IndependentInvestor Newsletter 082C of 31 01 2010 

Today's quote: In Canada, there is what I call brutal bank dominance of the market. What the 1987 Big Bang did...So today, if you have an account that is under $350,000, and you want to talk to the bank, you talk to a machine. That was a fundamental mistake in Canada. Peter Brown, founder, Cannacord Financial

Hello [NAME],

This is our eighty-second newsletter on current events and new developments, always from the viewpoint of the independent investor. If you are a new member, click here for general information about our newsletters.

This week we discuss the disadvantages of dividend investing.

We hope you enjoy it.

Dividend investing: is it closet stock picking?

Dividend investing has many followers. And they can describe numerous advantages of a pro-dividend approach (some of which we skeptically, but hopefully fairly, commented on in our previous commentary in this series). We now take a look at some of the disadvantages. First and foremost, contrary to an index-based approach, dividend-based investing runs up against the rock of Gibraltar of modern investing: diversification. And in practice this technique starts looking like old fashioned stock-picking, on whose shores so many boats of investors have sunk. And the dividend-focused investor also exposes himself to additional risks which we label as irrational factors, that is to say risk factors that are unrelated to the fundamental profitability of the companies issuing those dividend-paying shares. Interested? Read on.

To read the balance of this commentary, please click here to access the full text on our site.