I saw the following tweet and related to James’ sentiment:
“It pays a good dividend” might be the most common, and least informed argument for keeping any individual stock.
— James Osborne, CFP® (@BasonAsset) September 26, 2016
I love dividends, but “paying a good one” is an awful argument for buying or keeping an investment.
Other contenders for “least informed” investing statements are:
I’d buy company X, but it’s expensive and I couldn’t afford many shares.
Usually this is said when discussing a company like Apple, which even now at ~$100 a share means that someone with $1,000 could purchase only 10 shares. If they bought something cheaper, like a dollar, they could buy a lot more shares (a thousand shares to be exact, in this example). Then, as their thinking goes, it only needs $1.00 growth to double, where with Apple it has to grow one hundred times more to double.
There’s a lot here to unpack. That said, I can’t tell you how many times I’ve had conversations like this. Needless to say, the actual price of the share doesn’t matter. And, growth is best thought of as a percentage — so 100% growth is equally difficult regardless of whether a share is $1 or $100, unless for some reason one is not priced correctly.
Another malformed sentiment comes into play when people prepare a personal budget (including setting aside money for investing). I often hear:
I have a cash flow problem.
When what they really mean is “I knew my expenses ahead of time, but I didn’t have the discipline/interest/ability to put money aside ahead of time.”
In business, a cash flow problem often has to do with not-yet-collected receivables (money you’ve earned, but not collected), money that was a receivable but is for some reason uncollectible (a customer refuses to pay), or deals you were expecting/hoping to close, but haven’t.
Individuals usually use it to mean, I’m going to get a paycheck in two weeks but have already spent it… now we have to wait two weeks until I have the money to pay for what I’ve already spent.
These two situations differ in a very important way.
In the former case, businesses were reasonably expecting to have the cash they’ve already spent.
In the latter case, people should never have been expecting to have future paychecks today. They just didn’t have the discipline (or the situation didn’t allow them) to postpone their spending.