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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8883  
Subject: Re: The Case for Dividends Date: 2/10/2013 1:02 PM
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I really don't care what Munger thinks of Siegel. Munger has a way with words doesn't he?
Siegel's predictions are not under discussion here.


Why don't you care what Munger thinks of Siegel? Munger is one of the most astute investors out there and without him Warren Buffett and Berkshire Hathaway wouldn't have the stature and success they enjoy today. I think long and hard about anything Charlie Munger has to say. He's much smarter (and richer) than I'll ever be.

Siegel's predictions about the future are based on his interpretation of the past. Most predictions are. What Munger was saying was that his premise is flawed because not only does he not compare apple to apples, he doesn't even compare apples to oranges. He compare apples to elephants. I wish Munger would have elaborated and got into specifics.


Whether or not the investor reinvested the dividends is not the point here.

On the contrary.

Reinvested dividends are very much the point as far as Siegel is concerned. It's curious that the author of the article that you provided a link to doesn't mention reinvesting dividends because he references Siegel and his finding throughout. Siegel's premise is based unequivocally on dividends being reinvested. The compounded rate of return for Philip Morris that the author quotes assumes the reinvestment of dividends.


Philip Morris is not the only company that can raise prices. You don't have to be addicted to a product to keep buying it after prices are raised.

Of course Philip Morris isn't the only company that can raise prices!

Apart from the author curiously not mentioning the cornerstone of Siegel's argument, that is, reinvesting dividends, he muddied the waters further by this (which is what my remarks about Philip Morris were in response to):

The best of the best hails not from a hot, rapidly growing industry, but instead from a field that was actually surrendering customers the entire time: cigarette maker Philip Morris

It's irrelevant to the argument that Philip Morris was losing customers. What I said was: there are very few companies who are surrendering customers that are likely to be good investments and that Philip Morris was an exception to this rule. What I did not say was companies that can successfully raise prices are the exception to the rule. Most successful companies don't have a shrinking customer base.

It's noteworthy that a simple omission by an author can so easily lead his readers down the garden path. Siegel's message is, without a shadow of a doubt: for superior returns, it's not the dividends, it's reinvesting them that counts.

kelbon
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