I recently came across this fantastic discussion with Peter Schiff from 2002. He accurately describes the economic conditions at the time and how he planned to profit from them. His commentary has proven to be remarkably prescient in light of the current state of the global economy.
Among the most memorable points he discussed is the reasoning behind his decision to only invest in dividend yielding stocks. He says Wall Street has brainwashed people into believing that dividends are no longer required.
As a long term investor you’ve got to look at the fundamentals of the company, you’ve got to look at the dividend yields. That’s how you make your return. What a stock is, the way you value a stock, it’s the present value of its future dividend streams. Most people today who are buying stocks don’t even look at dividends and most companies aren’t pay them, which is one of the reasons that they can get away with faking their earnings. Because if you don’t have to pay a dividend, you can pretend you’re making money. The reason that Enron was able to pretend they had earnings is because they didn’t have to write a check. You can’t send out a pro-forma dividends check, “this is the money that we could have paid you out in dividends, but don’t cash it”. So the market is still extremely overvalued and don’t believe the propaganda, and that’s what it is. When you’re listening to an analyst on a lot of these popular financial shows, the mainstream Wall Street firms, you’re not getting investment advice, you’re getting propaganda. These firms are trying to sell you stocks. Their real clients, their banking clients, are trying get rid of stocks. And they hire these Wall Streets firms to peddle their merchandise, and they want to get as much as they can from these overvalued stocks. So you’re not getting unbiased advice.
How can anyone disagree with that? He later outlines the reason he specifically looks for stocks in companies that offer a dividend yield higher than their corporate bond yield — as an equity investor, you are assuming more risk and deserve to be compensated for that risk. He describes non dividend yielding stocks as a ponzi scheme.
Of course Alan Greenspan put an end to the bear market he forecasts in this video with historically low interest rates, but I’m sure if you asked him today he would argue the bear market never ended if you price the stocks in any currency other than the US dollar… and I wouldn’t disagree.
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