In trading, there is always friction, and each incidence drags on your returns. The friction may come from simple things such as the fees you pay for your trading not being justified by your results. Alternatively, it can be that you take suboptimal trades instead of taking trades that reflect your rules. This one is startlingly common.
However, whilst perusing LinkedIn I had a suggested post pop up from someone I don’t know so I watched for a bit and in the bit I watched they suggested that they didn’t like dividend reinvestment programs because they created a series of differing cost basis for each dividend payment. It dawned on me that I had never really considered laziness as a source of friction in trading. Granted there are a variety of behavioural sources of friction but I hadn’t considered that the trader was simply lazy. But then I reflected on the number of traders who balk at simple record-keeping or journaling their trades effectively. These could be classed as laziness and a source of friction.
For the record, I am a fan of DRP schemes under the right circumstances. If you are a long term trend follower and the company you hold a position in offers a DRP for the tenure of your investment then you are insane not to use DRP. The reason is simple – it is a form of pyramiding at a discount.
Consider the chart below which shows STW as both the price only and the adjusted price.
In trading/investing there is always friction and rarely there are opportunities that make life easier. Under the right circumstances, DRP is one of those opportunities.
The thing is that he still has to figure out the cash dividend payments and franking credit details for the tax office anyway.
He is just an idiot.