MoneyTalk

 

Which Is Better: Value Or Yield?

20 August 2012
In this week’s episode:

David Kuo chats with longtime Foolish writer Stephen Bland about his style of investing. Stephen, who is an exponent of both value and yield investing, explains why it is important to understand the difference between the two when a share can straddle both styles. They look at IG Group (LSE: IGG), Royal Bank of Scotland (LSE: RBS) and Aviva (LSE: AV) in detail. A transcript of this podcast is available in two parts, here and here

 

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David Kuo and Stephen Bland
David Kuo and Stephen Bland

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Comments

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goodlifer 21 Aug 2012 , 2:44pm

I see myself primarily as a dividend investor.
I'm just about fully invested, but always reinvest ny dividend payments.

I find myself attaching more and more importance to value each time I buy.

This is primarily to try to avoid being lumbered with a yield stock which goes slowly pear-shaped, because it either cuts its dividend or fails to increase it in line with inflatiion.

Secondarily, it sometimes enables you to make an opportunistic, profitable sell

Mr Bland seems to want to categorize us as either value investors or yield ones,
Any reason why we sholdn't be a bit of both?

There seem plenty of value stocks around with quite a decent yield.
AV. for example - as he probably knows already!

TMFDragon 22 Aug 2012 , 7:49am

Hi goodlifer

Aviva is an interesting example of a share that can be both value and income at the same time.

However, value investors will most likely sell once the value is outed. Income investors, on the other hand, are likely to continue holding the shares provided the dividend stream is in tact even if the value is outed.

What you decide to do when the value is outed will determine whether you are an "income" or "value" investor.

Foolish regards

David

goodlifer 22 Aug 2012 , 10:55pm

I don't buy this simplistic - and rather pointless - pigeonholing
Real life is seldom as tidy as some people would like it to b

What I decide to do when the value is outed.depends on the circumstances.
If Mr Market were to offer me more than my share was worth I wouldn't be a value investor if I hung slavishly on.

I'd be a mug.



lookingforclues 23 Aug 2012 , 7:05am

SB once again talks about the need for a concentrated portfolio (high weighting to a single share) if you want to make big money quickly. What he fails to acknowledge is that this is not at the extreme end of the investing spectrum, it is a different activity altogether - gambling. Once you get to the kind of risk associated with holding one share hoping for a multi-bag you might as well take your money down to the casino and put it all on the wheel. Any rational analysis of expected return is completely swamped by volatility.

Investing is about obtaining a reasonable return whilst protecting capital and this can only be achieved in the market by diversification. SB talks elsewhere about the importance of mindset when it comes to value or yield investing. He needs to think about the different mindset of gamblers and investors when considering portfolios. They are not the same and they are not extremes of the same.

lfc

goodlifer 23 Aug 2012 , 10:59am

lookingforclues
"Investing is about obtaining a reasonable return whilst protecting capital and this can only be achieved in the market by diversification."

Absolutely right.
Forget that and you've turned yourself into a speculator..

tenuirostris 25 Aug 2012 , 10:21am

There seems to be a third way...

It is interesting to note that despite presenting a 'one or the other' dichotomy between HYP and value style players, Pyad appears himself to be a bit of both.

It looks like he operates a high yield trading style for his own investments as can be inferred (possibly wrongly) from the personal interest statements at the end of some articles etc. For example, he has traded out of IGG as some of the value has evaporated. Also he holds Barclays despite stating quite firmly that he believes RBS is a better value prospect among banks.

The best way I can find to resolve that is to assume he is swayed by the non-zero yield of Barclays. Alternatively is it a greater focus on perceived 'safety': e.g. the lower threat of government intervention with BARC cf. RBS?

Either way, it does look like neither the get-rich-quick(-ish) value style nor the buy-and-hold-forever HYP one but a kind of third way...

Ten

PS I would understand if Pyad does not want to comment on his own holdings as they are a bit personal. However, some of this info is now 'out there' as a result of end-of-article disclosures and is not easily resolved (by me at least) in terms of a one-or-the-other dichotomy. Having said that, I would be interested to know how he weights his own investments these days: are they spread fairly evenly or does he bet a large 'AVIVA in the value portfolio'-like proportion on shares he has most confidence in?

qvg 30 Aug 2012 , 8:37pm

goodlifer,
i agree .... first time i have listened to the pyad man, and it will be the last!

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David Kuo is The Motley Fool’s media personality. He can be heard on BBC London’s (94.9FM) Breakfast Show where he arouses listeners every weekday morning with his unique brand of financial news. He is also a regular commentator on national news programmes including CNBC, BBC News, and Sky News.

David stumbled into the world of broadcasting at the turn of the Millennium when he was invited to comment on the stock market crash. He says, “I think I stunned Londoners speechless when I said the good thing about the crash is that shares are now more affordable for people who want to invest in the stock market!”

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