Why it has never been more important to be a Dividend Tycoon

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

This week I have been doing a bit more stock research than normal because I will have some fresh funds in the not too distant future, thanks to the proposed sale of my hotels.

Reading various pieces of business news, you realize the world is not an easy place, business is tough, things are changing so quickly. When I think of stocks, I am always trying to project 5, 10, 15, even 20 years out, and how the business will look then.

It is not as easy as it used to be. The pace of change seems to be accelerating. This was really brought home to me when I read an article in the New York Post (see article here). The article is about Nino Hervias, who used his life savings to purchase a yellow taxi medallion in New York City in 1991. I am sure that like me you have seen thousands of these yellow cabs while watching movies set in New York. This medallion was a license to riches as the number of taxis in New York was restricted to those holding the medallion. The value of the medallion increased every year, peaking at $1.3m in 2014. He thought he was rich. Hell, he was rich!

However, it has all gone wrong for him since then, the value of the medallion has plummeted, thanks to apps like Uber. He is now struggling to get passengers. His exact words in the article were “We are waking up in the middle of the night not knowing what our future is going to be.” Not a good place to be. I feel for him as who could have predicted the rise of Uber?

So how does this relate to the topic at hand. Well I think the one thing that does give me some comfort in this fast changing world is dividends. I would not get the same level of comfort from a salary (job), from sales commissions, from social security, from blogging income (if I had any) or any of the new or traditional ways we make our money.

I can think of several ways any of the above income sources may disappear. Robotics and outsourcing may steal your job, excessive government debt may put your social security in jeopardy, changing technology or fashions may threaten your blogging income, apps might threaten..anything. This is why I believe it has never been a better time to see yourself as a Dividend Tycoon.

Think of yourself as a business and stocks as being on your payroll, some of which have been paying ever increasing dividends for over 50 years. These employees will pitch up for work , despite what may be happening to you. Their only job is to send their dividends to your bank account every quarter, or a couple of times a year at least. The good ones are remarkably loyal, shrugging off political problems and recessions.

Being a Dividend Tycoon is perhaps the most diversified business possible. A portfolio of 12 stocks could cover several industries in several countries. I believe this is far safer than a job. Even a rental property may suddenly find itself in the wrong part of town, or a tenant who does not pay for 6 months.

Had Nino Hervias rather taken a job driving for someone else and simply invested his $118000 in Johnson & Johnson stock, he would not be in his current predicament. No, he would now have Johnson & Johnson stock worth over $1.8m, and a dividend stream of close to $50000 a year. I am using Johnson & Johnson as an example because it was hardly a yet to be discovered microcap. It had almost 50 years of dividend history and was a household name, you can read an article I wrote about Johnson & Johnson here. He would also not have to go out hustling for passengers on the streets of New York. He would be a free man.

So make it a priority to set some capital aside. If you have none, make some. Find some expenses to cut if necessary, read my article The Millionaire Minute, do surveys for extra income, drive an Uber cab on weekends (please just dont tell Nino Hervias I told you that!), but just get yourself some capital and get yourself some stocks, and then get yourself some dividends.

Alternatively, you may believe yourself immune from these changes, and perhaps you are. The bonus though is that if you become a Dividend Tycoon, your life will get better anyway. There will be more income for unexpected expenses, to pay for a child’s education, to buy some new clothes, to visit New York.. and should you take an Uber cab, and the driver is rude as some are made out to be, smile and ask them what they think of driverless cars..and then suggest they visit ww.dividendtycoon.com..

 

 

 

 

 

 

My hotels are (almost) sold – a lucky escape for this Dividend Tycoon

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

Some of you may remember my post from a few weeks back which was Reflections on buying a ‘cheap’ hotel. I was feeling rather down at the time because I had invested in a company that was trading well under the value of the real estate it held, was profitable, and paid a dividend. The first two conditions still existed, but profits were down and the dividend was cut. This stock was illiquid to begin with, but since the dividend was cut it had been all but impossible to sell at a reasonable price. This had a negative effect on my cash flows, as I admit I had bought some stock with the intention of trading it after the results came out, which I thought would be better than they were. I was looking at having to sit at least a couple of years before the stock re-rated and I could sell some.

Then, Wednesday happened, and there was a loud cheer at Dividend Tycoon HQ. The majority shareholder (no doubt equally frustrated at the depressed price) announced a proposed buy out of minority shareholders, whereupon the company will be delisted. Below is the effect on the price.

IntradayPriceGraphImage

The stock was trading at 39c, the offer they have announced is 65c. It is not final, but as the controlling family own close to 80% of the stock it is almost a done deal. While I have not exactly made a killing (I will be about 18% up on my average cost price and 30% up on recent purchases), it does mean that I will have liquidity again and will be out of a stock that was starting to cause me some discomfort.

This was a microcap in the true sense of the word. In my previous article I wrote that I would just have to be patient, as the business was profitable and had good assets. This was all true, and has been confirmed by the price of the buyout, but the one thing that was starting to frustrate me was the opportunity cost of not being able to invest in other stocks, while all my funds were tied up here.

So what have I learnt from this episode?

  • Patience: I may sound like a stuck record, but I keep coming back to the importance of this in investing. Do not let boredom force you out of stocks with value. Believe me I was tempted to take 39c for this stock, because I have been itching to buy stocks like Starbucks and Coca-Cola, thinking surely they would be better than some tiny stock holding a few hotels in Africa, a stock which never seems to increase in price? But this leads me to my second lesson.
  • Value still counts: Of course Starbucks is an infinitely better stock than Gooderson! But at what price? Howard Marks said in his book that any stock can be a bad investment at a certain price, and vice versa. This stock was deeply undervalued and hence had the possibility of a 60% gain, Starbucks may still have room to appreciate, but is a long way off gaining another 60%.
  • Strategy: While I will continue to look for under priced bargains, I will not commit such a large percentage of my portfolio to them. As an aspiring Dividend Tycoon, I still want to trade in such stocks in order to create capital, capital that can be used for investing in world class dividend paying stocks. However, I admit that I bought too much of this stock out of a need to be doing something and should have rather left some of those funds as cash. They would have been incredibly useful when there were market panics, such as the Brexit fallout.
  • Blogging is good for your investment returns: This is perhaps worthy of an article of its own, but has been a positive yet unintended consequence of starting this blog. While I have been blogging for only 4 months or so, and make no money out of it, this has been a nice side effect for me. I enjoy writing it (and hopefully you enjoy reading it..), but it is fairly hard work coming up with ideas for new articles, and the actual writing of the articles is fairly time consuming itself. The two greatest benefits I can see are the following:
    1. Eases the need to do something: Like my previous article on How surfing improved my investing, I could write something similar about the effects of blogging. While writing I am not busy checking stock quotes etc. Boredom is dangerous to any aspiring Dividend Tycoon.
    2. Allows me to put my thoughts into perspective: The article I wrote, Reflections on buying a ‘cheap’ hotel, literally saved me thousands of dollars. By the time I had written the article, I could see my reasoning for not selling out cheaply in frustration, it was there in black and white. It helps to put ones thoughts into perspective, and writing them down really helps.

So If any of you have been reading this, and have thought about starting a blog of your own, I would encourage you for this reason alone. Whether you ever make money out of your blog or not I would not be able to tell you, but I can say it will make you a better investor, and could at least help you avoid making costly mistakes.

Where to from here?

I am quite excited. While it may take some months for this deal to happen, perhaps up to 6 months, I am confident I will have funds to invest fairly soon. I can now go back to doing what I love with more determination. That is looking for some of the best dividend paying stocks the world has to offer. Let me know if you have any investment ideas of your own, I am open for business, as soon as my hotels finally close their doors..

 

Dividend Update – June 2016

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

June 2016 Dividend Income: Nil

Please see what I wrote in May for further explanation, but basically I have been finding better value in my local market than in the UK/USA where I am wanting to invest for the purposes of this site.

This has been fortunate to some extent, especially the fact that I have avoided investing in the UK, following Brexit.

Brexit has though created some possible opportunities. I wrote about one, Intu Properties PLC, in my last post, which is the owner of 9 of the 20 largest shopping malls in the UK. I am keeping an eye on this and other opportunities which I may be able to take advantage of when I have the funds.

I did buy 4620 shares (cost of roughly $1600) for my local South African portfolio in a stock called Choppies (stock code: CHP), which is a food retailer based in Botswana, but rapidly becoming a pan-African retailer with operations in Botswana, South Africa, Zambia, Zimbabwe and Kenya. They target the smaller towns, overlooked by the larger retailers, much like Walmart did in the United States. I have been accumulating small amounts of this stock for a year and plan to continue to do so.

Stock market competition part 2 and a Brexit opportunity

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

I thought it would be useful to look at what I wrote in part 1 (http://www.dividendtycoon.com/blog/2016/06/22/lessons-i-have-learnt-so-far-playing-a-stock-market-competition/), and how that relates to a post-Brexit world.

Firstly, my position in the competition for June ended up as 104th (out of 1380). The good news though is that I am top of the overall leaderboard! (http://www.sharenet.co.za/v3/stockpicks/index.php?id=3&facebook=)If I could maintain this position till the end of the competition I will win a motor vehicle worth about $25000. I hope you will stick around for the ride (excuse the pun), although this will be my last post for a while on the actual competition. I am not off to a good start for July, but a lot can happen in a month.

The main point of this post was to look at how what I wrote in part 1 really played out. I wrote how I had been crushed by the rise of the gold price, only to delight in it’s subsequent decline. Then Brexit happened. Gold stocks rose 20% in a day and I slipped very far back. However this only reinforces my view that the best stocks to own are businesses that you understand, that pay you a dividend. Sure some people got lucky with gold for the month, but where will those stocks be in five years, how much money will those gold mines make? As it happens gold still slipped back quite a bit after the initial Brexit panic and my stocks did fairly well still. As a Dividend Tycoon I want to be the part owner of good businesses and real estate, that pay me a portion of their profit every year without fail. I do not want to have bad years because the gold price is down.

Making the most of Brexit

Whatever your view on Brexit is, the only certain thing for now seems to be uncertainty. I am not going to get into the nitty gritty of Brexit, mainly because it has been extensively covered already, but perhaps more importantly because I have no idea what the consequences will be a few years down the line.

However, as a Dividend Tycoon, or aspiring Dividend Tycoon, such points in history always throw up opportunities. The 2007/2008 financial crisis was not good, but if you had been searching for future dividend income at that time and had pounced on the opportunities, you would be smiling now.

So many British stocks have experienced substantial declines that I think if you are looking for bargains, now is a good a time as any. You need to do your own research though. I will share though one stock which I have been looking at as I have owned it before and know fairly well, Intu Properties PLC. It is also a stock I picked for the stock market competition (stock code: ITU), although it is down quite a bit since friday when I picked it.

Intu Properties PLC

Being based in South Africa this is a stock I have known for some time as it was founded by a South African businessman, Donald Gordon, in the 1980’s and was one of the few stocks available on the Johannesburg Stock Exchange with which you were able to get exposure to a foreign currency without taking money out of the country, as all the assets at the time were shopping malls in the UK.

Today they own 9 out of the top 20 shopping malls in the UK. This is quite impressive because the UK, due to the relatively small amount of land available for building, has incredibly strict planning conditions, and to build a major development can take many years, if it is even possible. This creates a strong moat around the existing malls as it is so hard for another mall to be built. These shopping malls are income machines that are protected by long leases and thus have stable income. They did go through a hard time during the financial crisis of 2oo7/2008, but got through and seem to have learnt their lessons, having subsequently reduced gearing levels.

They have also bought some distressed prime shopping malls in Spain, and with the devaluation of the pound to the Euro should be a positive.

I like the fact that they stick to their core business of owning, developing and managing shopping malls, and do that well. They have moved with the times and have taken on the threat of online shopping. Being prime malls they could even benefit from the trend toward click and collect.

I think the most important thing when evaluating stocks in the post-Brexit world, is will there be much change as a result of Brexit? Now if you ask me about the big UK bank stocks and central London office property stocks, I am not sure. However, people will still be going to the mall to do their shopping, to meet friends or enjoy a meal. Coincidentally I read an interview with the CEO of Intu Properties this morning, which has reinforced my view on this stock, you can read it here http://www.biznews.com/global-investing/2016/07/04/brexit-induced-bargain-intu-properties-shares-appeal-unwarranted-smack/ As the CEO stated. they have 400 million people visiting their malls per year.

Unfortunately I am not able to purchase this stock at the moment due to a lack of funds, but if I had, I would certainly be interested in becoming a part owner of 9 of the top 20 shopping malls in the UK, at a price that is 15% cheaper in pounds (much more if you use other currencies due to the large depreciation in the pound) than it was 10 days ago. Then I would let the dividends compound and use them to increase my stake in this dividend machine through the dividend reinvestment plans they have.

This investment might pay for your own shopping one day. For now, unfortunately, I am just hoping it contributes to me winning that vehicle!

 

 

 

 

 

 

Lessons I have learnt (so far) playing a stock market competition

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

I am currently taking part in a stock picking competition in South Africa. It has some great prizes, and it is fun. It runs over 8 months, and each month there is a cash prize for the top 3 places. First monthly prize is approximately US$2000 (R30000), second $1000, third $350. After 8 months, the person who does best overall, based on your position each month, wins a vehicle worth about $25000, so not too bad at all!

You can see a link here to the competition leaderboard, (I am entered as DividendTycoon (what else!) and out of the roughly 1250 entries I am currently (although it changes minute by minute) around 17th place for June)  http://www.sharenet.co.za/v3/stockpicks/index.php?facebook=, and 5th in the overall competition (click on http://www.sharenet.co.za/v3/stockpicks/index.php?id=3&facebook=). I am more than happy with this as I am certainly still in with a shot at the vehicle. The great thing is that you make your 5 stock picks, and then you do not have to do anything else for the month, there is no active trading other than picking which 5 stocks you believe will do best that month. The only downside is that it is slightly addictive tracking my movements up and down the leaderboard, and in fact it is this that gave me the idea for this post.

What have I learnt?

  • The short term is meaningless when it comes to picking stocks. The changing of positions on the leaderboard over a month is quite eye opening. I have gone from being in the top 100 places, dropped to 800th, then back up to 13th place over the course of a month, others have been even more volatile. It is simply too short a time frame to know what a stocks performance will be. This is why I believe selecting good stocks for the long term trumps day trading anytime. Over any month you may lose money investing in Starbucks, but will you lose over a decade?

I do believe there is a place for trading in order to generate extra capital, but your time frame should be more than a month, and you should do the same research on the stock as you would as if it was a long term stock. The stock that is doing best for me this month, a hotel and casino stock, Sun Interational (SUI) is up 22% this month, at the time of writing. It is part luck, but I also felt it was simply too cheap based on my fundamental research, and while not guaranteed, I felt it had a good chance of rising over the month.

  • Anybody can be lucky in the short term, or unlucky. Quite simply you can be lucky with some of your stock picks, and for others you can be very unlucky. Some great blue chip stocks that people have picked in the competition have gone down over 10% in the month, but look at any chart over 10 years and they are up many hundreds of percent. My girlfriend happens to be in 9th place in the overall (not June) competition. She picked her own stocks. Now I am sure she will not mind me saying that stock picking is not her strong point, her entry is little different to her odds of winning a lottery with around 1250 participants. However, she is doing remarkably well! That is mostly luck, and with any luck she will not read this post..she has named herself “Super Demagogue” after all..
  • Day trading must be exhausting. I must admit that I have spent too much time the last few months getting live prices on the stocks I hold for the competition, as well as those of my closest competitors. Refresh, refresh, check the prices, check my position, it really is exhausting. It leaves less time for research and reading. This makes it not much different from gambling. I think I would be a much better investor if I turned off the stock ticker, or more appropriately shut off my online portfolio for the majority of the day. There is really very little point in the hourly monitoring of the prices of stocks you wish to hold for at least 5 years. The time would be far better spent researching new stocks or industries.
  • I need to know the shares I invest in. As I said in the last point, I was watching my competitors stocks as well as my own. A week ago the competitors who held gold mining stocks suddenly raced up to the top of the leaderboard. It was rather disheartening as I watched my position slip further and further down. This led me to finding a website which displayed the gold price in real time. I could see the problem, the gold price had suddenly spiked over $20 due to a jobs report in the USA… and now it was affecting my competition! The world is an unfair place sometimes.

Anyway, fast forward a week and I sat in silent joy as I watched the gold price plummet back down, and my position started going up. The point though is, that I could never invest in gold shares, or any commodity shares for that matter, simply because I feel I am in no way in control of my investment. I could not tell you whether gold will be $200 dollars more per ounce this time next year, or $200 less. Will Nestle sell more instant coffee next year? Yes, they will. I certainly know I cant stop drinking the stuff very easily.. An increase in the Nestle dividend will follow no doubt. I like to know my stocks and be able to fairly accurately predict where they are heading. Dividends flow from profits, so this is important. Do not let your dividends be at the mercy of inflation reports, federal reserve decisions or the number of unemployed people in Japan.

  • Anchoring is dangerous. Anchoring is believing that what happened in the past will continue into the future. I have noticed that the stocks that have done the best in the previous month seem to be the most selected stocks for the next month. This may in certain instances be justified, but on the whole it is not a good idea to buy a stock because it has already gone up. If anything, look for the stocks that have recently bombed out. As a Dividend Tycoon, you have to think differently, look for what offers value, not what is currently popular.

Conclusion

Things change rapidly in this competition, so by the time you read this I may have bombed out this month. But the final thing I learnt from the competition is that I really really want to win that vehicle! However, I have realized my chances are probably slim due to the element of luck involved and the difficulty of trying to make short term predictions, but you never know, and boy that vehicle would be a very special dividend!

Anne Scheiber: An amazing, but slightly tragic, Dividend Tycoon

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

Readers who have read many personal finance and investing articles may well have come across the story of Anne Scheiber before, but I think it is worth having a look at her life in the context of being an inspiration to anybody wanting to become a Dividend Tycoon, yet taking into account the lessons from her story on why balance in life is also important.

A brief overview on the life of Anne Scheiber

She lived in New York, and when she was in her thirties, at the time of the great depression, she lost all her money she had entrusted her brother to invest for her. She managed to save $5000 from her modest paying IRS auditing job, and started on her own investing path in her forties with this and her $3150 annual pension. She also lived till 1995 – to the age of 101.

The amazing part

On her death it was established that her investments were worth $22 million!  This was established as she left the money to Yeshiva university to help women in need, even though she did not herself attend the university.

To turn $5000 into $22 million is obviously no easy feat, so she must have done many things well. Looking at what has been written, I would say the most important would be:

  • Not selling her dividend paying stocks or trying to time the market. She did not sell out during the numerous crashes she would have experienced during her lifetime. This is not easy when the world is crashing around you, but history has confirmed that the dividend aristocrats such as Coca-Cola are not badly affected on an operational level, and continue to pump out both profits and dividends, so why sell when the stock price tanks? You would not sell your profitable McDonald’s franchise because the share market falls 30%.
  • High savings rate. Unfortunately it takes money to make money. For the ordinary person the only source of capital is normally saving part of your income. In Anne Scheiber’s case her saving rate was around 80%. This is incredibly high and by all accounts she was extremely frugal and spent very little on herself. She is obviously an extreme case, but it does show what is possible.
  • She attended shareholder meetings which were based in New York. Now apparently this was partly to obtain free food and refreshments.. well she did turn $5000 into $22m, and as per my previous point you have to think she did some unconventional things! But I think she was also genuinely there to monitor her investments. Attending AGM’s has helped me gain a better feeling for companies I have invested in, sometimes you need to see the body language of directors, and reading only gets you so far. I would put attending AGM’s in the same camp as visiting your dividend machines, see my earlier post on this subject: http://www.dividendtycoon.com/blog/2016/04/22/visiting-your-dividend-machines/
  • She invested in top quality brands, such as Coca-Cola, Pepsi and Schering -Plough (the pharmaceutical company). Therefore the companies themselves compounded earnings, paid out generous dividends, which she reinvested. In later years she also invested in tax free municipal bonds.
  • So what did being a Dividend Tycoon do for her finances on a cash flow basis? At her death, her dividend and interest income was $750000 per year. Think about that $62500 coming to you every month, whether you get out of bed or not in the morning. No wonder she lived till 101! And she started with only $5000! This just shows the power of compounding. Even if you are not as dedicated as Anne Scheiber, you can get a pretty good result if you allow compounding to take its course. It is not get rich quick, but it is likely you will do well if you do the right things.

The slightly tragic part

Well I said that with $62500 (in 1995) coming through the door every month, she was likely to be happy, which would have contributed to her long life. From what I have read though she does not appear to have had much of a life, although I do not feel one can judge whether she was happy or not. She was a recluse who had no friends and had shunned family, her only real contact being those people who in some way administered her wealth such as stockbrokers. This strikes me as rather tragic, and a waste, surely she should have at least had some pleasure from her wealth such as travel and sharing meals with friends?

My conclusion

I admire the fact that she gave her fortune to a good cause, and in general one would have to say that she gave more to the world than she took out. Besides money, she also left great lessons. Any aspiring Dividend Tycoon can get inspiration from how she compounded her wealth. But she also left the lesson that balance is important and that it is okay to use some of the money for things that are meaningful to you, especially once you are already wealthy and not still in the building phase.

In conclusion, I would have loved to have been able to sit down and have a cup of tea with Anne Scheiber, to discuss her investments, her strategy and her outlook on life. I think it would have been fascinating, even if I would most likely have had to take along my own tea bag..

 

 

Dividend update – May 2016

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

Firstly, apologies on the late update. I have been giving some thought as what to do in terms of providing a monthly update. I am not sure whether readers are actually interested in seeing my dividend income, or whether you come to the site for articles about investing.

In addition, my plans for dividend income from US and UK stocks has been somewhat delayed, and it is slightly pointless giving updates when nothing is happening. Currently my preference has been to invest in my home country stocks as there are some stocks with great growth prospects and high dividend yields. For example I have invested in a real estate stock giving an initial 14% dividend yield and I find such opportunities difficult to pass up. Longer term I think the cash flow from these higher yielding stocks will find its way to the international stocks that I am wanting to buy, but in the short term I am trying to be disciplined and not buy stocks because they will look good on my blog.

My cash flow was also dealt a blow by my investment into an illiquid hotel counter which I wrote about in my last post, see here http://www.dividendtycoon.com/blog/2016/06/04/reflections-on-buying-a-cheap-hotel/  I will need to be patient on this investment before I can sell some stock.

I have decided I will keep providing the updates, although any feedback would be welcome as to what you would like to see. However, I must confess that progress is likely to be slow and it may be some time before I start to post dividend income.

I hope you will continue to read the blog though, and find inspiration here towards becoming a Dividend Tycoon in your own way.

How surfing improved my investing

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

Just over a year ago I sold my house in a beach suburb. This was for personal and practical reasons, as the suburb was quite remote and made commuting difficult. I really enjoyed living there, and while it is better now from a personal and practical point of view, and more central to many amenities, it has also to a certain extent reduced the quality of my investment decisions. It was a beautiful area with great waves for surfing and was just generally very peaceful and relaxing. The area I now live in is pleasant and has its own beauty, but does not quite match. You may be more puzzled by my statement that the quality of my investment decisions has reduced, so let me explain:

Investment decisions

Warren Buffett has on many occassion said that investors would be better off if they received a punch card with twenty tabs, and that was all they had for their investing life. You would certainly be very careful as to which stocks you chose, and would reduce the temptation to trade in and out of stocks. I believe that we often trade in and out of stocks due to boredom, or to tell ourselves that we are doing something useful. In reality the best thing we could be doing most of the time is nothing! It is though difficult to explain to significant others and family that you have been extremely busy doing nothing, but even Charlie Munger has said that the greatest contribution you can make to your portfolio is inactivity.

What he meant by inactivity was in terms of trading, not work. You should continue to read, research and keep up to date with company filings, industry shifts and business trends, so sitting on the beach is not the way to make a million.

However, I do sometimes find that I do not feel like I am actually working or making progress unless I actually trade and buy or sell stocks, no matter how much other work I do.

Surfing

Now, getting back to that beach suburb, I did find that when I had been sitting at my desk for some hours and then took a break to go for a surf, it accomplished a few things:

  • Exercise, because a healthy body equals a healthy mind, right.
  • A break away from stock prices and the endless movement of stock prices. You cannot monitor your portfolio in a raging sea. Well not yet anyway..
  • Time to reflect. You realize that the stock you have been itching to sell because it has not moved in price for six months, is not a bad stock, it is just that the market is doing what the market does, trying to trick you into making irrational decisions.

With a refreshed mind and body, I would usually happily go back to reading and research, the need to ‘do something’ had abated.

Now, not everybody lives in a beach suburb with good waves, so we all have to find our own ways to take a break when the need to ‘do something’ at all costs becomes too strong. I have found the following are quite good – going to a local coffee shop for a really good coffee, going for a walk, reading a non-investment related book or going to the movies. Personally I find the best solutions are those that involve some exercise, but walking to the coffee shop is the best of both worlds.

I think that getting away from the markets is especially important when you are not really 100% sure of a decision to buy or sell a stock.

So what do you do to refresh your mind and improve your chances of becoming a Dividend Tycoon?

 

 

 

 

 

Investing like a pop star

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

I was recently watching a documentary about a pop band from Sweden (not ABBA..) which my girlfriend is crazy about. I also enjoy their music, although not quite as devoutly as her. What got me thinking though while watching was that they are enormously wealthy, and have been going for 30 years. The great thing for them, is that they continue to earn royalties from songs written over 20 years ago. Every time you hear one of their songs on the radio or being played in a store or restaurant, they earn a royalty. This led me to come to the realization that by becoming a Dividend Tycoon, you are in a way investing like a pop star!

Investing like a pop star

By purchasing a stock which is consistently profitable, and which pays out part of that profit as a dividend, you are in effect creating a stream of royalties for the future. Like the pop star earning every time their song plays on the radio, you are earning every time: (assuming you have some stock)

– somebody drinks a Coca-Cola or a Fanta (stock Coca-Cola)

– somebody cleans their house with Domestos (stock: Unilever)

– somebody brushes their teeth with Colgate toothpaste (stock: Colgate)

– somebody drinks a Guiness (stock: Diageo)

– somebody drinks a coffee from Costa Coffee (stock: Whitbread)

– somebody shaves with a Gillette razor (stock: Proctor & Gamble)

– somebody eats a Pizza from Pizza Hut (stock: Yum Brands)

I think by now you see what I am getting at. The notion that you earn every time these things happen is very powerful. Warren Buffett himself once said that he sleeps well at night knowing that around the world millions of men have whiskers growing while they sleep. He owned a large chunk of Gillette, so he would have slept well!

Dividends better than royalties?

In general, song royalties will decline as each year passes, due to newer songs coming along and people playing the older songs less. However with most dividend paying stocks the opposite is true. Most increase their revenue each year as they expand into new products and markets. Think of Starbucks, planning to open 500 new stores in China over the next year. The profit, and subsequent dividends should continue to increase for years, and hopefully decades, to come. The real dividend aristocrats such as Johnson & Johnson have over 50 years of steadily increasing dividends; you would be hard pressed to find many songs which can match that in terms of royalties.

So why not start your own pop band of stocks and start collecting those royalties? You could start to think about who your lead singer is going to be, or rather your main dividend spewing stock. Who will be the back up vocalists for reliable income, perhaps some property stocks? Who will be the bad boy drummer, perhaps a more risky IT stock that could go global? It is up to you, but investing like a pop star should pay off and eventually you may be as rich as the local royalty, like that band from Sweden.

 

 

 

 

 

Warren Buffett – Dividend Tycoon?

Share on FacebookShare on Google+Tweet about this on TwitterShare on LinkedIn

I have been meaning to write a post about the influence of Warren Buffett on my quest to become a Dividend Tycoon since the annual Berkshire Hathaway meeting on the 30th April. It would be a dream to travel to Omaha and see Buffett in person, and to experience the meeting. However, it was a treat to watch the first ever webcast of this event from the comfort of my study. My first exposure to Buffett came when I picked up ‘Buffett: The Making of an American Capitalist‘ by Roger Lowenstein about 10 years ago. I was fascinated by his approach to investing, and I identified with much of his outlook in life. In many ways he is the ultimate Dividend Tycoon, but more on that later.

I started to see my own portfolio as my own form of Berkshire Hathaway, albeit on a miniscule scale, where I could invest for the long term, in businesses that would be around for decades, and be the capital allocator of any dividends received or new capital added. It taught me to think about stocks as businesses, not pieces of paper to be traded. I started to look at which businesses had an enduring business model, good brands and loyalty.

I have certainly made many mistakes along the way. Probably the biggest mistake I have made is impatience, see my post here: http://www.dividendtycoon.com/blog/2016/03/10/why-i-regret-being-impatient

I have not included all of them, but the following are some of the principles that I have learnt from Buffett, and which steered me in the direction of becoming a Dividend Tycoon:

Avoid excessive trading

Despite my impatience referred too, my two biggest positions have been held since 2010, and I hope to keep them for many years to come. I see these as my ‘Coca-Colas’, good cash generative businesses that can keep generating cash for the long term. I have sold stocks I should not have, but take comfort that Buffett bought 5% of the Walt Disney company in 1966 for $4 million and sold it for $6 million. Had he kept it this 5% would be worth at least $8 billion at present..

Invest for the long term

A statement made by Buffett on long term investing has always stuck with me. He said that if you owned an apartment block,  McDonald’s franchise and auto dealership in your town, why would you sell them? You would be more likely to hold onto them because the price is not quoted everyday like it is for stocks. I have tried to imitate this in my own way, see my article on How I bought a Burger King “Franchise” here: http://www.dividendtycoon.com/blog/2016/04/11/how-i-bought-a-burger-king-franchise/ I have held onto this stock, despite a lot of volatility and a falling stock price of late.

Reading

Buffett attributes much of his success to the fact that he reads a tremendous amount. He reads annual reports, newspapers, business journals, biographies and pretty much anything to do with businesses. To be a successful Dividend Tycoon I believe one needs to gain an edge over other investors and reading is one area where you may do so. You may find information about stocks which have not yet been discovered by the mainstream institutions, and an early investment in these stocks may pave the way to life changing profits or stocks that become dividend machines. Think about reading about the rise of Wal-Mart in the 1980’s, could that have been useful?

Frugality

The life blood of a Dividend Tycoon is capital to invest. Without capital to invest, all the best intentions in the world will come to nothing. Being frugal will help build the initial capital to invest. Buffett himself drove an old car for longer than he had too in order to accumulate capital. Do this long enough and eventually the dividends will pay for lifes luxuries. I have tried to be frugal where possible in order to save capital, and am starting to see some benefit in terms of passive income and dividends.

Conclusion

This post only touches on some of the lessons I have learnt from Warren Buffett. His teachings on specific stocks are for another day, his 1988 purchase of a large chunk of Coca-Cola is still a legendary purchase in my eyes and the one I remain most fascinated about. Berkshire receives over 500 million dollars per year in dividends on this one investment, so yes he is a Dividend Tycoon! (He really loves receiving those large checks from Coca-Cola every quarter)

I will in future come back to Warren Buffett and Berkshire Hathaway, but this post is just to pay tribute to him for some of the inspiration he has provided on my own journey towards becoming a Dividend Tycoon.

Further Reading: The Snowball (Highly recommended)