Sunday, August 19, 2018

Random thoughts: Dividend investing

Was having a chat with another blogger, and we talk about dividend investing. So some of the ideas I am sharing here is not mine alone. I don't think he really mind as I think we agree broadly what is dividend investing.

So, there are many ways. Let's do case studies. These are the down the mountain case studies aka success examples. I shall not name who they are but I think bloggers know who I am referring to la.

1) yield at cost is ridiculously high. The stock that the investor is holding is a 10 baggers, so even if the company collapse tomorrow, he would have milk the counter 10.times over. U can sleep and no worry a bit about the counter.

2) Capital size big enough to have meaningful cashflow from dividends to be pumped back into the various counters for compounding effect.

Unlike 1) who is already retired, 2) is still working successfully. He has a warchest accumulating due to his human capital although he has blogged that he had taken a breather and is more chillax when accumulating wealth is concerned, he is most probably still working and accumulating wealth from his human capital.

Both 1) and 2) have a sound dividend policy because both can weathered any storm. While 1) is a retiree, he has famously made known that he depend on 3 taps. While he no longer has a big flow of tap from human capital, both 1) and 2) did not try to force their portfolio to be as large as possible to squeeze the maximum amount of dividends. This is call risk management.

As for AK, he is celebrity status la, so not need to talk about his rumbling of war chest and how he took advantage of 2009 to have his comfortable portfolio.

What did u see in common in the above 3 success stories.

Now, let's talk about us very medicores who are climbing up  mountains and do not earn 500k a year. We do not have the first pot of gold or we started recently and have missed the 2009 period.

Highly unlikely that if we invest post 2009, that we can have 10 baggers. If u have a 4-5 baggers after 2010 u shouldn't be reading this but should be leaving a comment and direct me to your blog.

So how?

2 ways, we can continue to invest to keep ourselves alert and I believe there are still value buys out there if u are good at prospecting. But if u do not have a big warchest, do not earn big bucks, not sitting on 10 baggers, do not have a big enough portfolio that generate meaningful dividend yield that can still sustain the portfolio through market ups and downs, I think it is wise not to be vested beyond 50% of your portfolio.

I am talking about dividend investing, at current valuation, if u still think u can catch 3-4 baggers, again u shall leave a comment and direct me to your blog.

As the market falls, scale in. If u have 15 more years of investing before u retire, we will surely catch 1 more bear - bull cycle.

As we earn more, we invest more, but still keeping a decent amount of money in cash. This is an option to buy more when market turn downwards. As I say, we can afford to show hand if
1) u earn big bucks and your portfolio is a joke compare to your earning power
2) your portfolio is big enough and yield high enough to reach escape velocity.
3) u have multiple taps, perhaps properties? Is somewhat similar to case 1)

Otherwise, better not show hand. Worse, use leverage on dividend investing.

Look, leverage has its place. It magnify returns and loses. If u think u spotted a growth stock with potential to grow 30 Percent and perhaps be a multiple baggers, u are convinced and u hoot using leverage, I can understand.

But if u are squeezing another 2-3 percent yield from it, and trying to artificially inflate an portfolio, I think it defied logic.

Dividend investing, as it is, is about collecting money over a period of time, preferably long term, although we should still sell if we believe dividends is at risk. CFD need top up when the direction move against u, and if u are trying to inflate the portfolio, I wonder how much cash as ammo one have to be ready for that scenario.

Instead of leverage, I think many mountain climbers should think of CPF. This is where I differs over the blogger I had lunch with.

He felt CPF should be a last resort, because after firing so many rounds, the price surely is low enough not to cause serious damage to CPF.

I agreed, but given that CPF cannot be encash as we climb up mountains, I believe CPF can be staggered between cash to be invested in tranches. Of course, the heavy investing should take place through cash first.

The reason is this, we never know how low is the market, if I get all my cash call wrongs, and get my CPF calls right, it will be a long time before my cash is above waters right?

But if I stagger between the 2, there will be some tranches of cash that is entered at low enough price that I could possibly liquidate if I need the money. I told the blogger if possible, I would still use investment money than touch my emergency funds if there is a sudden large sum purchase that I need to make, for example, an kin's medical expenses. Personally, once I touched emergency fund, the peace of mind is gone and I hardly think I will make good judgement calls thereafter. But this is just my preference.  I know of people who has multiple emergency funds. I do not have it.

Climb up mountain slowly. Mountain climbing can be dangerous, don't fall to your death.

16 comments:

  1. Margin call us once or twice. During deep bear market, one may have margin calls every few other days, see how long one can tahanr without blowing up.

    ReplyDelete
  2. I agree with you.

    Emergency fund gives one the peace of mind.One can sleep soundly at night.

    Ben

    ReplyDelete
    Replies
    1. Ben,

      Peace of mond is more important to me now than some returns. In fact, I have seriously consider taking a different approach to investing.

      Since it seems I am.noy able to generate even above 3 percent return consistently.

      Let's see how I behave in next bear cycle

      Delete
    2. Mike,

      Some boring Reits can safely and easily get 5%. No?

      Farmer.

      Delete
  3. 1,2 and AK are at best described as better investors compared to you...They are definitly not successful investors. I have seen and met many many successful investors, but they don't blog, unfortunately, and all are keeping low profiles.

    ReplyDelete
    Replies
    1. At least all of us have a name behind us than anon.

      Lol. I am fine with being a lousy investor, peace be with u

      Delete
  4. No, no no.. This is not what I mean. Hope you don’t get me wrong!

    I think you are far better investor than me, so are financial blogers 1,2 and AK.

    But my opinion is that they are at best - average. Just becos you only see those who blog, you did not recognise those many many successful investors who don’t blog, whom I met.

    I am anonymous becos I’m a lousy investor and I’m scared of being recognised.

    ReplyDelete
    Replies
    1. No worries anon,

      We are all sub par investors. Hope u gleaned more insights from successful investors. I saying this in honesty. Find a good chance tp chat with them anf ask them what is their suace. Not whiCH counter is good but how he goes about doing investment in general.

      Then maybe its 1 more input for u

      Delete
  5. dividend investing is a very important factor , it helps in many ways if you have loss in one place than you can easily bear it with the other place profit and live your life more happily without taking much about the risk.

    ReplyDelete
    Replies
    1. AfTer a while, we should have both capital gain and dividends gain. That is sound dividend investing.

      Dun sleep on dividend stalwart especially when disruptOrs come knockinh.

      Of course if u get back your capital le because of bagger or super high yield then its a different thing

      Delete
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    ReplyDelete
    Replies
    1. U are Very welcome.

      Welcome to Ky blog. See u around

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