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Alternative Market Briefing

Other Voices: Warren Buffet - Dump your equities and keep the dividends

Thursday, September 05, 2013

Jad Comair
This open letter to Warren Buffet is from Jad Comair, Founder and CIO Melanion Capital, Paris.

In finance, a dividend future is an Exchange-traded derivative contract that allows investors to take positions on future dividend payments. Dividend futures settle on the amount of dividend paid by the company during the period of the contract.

One day soon, all investors will know what a dividend future is. Indeed, because they're simple, easy to understand and because dividends are so familiar, the time required to educate investors is minimal, hence the immense potential crowd available to vote in their favour.

I would go further. One day soon, investors will convert all their equity holdings into dividend futures. When you think about it, equities are so difficult to price and trade. According to Benjamin Graham’s bible for serious investors, a company’s market price is interesting if it is at a discount to its intrinsic value. If you take some basic intrinsic valuation models like the CAPM or the DDM (which, by the way is considered as rocket science in our industry, but has in fact no scientific basis whatsoever, but that's another story...) to assess the price of an equity: you need to be able to forecast a company’s cash flow for (at least!) the next ten years (personally, I don't even know how many eggs I'll have for breakfast tomorrow morning!) then you need to discount these cas......................

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