While this is only a cartoon, it's not much different from the reality of how misquotes turn into buying and selling stampedes on Wall Street. Remember to please always do your own research before you commit to buying and selling stocks and always take full responsibility for your decisions. When you do, your success will be all yours!
Financial Security is what creates and provides financial freedom for all of us. When you're finally able to obtain that level of financial security of being able to live solely off the passive income provided by your investments, then you have finally attained that freedom that only financial security can provide. As your financial wealth and passive income increases, so does your financial security as well as your financial freedom. Investing in companies that continually increase their sales, earnings, and dividends will increases your passive income, financial stability, and security. Finding those select companies that do exactly all of these things is the core to my personal investment strategy.
Companies that have the ability to increase their dividends annually will obviously be increasing my annual income. If that increase is greater than the rate of inflation then my income will increase faster than inflation and my purchasing power will continue to increase over time. Investing in these types of dividend growth stocks is critical to my investment strategy and to my ability to eventually retire with the confidence that my earnings and lifestyle will not deteriorate as I age. And isn't that the purpose of investing in the first place?
The place where I begin to look for dividend growth stocks is in the list of Dividend Aristocrats. This list contains Blue Chip companies listed on the S&P 500 index with large market capitalizations that have paid and increased their dividend annually for a minimum of at least 25 consecutive years. Everyone of the companies are excellent companies to have in my portfolio but they are not all priced at a level that is prudent to accumulate. Care should always be taken when evaluating the possibility of accumulation.
By reinvesting rather than just spending these dividends during my working years, I will accelerate the compounding effects of the dividends which will quickly put me in a position where the dividends will become large enough that they will provide me with sufficient income that I can discontinue my working career and live off the ever increasing dividends.
My only regret in life and in my investment strategy is that I didn't figure this all out when I was younger. Perhaps my kids will benefit from this knowledge long before I did. Good luck kids!
The Payout Ratio is simply the percentage of earnings that is paid out in the form of dividends. I like to keep an eye on the payout ratio of companies I invest in because if they are paying out more in dividends that they are earning then the dividend isn't sustainable for long. Sooner or later the dividend will have to be cut because the company cannot payout money it doesn't have for long. The only way a company can pay a larger dividend than it's earnings is by either borrowing money or selling off part of the company. Neither of these strategies is good for the financial health of the company and therefore it's not good for my financial health either.
Most smaller companies that are in there growth phase will payout little or nothing in the form of dividends so their payout ratios are usually near zero. Older larger companies tend to have less internal growth potential and tend to pay out a larger portion of their earnings in the form of dividends.
One unique situation are the REITs and BDCs which by law payout 90% or more of their earnings. These companies generally have little or no internal growth potential and are generally just finance companies. They borrow money at low interests rates and then loan it out at a higher interest rate. The spread between the two rates is their profit margin and as long as they payout 90% or more of their earnings they don't have to pay any taxes.
For a better explanation of the Payout Ratio please see the video below presented by Perfect Stock Alert. They consistently do an excellent job of explaining these difficult concepts.
Here are a few articles I've come across that are worth reading this weekend. There's a wealth of free knowledge floating out there on the internet that will benefit you financially if you only take the time to read and study. Not everything out there is photos and videos of kittens.
There are no additions or deletions to the list of Dividend Aristocrats for the month of November. This is good news because it means that all of the companies on the list are maintaining there dividends and have increased them at least once during the last 12 months. If you own any of these companies then congratulate yourself and enjoy the ride. You can relax, enjoy your dividends and not worry about anything for at least another month and probably for years to come. You are a wise investor!
For a complete list of these companies please see my article entitled Dividend Aristocrats. Also be sure to watch the videos on that page. It's great insight into why you should be investing in dividend paying stocks.
The first 30 minutes of every trading day are the most dangerous for me. I generally don’t like to trade during this time. I live in the Central Time Zone so for me that’s from 8:30 until 9:00 am. There’s usually a rush of buy and sell orders that have been stacked up all night by part time investors that spent the prior evening doing research.
I’m not worried about those long term traders that are putting in limit orders, I’m concerned with those traders that are reacting to last night’s news events. The ones that have been in the chat rooms the night before and found that internet consensus with other traders. They’re dangerous.
During the first 30 minutes there’s often a disorderly push and pull among traders due to trade imbalances as trades come tumbling through in a disorderly manner. Usually within 15-20 minutes the markets rebalance and real traders start pushing the market up or down.
Once I begin to feel that the market has found an equilibrium in it order flow I start to look for trend breakouts. These are literally intraday highs or lows and they signal which way the market or an individual stock is probably heading for the day. This literally tells me if I should execute a trade or wait for a better entry.
I have used this strategy more times than I can remember. It’s simply waiting for a trend to form before jumping into one side of a trade or the other. It has saved me over the years from making thousands and thousands of mistakes. Perhaps this little idea can save someone else from jumping in too soon and regretting it.
Jesse Livermore is arguably the most famous stock trader to every walk the trading floor of the NYSE. He had no formal training in stock trading and learned everything on his own. He is famous for having won and lost several multimillion dollar fortunes when the average individual made not much more than $1 per day. Below are just a few of my favorite Jesse Livermore quotes.
"The average man doesn't wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn't even wish to have to think."
"There is nothing new on Wall Street or in stock speculation. What has happened in the past will happen again, and again, and again. This is because human nature does not change, and it is human emotion, solidly build into human nature, that always gets in the way of human intelligence. Of this I am sure."
"Do not use the words “Bullish” or “Bearish.” These words fix a firm market-direction in the mind for an extended period of time. Instead, use “Upward Trend” and “Downward Trend” when asked the direction you think the market is headed. Simply say: “The line of least resistance is either upward or downward at this time.”Remember, don’t fight the tape!"
"Play the market only when all factors are in your favor. No person can play the market all the time and win.There are times when you should be completely out of the market, for emotional as well as economic reasons."
"All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis."
Weekends are for thinking and I'm thinking that next week could be moving to the downside for the Industrials. As you can clearly see from the chart below, the average seems to be bouncing between 14,700 and 15,700 so those are the support and resistance levels. At the Industrials approached 15,700 once again, it fell off once again. The RSI bounced off the 70 mark, the Histogram turned lower, the MACD is looking like it's about to cross it's signal line, and the ADX is trying to converge and possibly cross. None of this bodes well for a move up in the market. I'm looking for the market to pull back here.
I don't have a crystal ball and I can't tell the future, but I can read stock charts. I'll be watching closely because these things can turn on a dime but investing is probabilities and trends for me. Whatever your strategy is I hope you're doing your homework this weekend and you are successful in all your trades this week. Good Luck and Good Trading.
DJIA Chart - (1 Nov 2013)
One week later
Two weeks later
Three weeks later
November 23, 2013. As you can easily see the market didn't retreat from it's highs of three weeks ago but instead continued to climb even higher. This is confirmation that you should never jump out in front of a trend and predict a reversal. Even though it looked like a reversal was evident, it still hasn't occurred three weeks later. A reversal will surely happen like night follows day but never predict what the market will do -- just follow the trend. And as you can see here, the trend in intact until it isn't. Trend follower never find the exact top, they just follow the trend only after it is firmly established.
Whenever I'm asked a question my immediate response is “It depends”. The reason that’s my first answer is because I’m rarely asked the entire question the first time. If I had said “yes” or “no”, the next question would more than likely be “OK, but what if...?”. The question I asked myself when I was younger was “Should I invest for Growth or Income?”. I’ve realized after all these years of investing that the answer to that question is “It depends”.
When I was a young man I had no money, a mediocre job, and not a lot of earning power. The little money I brought in barely covered the cost of living my meager lifestyle. I struggled to save any money at all. But I did have one thing thanks to my youth -- I had time. Lots and lots of time. And I understood compounding. So when I looked around at stocks I wanted Growth.
Now that I’m quite a bit older time is starting to run out. I’m no longer interested in that long term growth because long term to me is probably 20 years at the outside and more likely 10 years if you believe the actuarial tables! Today I want Income from my investments, not growth. It’s that income that I’ll need for retirement. It’s that income that I’ll need to pay the doctors and the pharmacists.
Another consideration was and is taxes. Income producing investments produce income on a monthly or quarterly basis which ends up being taxed in the year that the income is paid out. Growth producing investments can avoid creating a tax burden until they are sold, sometimes years into the future. There’s little or no income to be taxed but there will eventually be a large capital gains tax to be paid.
So as you can see, the answer to the question above is “It depends”. Growth when you’re young and Income when you’re old. The next question is “How much of each?” and “When at what age?”. The rule of thumb I’ve always followed it based on age. If you think about that for a moment it only makes sense. I believe your age should equate to a percentage. Your age should equate to the percentage of your investments that should be in income producing investments and the rest should be in growth producing investments. I have no justification for doing this other than it’s just a rule of thumb for me. So, when I was 30 years old I attempted to have 30% of my investments in Income and 70% in Growth. When I hit 40 years old I attempted to have 40% of my investments in Income and 60% in Growth. As you can see, as I get older my investments shift from primarily growth to primarily income. For me this all makes sense but I don’t know what I’ll do if I live to be older than 100.
I’m not sure what anyone else does or how they determine the percentage of Growth and Income but this seems to work for me. If the logic works differently for others, then more power to them and I wish them well.
My only caveat to this entire topic is that regardless of whether I am buying growth or income my highest priority is on Total Return. As I’ve mentioned numerous times in these articles, first and foremost I am only interested in companies that I believe will have a total return of 8% or more. Unless I can expect an 8% total return from an investment I’m considering, I’m not interested regardless if it’s a growth stock or an income stock.
(Note: I remind you to familiarize yourself with my disclaimer if you haven’t already read it. Please do your own homework before making any investment decision and please take responsibility for your decisions.)
This may be an oversimplification of how to attain a successful life but I’m convinced that most people over think these kinds of things and tend to make life a lot more difficult than it really has to be.
Life is easy -- People are difficult.
Rule #1 -- Get a good education. Get the best and the most education you can stand. And get it early before your life really gets going because life always seems to get in the way of the pursuit of education. I’m not sure why that’s the case but it is.
Rule #2 -- Get a good job. Most people will roll their eyes and say there just isn’t enough good jobs out there but a good job is any job that will provide you with an honest living and keeps you employed over a number of years. It’s the one thing that’s going to occupy the biggest part of your life (along with sleep) so you better put as much effort into it as you possibly can. It’s the part that supports the rest of your life.
Rule #3 -- Save and Invest your money. I know. That sounds like two things but they’re really one in the same. I guess you could shorten it to just invest but the key here is to make your money work for you. I’ve chosen the stock market for myself but you could do virtually the same thing with real estate, rental properties, etc.
If you do all three of these things people will arrive at your funeral and talk about what a very successful and lucky person you were in life. They will talk about how it was all so easy for you and that you were the exception to the rules. Don’t worry about all that petty jealousy. They did all the wrong things in life and wasted away their lives on things that never matter. They’re only at your funeral to find out how the inheritance is going to be distributed anyway. Fool them all by leaving them each one dollar so they cannot contest the will and find that one relative who is as smart as you and who will take care of your wealth.
I am an Individual Investor with specific interest in long term growth and then enhancing my returns with income from dividends and derivatives. I don't recommend stocks to anyone (it's a good way to lose friends) and no one reading this should misinterpret my blog as a recommendation for any type of investment. I am writing this solely for myself and my kids.
DISCLAIMER I am not a licensed investment adviser, and I am not providing investment advise for you on this site. Please consult with an investment professional before you invest your money. Any opinion expressed here should not be treated as investment advice. I am not liable for any losses suffered by any party because of data or information published on this blog. Past performance is not a guarantee of future performance. Unless your investments are FDIC insured, they may decline in value.