"The Peapod Game": and variations:

There are some old pictures of New York, and you can see on the sidewalk, the young men gathered in circles with dice, and a blanket, and some peapods and shells. As the man moved the shells, one had to guess under which shell the peapod rested.....It would have been glorious if each young learner had learned that game...cause that game and variations are the basis for many investment schemes. One of the doctrines on Wall Street, and used to be enforced quite strictly was the rule that when describing a dividend, it had to be made clear to the investor that when the dividend stock went "ex" the stock was reduced by the amount of the dividend, so that it was a "zero sum" game...it was not extra so to speak, it was just your value coming back to you. At the end of every tax year, there are folks that buy stocks that offer dividends and sure enough, when the dividend is issued on December 31st, the stock declines by that amount, and the investor gets the dividend in the mail, and then also gets taxed on the income from it....when in fact it was just "return of capital" so to speak. A variation on this is when a company sports a very large dividend, say 15%. You might notice that as the year goes on, the stock goes lower and lower, and then discover that the cash flow of the company cannot sustain the dividend, and inevitably many investors discover this, and the stock declines...and yes eventually you lose on the taxes and the decline in value of the investment.... So the general rule: If you see a deal that seems too good to be true--check further...it probably is too good to be true.