I was comparing PCRDX tonight using both Yahoo and Morningstar charts. Yahoo is a price chart only while M* charts divendend reinvested. They tell two different tales over the last 3 years.
Yahoo's charts detail a 17% loss in share price which is only half of the story. Since PCRDX pays a sizeable monthly divendend an investor would be happy to know that this same investment gained 30% over the same time period.
What gives? Well, it's all in the charts.
Yahoo is merely a price chart so when dividends are paid out the price chart is negatively impacted. Morningstar charts assumes an investor is reinvested their dividends and therfore owns more shares. M* chart constructs its mutual fund charts as if an investor made a $10,000 investment and displays its performance over time with dividend and capital gains included...yahoofinance is merely a chart displaying a mutual fund's share price.
Investor (haven't heard much from Investor as of late) pointed this out to me over numerous occassions and I finally "got it"...I hope others realize the difference between these two commonly used charts.
Below are two website's charts over the same 3 year timeframe...very different charts. Notice the dividend payouts in each.
Yahoofinance:
Vs. M*:
Comments
And here is the bigcharts version for 3 yeas.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?nosettings=1&symb=pcrdx&uf=0&type=1&size=2&sid=0&style=320&freq=1&entitlementtoken=0c33378313484ba9b46b8e24ded87dd6&time=10&rand=8548&compidx=aaaaa:0&ma=1&maval=200&lf=1&lf2=0&lf3=0&height=0&width=0&mocktick=1
peace,
rono
But what it doesn't show is what happens when you reinvest the dividends into a different investment which is, IMO, the key to successful investing and why total return really isn't all that matters (because price erosion might be worth it if you have a reliable stream of dividends that you can plug into the right investment).
Other thing is you need to be careful because not all of Morningstar's charts are correct...I'm aware of at least 1 CEF for which Morningstar's total return ("growth of $10,000") chart is missing the dividends.
Hey BFB,
You bring up a separate issue which I totally agree with...diversification...especially where one investment's outperformance can be captured and reinvested into another that might be underperforming at the very same moment. Stocks and bonds used to work that way. A "pairing investment" I like with PCRDX is EDV, Vanguard's Extended Duration Treasury Index ETF.
Here's is a 3 year "ying and yang" of these two funds. If an investor could be disciplined to move profits (price appreciation or dividends) from one to the other a smoother ride could be achieved.
Here are the two charted over the last 3 year timeframe:
Only thing is IMO the diversification via actual cash dividend streams is much less ephemeral than diversification via price appreciation....reason being that prices are a function of other investors, how they behave, when they are liquid, etc whereas the cash flows of real business are what they are regardless of whether other investors are willing or able to act on it. Therefore, I always expect the "diversification" benefit of price appreciation to be traded away in the future whereas I expect a diversified basket of dividend streams to never be arbed away (even though it could be destroyed by other means).
That's not to say I don't also value capital appreciation, but I think it's misleading to lump it together with dividends as if a dollar of share appreciation were in every way equal to a dollar of dividends when they are each valuable in their own unique way. So ideally I always want two charts, a share price chart and a dividend price/distribution chart, and if you can't give me that then I'd rather have the share price chart alone so I can estimate the dividends separately than have it all convoluted and commingled into a single inscrutable "total return" chart.
Other thing is that if your portfolio includes very illiquid investments, which I seek out whenever possible, that only have buy/sell prices at a few isolated points in time then it's probably not possible to construct a total return chart...so any comparison or consideration of the diversification qualities you might want to make when dealing with such assets would have to be based on a dividend chart alone or a dividend chart plus a few isolated price points.
Thanks BFB,
Your responses are very thoughtful...seem worthy of another more indepth thread...I was merely trying to point out that not all charts are created the same.
I would appreciate hearing more about what has worked for you investment wise especially, in the area of "creating a diversified basket of dividend streams".
Welcome to MFO.