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Post by FD1000 on May 11, 2023 19:22:02 GMT
Distributions(income) are all part of TOTAL return. If you didn't invest the Div back then your TR will be lower.
Example for TR=10% Security A made 10% with no dist Security B made 10% including dist=4% Security C made 10% including dist=8%
If you need 4%, it doesn't matter how you get it, you could just use the dist or sell shares, the TR will be 6% after the withdrawal. If you need 7%, it doesn't matter how you get it, the TR will be 3% after the withdrawal. If you understand the above simple math, you understand TR and why high distributions don't have any advantage. Dist are just one part of TR.
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Post by mozart522 on May 11, 2023 21:05:09 GMT
steelpony10, It is no different for any investment. If you withdraw more than your total return it will reduce portfolio value. If you can always live on bond or CD interest, then you are good, but not many could have taken a 4% withdrawal in those investments over the last 7 or 8 years, so the would have had to liquidate some shares. Bond yields fluctuate as do bond prices. Stock dividends lower the price of the stock by the amount of the dividend. The stock may well recover or not. The stock may cut the dividend you are counting for expenses and the price will usually crash as well. My point is everything gets a total return and taking more than that as distributed income can have an impact on portfolio value. I really don't think many blindly do that anyway, and income investing in a diversified portfolio will usually get a reasonable total return for the risk taken.
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Post by steelpony10 on May 11, 2023 23:22:16 GMT
mozart522 , Thanks for getting back. Taking into account market movements or lack of sure. I have no control over world events that have stalled equities or values of anything so this area is too unpredictable to me in retirement. Our TR is flat like most everyone else's but our yield is around 6%+. The poster and I aren’t constrained by any withdrawal percentage though within reason. We’ve never been forced to spend down. Any value changes down are sales. For myself anyway compounding excess income at high rates keeps us ahead of this type of personal inflation. These markets are good for us and terrible for spend down investors so your point of course is correct. Values matter if your dependent on then for income. That’s why this poster is happy. We’re not really dependent on values until they exceed cash flow.
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Post by mozart522 on May 11, 2023 23:37:42 GMT
steelpony10, I've read your posts for years over on M* on the I and D forum of old. I am aware that you are a successful income investor as was Cliff. Not so sure about ElLobo, but I'm not suggesting that it isn't a reasonable way to invest. And I also agree that high levels of equities can be stressful in retirement. I'm rarely over 30% myself. My method was to get to a point that I only need about a 1% withdrawal for all basic expenses. What Otar called the green zone. That is why I'm very comfortable sitting on 100% cash and Tbills right now. As I said, most income investors on these boards know what they are doing.
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Post by Mustang on May 12, 2023 2:35:13 GMT
I'm not an income investor. I look for total return and have no problem selling shares. In my IRA, my balanced fund has quarterly dividends and annual capital gains (sometimes small cap gains mid-year). Everything is reinvested so at least quarterly I'm buying more shares. The only withdrawals are monthly RMDs. It doesn't matter if someone is an income investor or a total return investor, withdrawals are not based on returns. They are based on the government's formula. The investor has no control at all over the size of the RMDs.
Withdrawals require shares to be sold. Does this deplete the portfolio? It depends on total return. Both dividends and capital gains buy shares. In the three years since I've been taking RMDs the total number of shares owned has stayed almost the same. After approximately 3 1/2 years of withdrawals shares are down only 1% and that could easily be made up with the next capital gain distribution.
If the investor is taking RMDs, it really doesn't matter if returns are from dividends or capital gains. It doesn't matter at all. What is important is that returns buy enough shares to offset what is sold for the RMDs. That keeps the portfolio from being depleted.
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Post by archer on May 12, 2023 4:09:23 GMT
I think we have a choice of TR and selling shares, or income which acts as a drag on share value over time. The money has to come from somewhere. Income funds or stocks should do as well as TR focused ones if the income is reinvested, but I have yet to find one that does over time.
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Post by mozart522 on May 12, 2023 12:01:02 GMT
Mustang, "The investor has no control at all over the size of the RMDs." I think the control comes through planning. ROTH conversions are one way to help control the size of RMDs
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Post by FD1000 on May 12, 2023 13:01:37 GMT
There are investors that FEEL better owing higher income securities, that's OK, but it's not based on investment principals or math. That is similar to many retirees who hold 3-5 years of MM, in case of...find a reason. The following ( case) worked already over 20 years thru ups/downs. I have been and always will be a TR investor, but since 2018=retirement, I have owned 90+% bond funds and they usually paid 4-6% distributions. First I look and potential performance, then risk/SD and then higher income. I'm already in the green zone of using 1% for basic expenses + more(vacations too). It does not cover things like vehicles, home improvement. This is why when MM pays about 5%, it means I saved 4%. Inflation doesn't bother me much because if 1% goes to 1.1-1.2% withdrawals, it's still a small portion. mozart is also correct about RMD, you can control them thru conversion, to some degree. BTW, I feel better eating chocolate, but it's based on science( link)
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Post by mozart522 on May 12, 2023 13:52:17 GMT
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Post by FD1000 on May 12, 2023 14:14:48 GMT
Interesting article. IMO, the most important finding is "There are three charts displaying the last three ten-year periods. The highest dividend-yielding quintile of stocks generated the highest positive excess returns in only one of the periods, the 2002-2011 period. Over the last decade, the highest dividend-yielding stocks generated negative excess returns. The inconsistency of excess returns across time periods and lack of ordinality by quintiles illustrates that the dividend yield factor has not been a strong alpha generator by itself."What happened in the 40-70s is less relevant. It was before high tech companies took over the world and paid no-low dividends. Until the 70s, the best companies paid higher div.
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Post by colorado on May 12, 2023 19:56:49 GMT
I am probably misunderstanding this importatant discussion, but I attempt to invest in whatever manner seems to fit the current market environment. If the market lends itself to so-called TR investing, embracing capital gains/losses, share selling/buying, dividends, etc. then I attempt to use that style. If the market lends itself to more income oriented investments, with the preponderance of growth coming from dividends, then I will focus on that style. I have no need for a lot of drama and excitement in my investment life, so I tend to use the simplest approach available, that produces an end financial result that I want. I don't care about convincing others to invest in a certain manner--that is their business based on what meets their personal criteria.
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Post by Capital on May 12, 2023 20:46:50 GMT
Watching the market (and my portfolio balances) fall, I'm so glad to be an income investor as I don't feel anxious about the decline in balances, as it has no impact on my income. I will make a stab at the message of the OP above. It appears that the OP invests for income. It also appears that the OP is fine with the ups and downs of the market because it does not impact that income. Be it known that I do not read anything in the post that would make me believe that the poster is not investing for "total return" AKA: "TR" If this is good enough for the OP then it is good enough for me. I have nothing to prove in attempting to add nor subtract for the words of the OP. Congratulations kathiel.
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Post by mozart522 on May 12, 2023 21:51:13 GMT
Capital, Suggesting that market declines can not have an impact on income (and TR) overlooks history. A ton of income delines through dividend cuts in 2008. This was especially true for those in alternative type income producers like MLPs and CEFs. Income investors are not necessarily safer. No investing style is inherently better than any other. The point being made is that everyone gets a TR and that is the measure of return.
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Post by Deleted on May 12, 2023 22:47:27 GMT
Forum description:
"Do you invest to generate an income stream? Explore it here."
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Post by Capital on May 12, 2023 22:54:08 GMT
Capital , Suggesting that market declines can not have an impact on income (and TR) overlooks history. A ton of income delines through dividend cuts in 2008. This was especially true for those in alternative type income producers like MLPs and CEFs. Income investors are not necessarily safer. No investing style is inherently better than any other. The point being made is that everyone gets a TR and that is the measure of return. mozart522, I do agree with your post. I am a growth investor who is just now starting to look at income. I will always need growth IMHO. I just have no inclination to disagree with kathiel when it comes to the poster's particular way of looking at the circumstance that the poster describes as that of the poster.
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Post by steelpony10 on May 12, 2023 23:54:48 GMT
mozart522 , As presented the all weather portfolio is the way to go. kathiel , uses equity dividends but invests in a few growth stocks for cap gains when available. I use HY CEF’s but also hold VTI and 3 growth stocks as secondary income when needed. Compounding of unused funds over time is a great income builder, 3% rates and up for both of us.
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Post by steelpony10 on May 12, 2023 23:58:04 GMT
colorado, No you have it right, it’s personal. You adapt to your circumstances and goals. Everything has good and bad traits.
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Post by steelpony10 on May 13, 2023 0:25:57 GMT
Capital , It’s all a psychological mindset. If I generate 80k in income spend half (with a rising SS) and invest 40k at 3% compounded in 20 years thats another 32k in income. Personally I compound at 6%. I just don’t see a vet, 2 chicks and gold chains for me at age 85. Why wait all that time and for the current craziness to clear up as a retiree. Being younger you can wait but in retirement you’ll have times like these. We have VTI, MSFT, AAPL and AMZN for LTC. My mindset is if I expect to never spend down why worry about TR which is out of my hands. The future remains unknown but every scheme and method can work for a retiree. We instead chose to create a great early retirement lifestyle by distancing ourselves from market movements and any spend down putting that way into the future. That’s what the OP means. Market movements mean little to us at this time. We invest for constant rising cash flow. Just another method.
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Post by FD1000 on May 13, 2023 3:59:51 GMT
Capital , It’s all a psychological mindset. If I generate 80k in income spend half (with a rising SS) and invest 40k at 3% compounded in 20 years thats another 32k in income. Personally I compound at 6%. I just don’t see a vet, 2 chicks and gold chains for me at age 85. Why wait all that time and for the current craziness to clear up as a retiree. Being younger you can wait but in retirement you’ll have times like these. We have VTI, MSFT, AAPL and AMZN for LTC. My mindset is if I expect to never spend down why worry about TR which is out of my hands. The future remains unknown but every scheme and method can work for a retiree. We instead chose to create a great early retirement lifestyle by distancing ourselves from market movements and any spend down putting that way into the future. That’s what the OP means. Market movements mean little to us at this time. We invest for constant rising cash flow. Just another method. It's not about someone situation, mindset, psychology, emotion and others. It's just a simple math question which the income crowd refuse to discuss. A young retiree has to worry about a permanent loss early in the retirement, but higher income doesn't solve it as I already proved comparing SPY to PDI in the 5 years of 2018-2022. Starting with one million and taking $4000 monthly, after 5 years, PDI shrank to $841K with 50+% income while SPY finished with $1.276 million Your portfolio is measured by the total asset you have not by its income. 1.276 million is always better than 0.841 million regardless of any any situation, mindset, psychology, emotion and others. A young retiree who wants to avoid a big loss invest in high-rated bonds, she doesn't mind to make less money for the safety, forget 2022, which was unique. The income investor you are discussing own higher-income stocks, others own very high income MLP/CEFs, none of these have a higher-guarantee or safety as higher-rated bonds. We already witness the collapse of these stocks in 2008 and 2020, and the complete meltdown of MLP for years or how PDI lost 10+% more than QQQ in 2020.
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Post by retiredat48 on May 13, 2023 16:12:23 GMT
Interesting article. IMO, the most important finding is "There are three charts displaying the last three ten-year periods. The highest dividend-yielding quintile of stocks generated the highest positive excess returns in only one of the periods, the 2002-2011 period. Over the last decade, the highest dividend-yielding stocks generated negative excess returns. The inconsistency of excess returns across time periods and lack of ordinality by quintiles illustrates that the dividend yield factor has not been a strong alpha generator by itself."What happened in the 40-70s is less relevant. It was before high tech companies took over the world and paid no-low dividends. Until the 70s, the best companies paid higher div. FD1000 ,...I don't get your conclusion! You are showing the last decade where growth bettered value, and you suggest "see, stay away from value." How about a conclusion that it is perhaps value's turn to shine the next decade. After all you acknowledge there were decades where higher yield won out. I don't get this obsession with total return...looking backwards. Why didn't you cite that if one owned AAPL Apple stock for last two decades, the total return would be humongously better...therefore just go buy AAPL? The reason is clear--AAPL may be an actual poor performer next decade forward, from these share price levels. To me, the comparison of a higher dividend themed portfolio, to a growthy one, concluding the best total return last decade was in growth, is IRRELEVANT. No comparison need be made. The question is: Did your dividend investing theme selection work out OK? If yes, why care if AAPL went to the moon, or some other growth stock funds went up further. I also don't agree where you conclude, noting inconsistent decades of total return, that, quote "the dividend yield factor has not been a strong alpha generator by itself." The article and data shows it is an alpha adder when compared with ALL non-dividend payers, etc. over all long time periods. Fact is simple: After the 2000 bear market collapse of growth stocks, value bettered growth the next decade. Further, I lived during a time the market was flat for 16 years. Dow went from 1000, to 1000--1966 to 1981. Not a good experience if retirees did not own dividend payers. My youngest brother just retired, and we converted in past year a 100% growth stock portfolio(very little yield), to a dividend themed one. His goal was to get 3% in yield for his spending needs; we are now at 4.5% yield. Mixture of funds like SCHD, SCHY and VIG, Vang'ds dividend growth stock fund. And a smattering of growth stock funds. He now sleeps well as he withdraws from his portfolio. Any comparison with some growthy stock fund return in the future is not meaningful to this situation. R48
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Post by mozart522 on May 13, 2023 16:53:11 GMT
retiredat48 , FDs post is a direct quote from the paper, so you are arguing with the authors, not FD. The point of the article was not value vs growth or even dividends vs TR. It was that other factors than pure highest dividends produced the highest returns more consistently. At least that is what I got. And it sounds like that is just what you are doing with your brother; more diversified than just the highest dividend quintile.
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Post by retiredat48 on May 13, 2023 19:32:03 GMT
retiredat48 , FDs post is a direct quote from the paper, so you are arguing with the authors, not FD. The point of the article was not value vs growth or even dividends vs TR. It was that other factors than pure highest dividends produced the highest returns more consistently. At least that is what I got. And it sounds like that is just what you are doing with your brother; more diversified than just the highest dividend quintile. mozart522,...OK, if not FD words, thanks for pointing this out. I looked at the blue/purple and concluded that was FD's sentence. However, my post still stands. I am aware of various FD posts about total return as the (only) criteria. I suggest otherwise for retirees. It is portfolio performance that meets or exceeds one's goals, and that is usually meaning the portfolio lasts for 30 years without running out of money...with a great deal of assurance. A dividend/income based investing tilt usually is best choice for most retirees. And yes, we did not go for the "highest" dividend quintile. R48
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Post by archer on May 13, 2023 19:51:31 GMT
retiredat48 , detailed stats are not as easily findable going back to 1966, at least with my usual tools. I did find that the S&P yielded over 4%, which to me shows we were in a high yielding time. Income stocks, Pepsi, Phil M, Oil, many of the big guy stocks were yielding 10%. Another difference in that time period was that companies weren't doing near as much stock buybacks, which could have made growth stocks more of an alternative. The income environment was favorable at that time, but, In the same time period (well, 66-82) the S&P did earn an annual 6.8%, making a case for TR and selling as needed. I'm not refuting anything in your post, but want to point out that the market was inherently tilted to income over growth or total return. I wonder how the Dow did without dividends reinvested vs growth stocks during that time period. Retirese were better able to make ends meet with income 66-81 than today, but what was the value of their PFs in 81 if they took all divs, which I bet many did without a 2nd thought. I don't really know which type of investor did the best during that time.
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Post by habsui on May 13, 2023 20:51:41 GMT
I am shocked, shocked to see another discussion about TR vs income. Also, as pointed out, if somebody claims TR-is-everything, why don't they follow it 100%?
Further, this is all hindsight. There seems to be some initial evidence that the dominance of capital may be (partially) shifting to the dominance of labor side for the foreseeable future.
Good investing..
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Post by mozart522 on May 13, 2023 20:58:09 GMT
retiredat48 , FDs post is a direct quote from the paper, so you are arguing with the authors, not FD. The point of the article was not value vs growth or even dividends vs TR. It was that other factors than pure highest dividends produced the highest returns more consistently. At least that is what I got. And it sounds like that is just what you are doing with your brother; more diversified than just the highest dividend quintile. mozart522 ,...OK, if not FD words, thanks for pointing this out. I looked at the blue/purple and concluded that was FD's sentence. However, my post still stands. I am aware of various FD posts about total return as the (only) criteria. I suggest otherwise for retirees. It is portfolio performance that meets or exceeds one's goals, and that is usually meaning the portfolio lasts for 30 years without running out of money...with a great deal of assurance. A dividend/income based investing tilt usually is best choice for most retirees. And yes, we did not go for the "highest" dividend quintile. R48 "A dividend/income based investing tilt usually is best choice for most retirees." I agree 48. But not because it is a better portfolio than say the 500 index that is slightly tilted to growth. It is because it is generally easier for retirees to hold and sleep well. And that's not nothing.
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Post by FD1000 on May 13, 2023 21:47:41 GMT
retiredat48 , Nice posts but they don't refute what I have said. * Value doesn't equal high div. The High Div crowd is looking for at least 4.5-5% from stocks and all the way to MLP and over 10% in CEFs and why they have used inferior companies such as ATT or insisting owning higher div companies or had big losses in MLP or held CEFs in the last several years and trailed the SP500 by a lot. * SCHD - I have been posting about this fund for over 7 years. This fund had many years 3+% yield, but I also recommend it several times based on performance. It is not enough for a typical high-income investor. * You also mentioned VIG=Vanguard Dividend Appreciation, I'm glad you did. Its yield is just 1.8%. The top 2 companies are MSFT and AAPL. Chances are very slim that a typical high-income investor will buy it. Thank you for making my point.* I never said, growth is better than value. I said don't obsessed about high-Div or even value. I invest based on markets. 95-2000: I used over 90% in VTI, the rest growth. My biggest relative out performance was during 2000-2010 when I made about 10% annually more than the SP500 by using funds such as FAIRX,SGIIX,OAKBX. 2010-2018: tilting to growth + best bond funds, such as PIMIX. Since 2018=retirement mostly trading bond funds * TR is the only measure that counts. I don't care how you achieve it. * Someone who buys stocks, I don't, and missed AAPL, MSFT in the last 30 years should look in the mirror. In fact I trashed Buffett for years until he bought AAPL. He claimed he does buy companies he doesn't understand. Well, how could he skipped all the best high tech with years of dominance is beyond me. But hey, at least he got at last and now AAPL is 46% of his stocks. * Your brother sleep well? Not bad. My rich neighbor who sold his company in the early 90s for over 10 millions is invested in Munis at 90+%. I know investors who hardly went back to stocks after 2008 and sleep very well. I don't sleep well if my portfolio lose more than 3% since 2018 and why I cut my losses at 1%. We are discussing performance. * You think that value + high-div will do better in the next several years? I would not be sure about it. YTD: SCHD is trailing QQQ by close to 29% see ( chart). * R48: "It is portfolio performance that meets or exceeds one's goals, and that is usually meaning the portfolio lasts for 30 years without running out of money...with a great deal of assurance. A dividend/income based investing tilt usually is best choice for most retirees." FD: Not IMO, a retiree should create a portfolio that includes stocks, bonds and good processes of using the right categories, and the knowledge to decide what to sell, when to increase/decrease stocks/bonds and how much to spend. I also posted that until the 70s great companies pay div but starting in the 80s, the high tech companies have paid no-low div. If I advice someone I would suggest buying the VOO/VTI at a high % for a LT hold, whatever will do best will be reflected in the next 30 years. The only exception for buy and hold is also using VWIAX, because ER=0.16 is very cheap, Wellington is the oldest investment company, conservative and this fund history relies on good companies and high-rated corp. I also believe in the reverse gliding path for stocks generic retirees. A young retiree who has enough should worry about big losses in the first 5-10 years and why she should starts with lower % in stocks and increase slowly with age. More sophisticated investors can do whatever. But then again, the subject of this thread isn't retirees. It is: why income is superior over TR.
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Post by Mustang on May 14, 2023 0:16:55 GMT
But then again, the subject of this thread isn't retirees. It is: why income is superior over TR. Maybe I'm reading the thread wrong but I'm pretty sure it is talking about retiree income.
From Kathiel's first post, "Watching the market (and my portfolio balances) fall, I'm so glad to be an income investor as I don't feel anxious about the decline in balances, as it has no impact on my income."
From Kathiel's third post, "I want to have enough 'income only" cash to meet my needs to maintain my lifestyle. In order to access cap gains, you have to sell. With stock prices down lately, I wouldn't want to have to sell something in order to withdraw the money I need to pay my bills."
From Kathiel's fourth post, "My investments are almost all in IRAs, so the tax issues are irrelevant, as I pay the same rate on all withdrawals from my IRAs."
As I said, I could be wrong but this sounds like retirement income to me.
My income is not based on dividends or capital gains. I reinvest both. I love dividends in my IRA. In 2022 they paid for 75% of the shares I bought. Capital gains only paid for 25%. But I love capital gains. In 2021, capital gains paid for 69% of the share purchased because 2021 was a much better year for capital gains. So, I pretty much want both. They both keep me from depleting my IRA. Dividends are more steady but capital gains provide a jump in shares purchased keeping those bought even with those sold for RMDs.
P.S. I'm a bit confused as to why dividends are so important to Kathiel's income when almost all investments are in IRAs. Withdrawals (income) are usually based on the government's formula not dividends. The only way I can see how dividends would affect income is if more is withdrawn than the minimum required and they are taken as distributions and not reinvested. Then it would become important for a stable income.
Since RMDs are based on the previous end of year balance they go up and down with market performance and do not provide a stable income from year to year.
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Post by richardsok on May 14, 2023 0:42:16 GMT
"But then again, the subject of this thread isn't retirees. It is: why income is superior over TR."
If income is a component of total return, how can income be superior to total return?
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Post by FD1000 on May 14, 2023 1:07:31 GMT
"But then again, the subject of this thread isn't retirees. It is: why income is superior over TR."If income is a component of total return, how can income be superior to total return? That's my point since I started posting about 15 years ago.
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Post by Deleted on May 14, 2023 1:24:56 GMT
The subject of the thread was not worrying about the market because the OP invested for income. If spending your retirement in front of a computer trying to catch the next trend is your cup of tea, that's fine. I haven't noticed anyone barging into your posts insisting that you're wrong.
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