Share Count Is Not Wealth
At a Berkshire Hathaway annual meeting back in 2012, Warren Buffett was asked whether Berkshire would ever pay a dividend. His response was that shareholders who wanted income were generally better off creating it themselves by selling a small amount of Berkshire stock each year.
He even used a 2% example: rather than Berkshire paying a 2% dividend, a shareholder could simply sell roughly 2% of their holdings. His reasoning was that Berkshire could retain the cash and, historically, turn each retained dollar into more than $1 of market value.
Whether it is better to sell shares or receive a distribution has been a long-standing debate among retail investors. On one side, you have people who say they do not want to sell shares for income because, eventually, they will run out of shares.
On the other side, you have people who argue that high-distribution income funds are simply giving investors their own money back and will eventually grind their NAV down toward zero.
Funny enough, while these are two very different strategies, the fear behind both arguments is basically the same. Eventually, you will have nothing left.
The problem is that we can never know what future returns will be. What we can do is look backward. Hindsight is 20/20, so we can take different investments, apply different withdrawal strategies, and ask a simple question: Had I done this instead of that, where would I be today?
One of the older funds in the covered-call income space is Global X QYLD. It launched in December 2013, holds stocks from the Nasdaq-100, and uses a covered-call strategy to generate income and make monthly distributions.
That gives us almost 13 years of history to work with. So we can compare QYLD against SPY, which tracks the S&P 500, and QQQ, which tracks the Nasdaq-100.
But simply comparing their total-return charts doesnât account for spending. The income investor isnât selling shares whereas the growth investor would need to sell shares every month to generate cashflow.Â
So to make the comparison more even, the SPY and QQQ investors need to receive the exact same amount of cash to spend each month that the QYLD investor receives in distributions. Every time QYLD makes a distribution, the SPY and QQQ investors sell enough shares to generate that same dollar amount of cash.Â
Now we are comparing an investor who never sells a share with investors who are selling shares month after month for almost 13 years.
For this example, assume each investor started with $1,000,000 on December 12, 2013. Fractional shares are allowed, taxes and trading costs are ignored, and dividends from SPY and QQQ are reinvested. The only cash removed from those portfolios is the amount needed to match QYLDâs monthly distributions.Â
At the starting prices:
$1,000,000 in QYLD at $25.04 bought approximately 39,936.1 shares.
$1,000,000 in SPY at $178.13 bought approximately 5,613.9 shares.
$1,000,000 in QQQ at $84.96 bought approximately 11,770.2 shares.
Global Xâs distribution history works out to approximately 152 QYLD distributions through August 2026, totaling about $29.06 per original share. For someone who started with 39,936.1 QYLD shares, that means they would have received and spent approximately $1,160,641 in cash distributions over nearly 13 years.
They did not have to sell a single share. At the end of the period, they still own all 39,936.1 QYLD shares, and those shares are worth approximately $740,815.Â
Because they made no reinvestment, the market value of the original QYLD position is down about 25.9% from where it started, but the investor has already received and spent more in distributions than the original $1 million investment.
Now letâs compare that with what would have happened if the investor had instead bought SPY or QQQ and sold shares every month to create the same cash flow.
Every month, the SPY investor had to sell enough shares to generate the same cash payment the QYLD investor received. Over the full period, the SPY investor also received approximately $1.16 million of spending money.
After all of those monthly share sales, the SPY investor is down from about 5,614 original shares to approximately 2,760 shares remaining. Those remaining shares are worth approximately $2.10 million. So despite selling shares month after month for almost 13 years, the SPY investor still has roughly $2.1 million invested.
The QQQ investor started with about 11,770 shares and, like the SPY investor, sold shares every month to match QYLDâs cash distributions. After almost 13 years of doing that, they would still have approximately 6,703 QQQ shares remaining. Those shares are worth approximately $4.84 million.
That means the QQQ investor finished this historical period with approximately $4.1 million more still invested than the QYLD investor, even though the QQQ investor had been selling shares the entire time.
This isnât an argument that people shouldnât invest in income products. It also isnât saying that every covered-call fund will produce results like QYLD, or that SPY and QQQ will perform the same way over the next 13 years. This is simply looking backward at three specific funds over a period that has already happened.
The lesson isnât that selling shares is better than receiving distributions. Itâs that share count and wealth are not the same thing. An investor can sell shares year after year and still end up with substantially more capital, while another investor can keep every share they started with and still see the value of their portfolio decline.
Selling shares does not automatically mean you are depleting your portfolio, just as collecting distributions without selling shares does not automatically mean you are preserving your capital.
In the end, it always comes back to total return
