Well, I didn't sit on that cash for very long. I added some companies I'd been eyeing for some time. I have a bit of cash left over; can augment a position or start a fractional position. But, what is my point here?
The market has been richly valued for some time. Highly desirable dividend paying companies have broadly declined, in some cases to historic P/E ratios. Yields have risen accordingly, so my yield threshold was met for my recent purchases. In fact, I don't know if there will be a continued correction all the way to a bear market and if it happens, it will look like I didn't have adequate patience. On the other hand, I think the prices I paid are acceptable, so I'm not given to second guessing purchases. I'm not a market timer. I ask my self if the company is one I want in the portfolio based on credit quality, earnings history, dividend history and then I ask if the price is at or below fair value. If so, then I buy if the cash is in the bank. There may be a better deal down the line, but idle cash isn't collecting dividends. Once I have that position established, subsequent lower prices means the DRIP helps to bring the average purchase price down. I could fret over missing the nadir, but I'm more interested in building the cash producing engine than I am about precisely hitting lowest price points.
I bought UNP and CMI. I look at transportation and industrials as parts of a 'super sector'. One could throw transportation into retail as well, but I think I relate retail more to trucking than to railroads.
I have been building out the industrials rather slowly, but it won't be long before my basket of industrials is substantially complete. I have a nice basket of consumer defensives, utilities, energy stocks, telecoms, consumer discretionals, technology, financials, health care and real-estate. I have a few bond funds, some MLPs. The only sector I'm steering clear of is basic materials. Someday I might approach that one, but not now.
I'm happy with the diversification. I wasn't expecting to hold over 50 issues, but I'm up around 70 between 3 accounts. So far it doesn't seem to be a burden keeping track of them. We'll see how that feels over time.
Saturday, September 19, 2015
Sunday, September 13, 2015
knawing on the old bone...
Is I was doing my nightly investment reading (sad isn't it, that I am doing this rather than reading a good novel, no?) I came across another spirited debate over the relative merits of selective dividend reinvestment and automated dividend reinvestment.
I have thrown my lot into the DRIP category. I like to see the whole portfolio growing. I don't want to be forced to do the "best value proposition" dance every time my cash balance builds up a bit. I have to make decisions with new contributions anyway.
I'm tempted to just turn away when I see this argument developing in the comment section of articles I read, but it's worth taking a slightly longer look at one versus the other. There are a number of issues that are bandied about in these debates.
First; fees. selective reinvestment incurs brokerage fees. DRIP doesn't.
Second; cash balances. Selective reinvestment causes you to hold cash. DRIP doesn't. As soon as it's distributed, it goes to work.
Third; valuation. Selective reinvestment allows/requires you to choose among holdings to augment, or choose a new stock to purchase. The DRIP program, if applied universally, grows the whole portfolio.
Other things aside, the primary argument made for selective reinvestment is the opportunity to buy the best value at any given point, and choose when to deploy the funds.
What is going on, however, with the DRIPer while the selective re-investor is holding and building cash and making choices on which purchase to make? In a given quarter, a 50 stock portfolio will make 50 purchases of approximately 0.5-0.75% of the position. Not only will any given single stock be somewhere between it's 52 week low and high, but the 50 some-odd purchases made will distribute across the spectrum of relative valuations represented by those 50 holdings. It is unlikely that every holding would be either over-valued or under-valued simultaneously.
Since the general trend of valuations is up, the net effect over time is that DRIP purchases will be below current price. Selective reinvestment purchases will be made in blocks, hopefully at favorable valuation for the identified company at any given point, but the purchases for a given holding will be few and far between.
The DRIP is a form of dollar-cost averaging without brokerage fees. It takes all emotion out of investing 3-4% of the portfolio value every year. I am currently adding about 5% per year to my retirement portfolio, so the DRIP handles about 40% of my investing for me across the spectrum of my holdings.
New contributions must be selectively invested. That means a wish list, a watch list and monitoring of existing holdings for favorable valuation.
I have thrown my lot into the DRIP category. I like to see the whole portfolio growing. I don't want to be forced to do the "best value proposition" dance every time my cash balance builds up a bit. I have to make decisions with new contributions anyway.
I'm tempted to just turn away when I see this argument developing in the comment section of articles I read, but it's worth taking a slightly longer look at one versus the other. There are a number of issues that are bandied about in these debates.
First; fees. selective reinvestment incurs brokerage fees. DRIP doesn't.
Second; cash balances. Selective reinvestment causes you to hold cash. DRIP doesn't. As soon as it's distributed, it goes to work.
Third; valuation. Selective reinvestment allows/requires you to choose among holdings to augment, or choose a new stock to purchase. The DRIP program, if applied universally, grows the whole portfolio.
Other things aside, the primary argument made for selective reinvestment is the opportunity to buy the best value at any given point, and choose when to deploy the funds.
What is going on, however, with the DRIPer while the selective re-investor is holding and building cash and making choices on which purchase to make? In a given quarter, a 50 stock portfolio will make 50 purchases of approximately 0.5-0.75% of the position. Not only will any given single stock be somewhere between it's 52 week low and high, but the 50 some-odd purchases made will distribute across the spectrum of relative valuations represented by those 50 holdings. It is unlikely that every holding would be either over-valued or under-valued simultaneously.
Since the general trend of valuations is up, the net effect over time is that DRIP purchases will be below current price. Selective reinvestment purchases will be made in blocks, hopefully at favorable valuation for the identified company at any given point, but the purchases for a given holding will be few and far between.
The DRIP is a form of dollar-cost averaging without brokerage fees. It takes all emotion out of investing 3-4% of the portfolio value every year. I am currently adding about 5% per year to my retirement portfolio, so the DRIP handles about 40% of my investing for me across the spectrum of my holdings.
New contributions must be selectively invested. That means a wish list, a watch list and monitoring of existing holdings for favorable valuation.
Friday, September 11, 2015
Christmas in September
Boy was I surprised to find a big chunk of new cash in my 401k this week! I'm pretty close to the yearly limit on contributions now, so I'm moving carefully with this cash.
It wasn't hard to top off my VTR position; the price is down, the dividend is great and it's in a sector I really like, etc.
I'm thinking a lot harder about the rest of the cash; lots of the valuations of my holdings are at 5 year lows, but they are all full positions and I'm not overly predisposed to over-weighting positions a lot.
I looked at bumping multiple positions up a bit; not highly efficient of fees, but the idea follows the "portfolio bet" strategy. I would be averaging down in most of these.
I have a strong attraction to BA and CMI; not sure why I am looking at industrials, given the uncertainty of the world economy, but BA is in a duopoly in a world that is craving mobility, and CMI is somewhat industry agnostic, as their engines power applications across the spectrum of industrial and transportation spaces. I'd be putting two more large-cap holdings into a small-cap DGI portfolio, however.
I have also been following the big 5 Canadian banks for some time; could take a look at these...
funny; I'm not that great a shopper; much more comfortable holding and adjusting than I am at picking new stocks.
Patience has not been my strong suit when it comes to cash, so perhaps I'll just practice my patience for a bit.
It wasn't hard to top off my VTR position; the price is down, the dividend is great and it's in a sector I really like, etc.
I'm thinking a lot harder about the rest of the cash; lots of the valuations of my holdings are at 5 year lows, but they are all full positions and I'm not overly predisposed to over-weighting positions a lot.
I looked at bumping multiple positions up a bit; not highly efficient of fees, but the idea follows the "portfolio bet" strategy. I would be averaging down in most of these.
I have a strong attraction to BA and CMI; not sure why I am looking at industrials, given the uncertainty of the world economy, but BA is in a duopoly in a world that is craving mobility, and CMI is somewhat industry agnostic, as their engines power applications across the spectrum of industrial and transportation spaces. I'd be putting two more large-cap holdings into a small-cap DGI portfolio, however.
I have also been following the big 5 Canadian banks for some time; could take a look at these...
funny; I'm not that great a shopper; much more comfortable holding and adjusting than I am at picking new stocks.
Patience has not been my strong suit when it comes to cash, so perhaps I'll just practice my patience for a bit.
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