One year passed and I haven’t updated this blog since then. But so many things happened and so much is going on right now. I think now it’s time to write about it.
End of last year I realized that I will not succeed with my investment strategy (note the absence of “dividend”), because I had none. I was more or less on a constant search to push the yield and finding speculative investments. When I started with the idea to join the dividend trail I said to me: no speculative stock investing where I end up watching the stock chart all day. I ended up watching the stock charts. Everyday.
Not only this but also the increased use of margin: I always found an excuse for myself to raise the usage. “I can’ let this opportunity pass – I simply have to buy this or that NOW…”
It felt like treading on a conveyor belt. On one side I wanted to decrease the margin on the other I wanted to buy new stocks with my fresh deposited money. So I ended up with a constant use of margin. Needless to say my vast exposure to oil drilling companies and the continued slump of it wasn’t something I needed to improve the psychological situation.
In the end I sold most of my holdings and ended up sitting in cash. Everyone was talking about the big crash which is coming right now. The perfect opportunity to end the margin misery and wait for the big crash. To bridge the waiting time, I bought some gold miners in January and sold them (but way to early). I also fiddled in some extreme speculative investment instruments and lost more money than I made with it – all the time waiting for the crash. The crash didn’t come. But of course tomorrow he will!
I realized I need to reassess my investment “strategy” – especially the ratio time/reward. Which was extreme low and only made my broker rich.
So back to the drawing board. What do I want?
1) I want a strategy to build up a portfolio with a rising income stream.
2) I want to speculate because deep down in my heart I’m a soldier of (mis)fortune.
These two points exclude them selves. So I have to separate them from each other. I now hold a portfolio of several speculative investments – which is always there to be liquidated. This portfolio will be restricted in total value.
And I have my dividend portfolio which will not be touched or when then by good reason (overvaluation, business deterioration). The use of margin will only be justified for speculative investments which are short term in nature. I’m not sure if I should include writing about my speculative positions, what do you think? I consider them as gambling and don’t think this should be included here.
Maybe this doesn’t sound like news for you. But for me it is. Over the last year I learned a lot about myself. How does it feel when a position is going to -90%? How does it feel when the margin is already in use and the market keeps going down and you can’t buy anything, because this is only the beginning of the big crash? How does it feel to sell positions which then starts or keeps rising big in value? I think I made many of all possible mistakes (buying high selling low, chasing yield and trying to catch a falling knife etc.).
It was quite an experience, but I’m also tired of it. The learning process will never end, but I will avoid to repeat my mistakes. And I’m thankful for all my endeavors and mistakes. Considering that I’ve started investing just two years ago, it’s fine for me.
So what’s the new agenda for my dividend portfolio going forward?
1.) Growing EPS
2.) Low long term debt
3.) Low dividend payout ratio
4.) Buy only below historical average valuation (fair value)
And just to show the execution of the new plan:
my last buys where Gilead Sciences (GILD) and Novo Nordisk (NVO).
GILD doesn’t exactly correspond to (1) but the absurd low valuation and low payout ratio will make this an auto-buy for me.
NVO recent slide into fair valuation was another trigger for me. Diminished growth prospects, but an excellent business. Both companies have nearly no long term debt.
I will continues to add, if their valuation keeps below the historical average.
There are many very interesting health care related companies which are coming down to fair valuation:
ABBV, AMGN, CAH, CVS, MCK, …
TROW looks also very interesting!
So I will keep working hard to earn more money and try to save all of it.