re shopping for a car, and among many other criteria, both mileage and horsepower matter to you. Among the choices available to you are cars with great mileage and low horsepower, high horsepower and crummy mileage, and some that present a reasonable balance of the two. Is there any universe in which you would add the horsepower to the mileage in order to compare cars? What would that number even mean?
I understand that yield and dividend growth rate are somewhat related, but perhaps only marginally more so that mileage and horsepower. They measure different things and the sum of the two values is, in my mind, nearly meaningless. They are both important, and both must be weighed, and indeed they must be weighed in light of each other. And further it may be completely true that the lower one value is, the higher you’d demand of the other. But still, the sum is a meaningless number. The sum itself measures nothing.
I agree completely that a good portfolio should include companies with a variety of different yield profiles. But if anything, the Chowder number is at odds with that goal. If I want some high yielders (that may have low dividend growth) as well as some fast dividend growers (that may have lower initial yields), then I need to look at those metrics separately to construct my portfolio. The Chowder number gives you no actionable information in constructing your portfolio.
Is it really just me?
Thanks in advance!
I was thinking about it in the car today, and this analogy struck me: Say you’re shopping for a car, and among many other criteria, both mileage and horsepower matter to you. Among the choices available to you are cars with great mileage and low horsepower, high horsepower and crummy mileage, and some that present a reasonable balance of the two. Is there any universe in which you would add the horsepower to the mileage in order to compare cars? What would that number even mean?
I understand that yield and dividend growth rate are somewhat related, but perhaps only marginally more so that mileage and horsepower. They measure different things and the sum of the two values is, in my mind, nearly meaningless. They are both important, and both must be weighed, and indeed they must be weighed in light of each other. And further it may be completely true that the lower one value is, the higher you’d demand of the other. But still, the sum is a meaningless number. The sum itself measures nothing.
(03-14-2014, 04:11 PM)rnsmth Wrote: I think it can help in Portfolio Construction.
I have often written that a DG portfolio is like a symphony. Individual companies are the musicians. There is room in my portfolio for initial yields as low as 2.75% with higher dividend growth rates (at purchase), for stocks with initial yields double that with lower growth rates, and for companies with higher initial yields and higher DGR. I have all three.
It is a balancing act and as the artistic director of my dividend growth compounding machine symphony the Chowder guideline helps me keep a sweet sounding, balanced group.
I agree completely that a good portfolio should include companies with a variety of different yield profiles. But if anything, the Chowder number is at odds with that goal. If I want some high yielders (that may have low dividend growth) as well as some fast dividend growers (that may have lower initial yields), then I need to look at those metrics separately to construct my portfolio. The Chowder number gives you no actionable information in constructing your portfolio.
Is it really just me?
Thanks in advance!