I must confess that the phrase ‘organic growth’ always used to confuse me somewhat when I heard companies say they had ‘good organic growth’ or plan to grow ‘organically’.
What I now understand is that it is growing your business using the cash flows from your current business. It differs somewhat from acquisitive growth where you take over new businesses by selling current businesses or using debt or issuing shares.
A real example is when as a private investor in a property stock (or REIT) you are given the option to reinvest dividends in the property stock (or REIT) rather than receive the cash, thereby owning a greater share in the company.
In the last few months there has been quite a flurry of activity at Dividend Tycoon HQ. I have been selling out of a large holding where I had lost some faith in the management and did not like the debt levels they were starting to take on. I have also sold some other stocks where I found new or existing stocks too cheap and compelling to ignore and needed the cash in order to invest in them.
It does however always leave me with a slightly uncomfortable feeling, this process of buying and selling, of shuffling the deck so to speak. You are making hopefully good choices about allocating of capital, but you are also interrupting that formidable machine called compounding. The reason for this is every time you buy and sell you are incurring transaction costs on both legs of the trade, and quite likely incurring capital gains tax on the sale. You are shrinking the pie.
This feeling of shrinking the pie, along with a pie that is already shrinking due to a recession in the market where I am invested, is making me rather uneasy. I want my business to grow, not shrink.
I think that sometimes one has to take a bit of pain to get your business to where you want it, which is what I have done. I now feel I have a good business, consisting of stocks I feel will grow and prosper, as long as I leave them alone. Most of them are good dividend generators and will provide me with an income and some reinvestment opportunities.
Why is this so difficult?
I think the main problem is that as investors we crave activity of some sort. It is difficult to look at the same portfolio every day and not to tinker with it. I am always reading about stocks, doing research etc and it is natural to want to invest in new ideas and add a new name to your portfolio. It is not always the best thing to do though. In my current portfolio I believe I need to leave it to grow, why sell a good thing?
What I do however plan to do is to collect dividends and build up a cash base again for further investments. This must not however be at the expense of my current portfolio.
Unfortunately a lot of my dividend income is needed at present for living expenses, so I will be exploring other ways of raising cash. I am not sure how I plan to do this, but perhaps some part time work or freelance writing/business journalism (anybody listening?…) that allows me time to keep doing my passion which is researching companies and markets. Let me know if you have any ideas.
I am satisfied that for the first time in a long time Dividend Tycoon HQ holds a stable of good businesses, which include fast food restaurants, a grocery retail chain, a plastic packaging business, a logistics business, two beverage businesses, a finance business, a property developer, a self-storage business, an apartment letting business, and a few others beside. It is now time to let them grow through the current recession and not to reduce them in any way.
My job is now to sow what dividends are available back into growing these businesses, or new businesses if funds allow, as well as trying to increase my capital outside of the stock market. My mind though remains fixed on looking for good businesses, because if I leave compounding to do it’s job, it may be no time before I am on the job full time again.
I feel like the news coming out of Dividend Tycoon HQ has been a tad glum of late, so I thought I would share a little bit of good news which came out a few hours ago, related to my last article about buying businesses, not stocks. The results of the company I used in this post to make my point, Bowler Metcalf, the boring old packaging company, released very good results today along with a 23% increase in the dividend. Being a core holding of mine this was great news!
2 thoughts on “Growing my business organically”
Great post DT!
I agree completely! One of the biggest challenges is to…wait. Give it time & let the companies do its thing. I still hope that, one random day I will be able to look back & think, wow, this thing is now feeding itself quicker than I can.
And what a great feeling when those dividends arrive…addictive!
Thanks for that Johnny.
You are so right that the hardest part is waiting. I think most of us need to be active investors, when the opposite is likely to produce the best results. I know it has been my biggest weakness and the post was my way of reminding myself to let the companies do their thing. Sure we need to monitor them, and look for new ideas, but unless they give us a very good reason, let them just grow, and hopefully pay you a growing dividend.
Without the unnecessary costs you will see more of those dividends arrive..addictive indeed!
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