I'm guilty of doing exactly what the dividend growth investor shouldn't; watching my account values go up and down. If I had the correct view, I wouldn't do that, but Fidelity doesn't give me the option of watching projected dividend earnings, so I'm stuck with account values, positions and the like.
however, after several swings in the volatile market, I've convinced myself that I am not making emotional trades. Now I'm using the FASTgraphs site to look at fair value and stock price in relation to that, also looking at dividend growth in the past, and projections in the future, to guage whether my new purchases meet the margin-of-safety test.
Also, I've taken a big step and now am only working 3 weeks out of 4, using a week to clear my head and look to the future. Not clear yet what I'm seeing, but it's something other than what I've been doing for the last couple of decades.
I think I'm on the right track with the retirement portfolio. More and more of my holdings meet the criteria of undervalued or at fair value by reasonable estimates, have outsized dividends, reasonable payout ratios for their sector, and a history of revenue AND dividend growth. At the very least, I'm a reasonalbe disciple of the gospel of DG investing. In my few dabblings into growth, I've sucked a big egg on renewable energy and some other things; fortunately just a tiny piece of my portfolio, but the big losses and volatile swings make me remember why I abandoned that approach previously.
It's pretty clear that all the reading has paid off in a more focused set of voices to whom I listen and a more purpose-designed portfolio; just not certain yet that it's going to accelerate in the manner I hope. This is a long term strategy, so acceleration won't be at high-G force; rather a subtle building of momentum over time, but hopefully we'll be rocketing along down the line.
One can hope that the companies I have bought will continue their cost control discipline and continue to grow revenues in this tough world economy. If they do, and continue to distribute some of that as dividends, I'll fulfill my goal.
I think I may have between 4 and 9 years left of earning a wage; then I want to take my skills and use them elsewhere in the world without concern for earnings. I can't see the exact path to independence of the paycheck, but I can see the destination fairly clearly. It means changing my overall nest-egg expectation a bit, but then I don't expect to to be laid to rest on a bed of dollars.
more on that later...I'm working on unwinding some real-estate entanglements so I won't need the same paycheck to keep things afloat.
I'm going to read back a bit and see if I'm really any wiser or not.
Tuesday, November 8, 2011
Sunday, June 12, 2011
Resisting temptation to give in to the doomsday-sayers
There's lots of not-so-good news out there. It seems the market rose through the spring in spite of the popular news; earnings were high, dividends increased, even as the world economy is under threat of a debt-crisis and there are signs of a slowing economic recovery in the US, as well as catastrophe in Japan and a real-estate bubble in China.
Now, in the traditional dog days of late-spring/summer, the market is now correcting. Some folks say store cash.
Others say you can't time the market. I'm no financial professional, just a guy trying to build a money-making machine that will secure my family and my old age, which is coming faster than I like.
I'm listening to and reading an increasing circle of voices; what comes through strongest is looking at companies that are steadily, increasingly profitable and willing to share some of that profit in the form of dividends. Some would argue that paying dividends is inefficient, exposing company profits to taxation in the hands of stockholders, rather than buying shares or re-investing profits in new production. Since I invest in pre-tax and tax-advantaged accounts, I'm not exposed to this taxation, so I'm DRIPing at 100% efficiency in re-investment. The issue about companies that pay dividends is management discipline in accountability to owners. The reason for a business's existence is to produce income for it's owners. Since the stock market doesn't perfectly value companies, sometimes for years at at time, dividends represent real tangible returns on the owner's investment. I'm watching yearly dividends rise; best I can tell, my annual dividend production has increased by about 1/3 in the last two years, considering both new investment and portfolio performance.
My goal is to build a portfolio that doesn't need retooling as retirement approaches, instead I hope it will simply continue to pump out dividend growth that will adequately fund the maintenance needs of my family. That means it needs to perform better than inflation and the dividend production needs to be at least equivalent to inflation at retirement. I have another 16 years before qualifying for SSI, so that means another $800k of contributions if I'm lucky. If the current corpus grows at 10%, I'll have an adequate income stream to fund a comfortable retirement and leave the corpus to my son and charities when I leave this mortal coil. In the mean time, I'm insured for the amount of money I'd otherwise earn at my current production, so if I can keep this level of performance, I'll meet my goals.
Trouble is, I see myself losing the drive to do what I've been doing the last 16 years. I'm not sure what is going to change, but something has to. I have deferred so much personal time that I am losing the desire to pick up those things I used to enjoy and start them up again. Cutting back on the amount of work means cutting back on earnings, possibly cutting back on deferrals and ultimate financial goals.
Then, who said I need all that much income in retirement? It's time to rethink all of that. Money doesn't buy time. Time runs out. Noone knows when the clock runs out. So, I think I'll run both programs as best I can; continue to defer all the income possible, live on a bit less and carve out a bit more time. That's about the best I can do under the circumstances, and hope my investment choices are sound. I'm no trader, so buy and hold will either work or it won't.
Increasingly, I'm listening to the "stocks you can own forever" kind of voices. I'm building positions in stuff that people will need in all climates: energy, staples, water, etc. I don't have the stomach for fliers, so I won't be scoring any 10 baggers. I'm steadily looking for opportunities to add international holdings, understanding that the old US of A is heading for disaster with unsustainable debt, an aging population and inevitable increase in taxation. That means the business performance is going to be elsewhere. Also, focusing on tax advantaged investment should continue to pay off.
In summary, I'm continuing to invest, willing to ride out the corrections in an "all in" orientation, as along as dividends flow and my positions can continue to grow.
Now, in the traditional dog days of late-spring/summer, the market is now correcting. Some folks say store cash.
Others say you can't time the market. I'm no financial professional, just a guy trying to build a money-making machine that will secure my family and my old age, which is coming faster than I like.
I'm listening to and reading an increasing circle of voices; what comes through strongest is looking at companies that are steadily, increasingly profitable and willing to share some of that profit in the form of dividends. Some would argue that paying dividends is inefficient, exposing company profits to taxation in the hands of stockholders, rather than buying shares or re-investing profits in new production. Since I invest in pre-tax and tax-advantaged accounts, I'm not exposed to this taxation, so I'm DRIPing at 100% efficiency in re-investment. The issue about companies that pay dividends is management discipline in accountability to owners. The reason for a business's existence is to produce income for it's owners. Since the stock market doesn't perfectly value companies, sometimes for years at at time, dividends represent real tangible returns on the owner's investment. I'm watching yearly dividends rise; best I can tell, my annual dividend production has increased by about 1/3 in the last two years, considering both new investment and portfolio performance.
My goal is to build a portfolio that doesn't need retooling as retirement approaches, instead I hope it will simply continue to pump out dividend growth that will adequately fund the maintenance needs of my family. That means it needs to perform better than inflation and the dividend production needs to be at least equivalent to inflation at retirement. I have another 16 years before qualifying for SSI, so that means another $800k of contributions if I'm lucky. If the current corpus grows at 10%, I'll have an adequate income stream to fund a comfortable retirement and leave the corpus to my son and charities when I leave this mortal coil. In the mean time, I'm insured for the amount of money I'd otherwise earn at my current production, so if I can keep this level of performance, I'll meet my goals.
Trouble is, I see myself losing the drive to do what I've been doing the last 16 years. I'm not sure what is going to change, but something has to. I have deferred so much personal time that I am losing the desire to pick up those things I used to enjoy and start them up again. Cutting back on the amount of work means cutting back on earnings, possibly cutting back on deferrals and ultimate financial goals.
Then, who said I need all that much income in retirement? It's time to rethink all of that. Money doesn't buy time. Time runs out. Noone knows when the clock runs out. So, I think I'll run both programs as best I can; continue to defer all the income possible, live on a bit less and carve out a bit more time. That's about the best I can do under the circumstances, and hope my investment choices are sound. I'm no trader, so buy and hold will either work or it won't.
Increasingly, I'm listening to the "stocks you can own forever" kind of voices. I'm building positions in stuff that people will need in all climates: energy, staples, water, etc. I don't have the stomach for fliers, so I won't be scoring any 10 baggers. I'm steadily looking for opportunities to add international holdings, understanding that the old US of A is heading for disaster with unsustainable debt, an aging population and inevitable increase in taxation. That means the business performance is going to be elsewhere. Also, focusing on tax advantaged investment should continue to pay off.
In summary, I'm continuing to invest, willing to ride out the corrections in an "all in" orientation, as along as dividends flow and my positions can continue to grow.
Sunday, January 16, 2011
Reexamining the DRIP
I have been DRIPing all my dividends, based on the fact that positions grow with no new commissions. I pay about $8 per trade with my broker, so most trades are costing me about 0.2-0.3%, as my average purchase is in the $3000-$5000 range. At the rate I contribute to my qualified plan, that allows me to purchase a new equity every other month or so. However, dividends are coming in about $2000/month. If I weren't doing the DRIP, I'd have twice as much to deploy on discrete purchases. The question is, am I smarter than the DRIP? DRIP means the entire portfolio grows at about 3+ percent per year, which is my average dividend yield. Were I to harvest dividends and use them to make discrete purchases, I'd need to do better than the average of my entire portfolio. Since valuations are up, there aren't many bargains out there. That might argue on the side of targeted purchase, as the DRIP program is purchasing in that environment. On the other hand, those few bargains will be companies whose stocks haven't moved with the market, forcing me to rely on my own analysis or the opinion of people I read on whether stocks that aren't moving are in fact good investments. My few non-dividend paying stocks don't see any position growth and that hasn't stopped me from holding them. Not being a momentum investor, I don't purchase more of them when they are rising, so I behave pretty differently with them than the DRIP program with dividend paying stocks.
Perhaps I should be purchasing the dividend-payers when they are down, rather than relying on the dollar cost averaging of the DRIP. I might be better at keeping average dollar cost of my purchases lower than the DRIP.
My portfolio software assigns no cost to the stocks purchased with the DRIP. This seems wrong, as If I took the cash and then purchased the stocks, it would register at the current price plus commission. On the other hand, I'm not putting new money in for these stocks, so this argues for the accounting as it currently stands. I guess it makes sense that internally generated returns should be handled differently than new cash contributions to the portfolio. I'm not quite ready to turn off all the drips. Perhaps it's better to sell a piece of the best performing stocks and reinvest in those with lower valuation and higher dividends. That would simply be a form of "rebalancing".
I think I'll go sleep on this one.
Perhaps I should be purchasing the dividend-payers when they are down, rather than relying on the dollar cost averaging of the DRIP. I might be better at keeping average dollar cost of my purchases lower than the DRIP.
My portfolio software assigns no cost to the stocks purchased with the DRIP. This seems wrong, as If I took the cash and then purchased the stocks, it would register at the current price plus commission. On the other hand, I'm not putting new money in for these stocks, so this argues for the accounting as it currently stands. I guess it makes sense that internally generated returns should be handled differently than new cash contributions to the portfolio. I'm not quite ready to turn off all the drips. Perhaps it's better to sell a piece of the best performing stocks and reinvest in those with lower valuation and higher dividends. That would simply be a form of "rebalancing".
I think I'll go sleep on this one.
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