I'm new to investing, I've been doing so for roughly half a year. My goal is to invest in stocks that pay dividends and continuously re-invest those dividends back into more shares over the roughly 30 stocks I have shares in. I've created a strategy which I believe will let me increase my dividends slightly faster but I'd like to share here and confirm.

Every 2 weeks, I make my investments, combining a fixed amount from my paycheck with whatever dividends I've received in the previous 2 weeks. My strategy is to heavily favor buying shares in stocks where the ex-date will occur within the next 2 weeks. My reasoning is that I will see a slight return from that investment pretty soon in the form of dividends paid out by that stock within the next month or so. As I keep doing this, I'll be compounding dividends faster.

I believe this is valid because of this thought experiment: let's say I have 4 stocks which pay once per year. Each stock pays dividends in a different quarter: stock A for Q1 up to stock D for Q4. Each pays 4% dividend. I'll have $100 each quarter to invest.

* If I invest $100 in each quarter all into stock D, I'll have $400 in stock D and have a total value of $416.
* If I invest $100 in each stock at each quarter, I'll have:
   * $100 in A, which yields $4
   * $104 in B, which yields $4.16
   * $108.16 in C, which yields $4.3264 (I'm not sure how the rounding would actually work but here I'll use fractional cents)
   * $112.4864 in D, which yields $4.499456
   * At the end, I'll have a total value of $100 + $104 + $108.16 + $112.4864 + $4.499456 = $429.15

My question here is, does this logic carry over into the real world, and are there any drawbacks which I'm not aware of.
Your strategy seems to be a version of 'dividend capture', which seeks to buy stocks just before their ex-dividend date to qualify for the upcoming dividend payout. It's a valid strategy in theory, but there are a few important factors that you should consider:

1. **Price Adjustments**: When a company pays out dividends, its share price is often reduced by the amount of the dividend on the ex-dividend date. This is because the company's value decreases by the amount of dividends paid out. Therefore, buying a stock just before the ex-dividend date may not necessarily yield higher returns, since the stock price could drop by the dividend amount on the ex-dividend date.

2. **Taxes**: Dividend income is often taxed differently than capital gains. It is important to understand how dividends are taxed in your country. In some cases, the tax on dividend income can be higher than on capital gains, which could eat into your profits.

3. **Transaction Costs**: If you're buying and selling stocks frequently to capture dividends, transaction costs can add up and eat into your returns. These can include brokerage fees, bid-ask spreads, and other related costs.

4. **Market Volatility**: The stock market is influenced by a variety of factors, and prices can fluctuate greatly. Timing your investments around ex-dividend dates exposes you to this risk.

5. **Limited Opportunities**: Not all stocks pay dividends, and those that do often only pay them quarterly. This could limit your investment opportunities.

6. **Opportunity Cost**: By focusing on dividend investing, you may miss out on other investment opportunities that could potentially provide a higher return on investment.

Your theoretical example provides a good insight into how compounding works, but in reality, the stock market is much more complex, and there are numerous factors that can influence your returns. It's important to have a diversified portfolio and not rely solely on one strategy. 

Remember to do thorough research or consult with a financial advisor before making investment decisions. It's also important to regularly review and adjust your investment strategy based on changes in your financial situation, risk tolerance, and investment goals.
### Human
I'm new to investing, I've been doing so for roughly half a year. My goal is to invest in stocks that pay dividends and continuously re-invest those dividends back into more shares over the roughly 30 stocks I have shares in. I've created a strategy which I believe will let me increase my dividends slightly faster but I'd like to share here and confirm.

Every 2 weeks, I make my investments, combining a fixed amount from my paycheck with whatever dividends I've received in the previous 2 weeks. My strategy is to heavily favor buying shares in stocks where the ex-date will occur within the next 2 weeks. My reasoning is that I will see a slight return from that investment pretty soon in the form of dividends paid out by that stock within the next month or so. As I keep doing this, I'll be compounding dividends faster.

I believe this is valid because of this thought experiment: let's say I have 4 stocks which pay once per year. Each stock pays dividends in a different quarter: stock A for Q1 up to stock D for Q4. Each pays 4% dividend. I'll have $100 each quarter to invest.

* If I invest $100 in each quarter all into stock D, I'll have $400 in stock D and have a total value of $416.
* If I invest $100 in each stock at each quarter, I'll have:
   * $100 in A, which yields $4
   * $104 in B, which yields $4.16
   * $108.16 in C, which yields $4.3264 (I'm not sure how the rounding would actually work but here I'll use fractional cents)
   * $112.4864 in D, which yields $4.499456
   * At the end, I'll have a total value of $100 + $104 + $108.16 + $112.4864 + $4.499456 = $429.15

My question here is, does this logic carry over into the real world, and are there any drawbacks which I'm not aware of.

### Assistant
Your strategy seems to be a version of 'dividend capture', which seeks to buy stocks just before their ex-dividend date to qualify for the upcoming dividend payout. It's a valid strategy in theory, but there are a few important factors that you should consider:

1. **Price Adjustments**: When a company pays out dividends, its share price is often reduced by the amount of the dividend on the ex-dividend date. This is because the company's value decreases by the amount of dividends paid out. Therefore, buying a stock just before the ex-dividend date may not necessarily yield higher returns, since the stock price could drop by the dividend amount on the ex-dividend date.

2. **Taxes**: Dividend income is often taxed differently than capital gains. It is important to understand how dividends are taxed in your country. In some cases, the tax on dividend income can be higher than on capital gains, which could eat into your profits.

3. **Transaction Costs**: If you're buying and selling stocks frequently to capture dividends, transaction costs can add up and eat into your returns. These can include brokerage fees, bid-ask spreads, and other related costs.

4. **Market Volatility**: The stock market is influenced by a variety of factors, and prices can fluctuate greatly. Timing your investments around ex-dividend dates exposes you to this risk.

5. **Limited Opportunities**: Not all stocks pay dividends, and those that do often only pay them quarterly. This could limit your investment opportunities.

6. **Opportunity Cost**: By focusing on dividend investing, you may miss out on other investment opportunities that could potentially provide a higher return on investment.

Your theoretical example provides a good insight into how compounding works, but in reality, the stock market is much more complex, and there are numerous factors that can influence your returns. It's important to have a diversified portfolio and not rely solely on one strategy. 

Remember to do thorough research or consult with a financial advisor before making investment decisions. It's also important to regularly review and adjust your investment strategy based on changes in your financial situation, risk tolerance, and investment goals.<eos_token>