I love my DOGS. Everyone gets that knowing when to sell a stock is much tougher than picking the one to buy (or it is identified as one of the great shortcomings of the individual investor). Yeah, yeah, we make it easy for ourselves: simply buy high, sell low, right? And that is the exact reason why I love my DOGS: buy/sell decisions are based on my simplistic calendar and spreadsheet methodology. Is it November? Check. Is this stock one of the 5 top-yielding TSX60 issues? Yes? Keep/buy. No? Sell and redistribute proceeds across the 5 top-yielding issues.
Stoopid as this may seems as an investment methodology, as I have stated countless times in the last year, it works, and hence the raison d’être of this blog.
It is with the other 20% or so of my portfolio that I struggle. I have a long history of classic individual investor mistakes. I have bought momentum stocks, I have bought high sold low, I have fallen in love my stocks/premise and ridden them into the ground, I have bought for the promise of the premise and ignored the entity known as the market, I have even been beaten down against the assurances of fundamental analyses. So, you’ll excuse me when I tell you that I suffer from a very real discomfort associated with my US-based Dividend Growth Portfolio. (For those that would like to jump in and tell me that ETF’s are the only safe path to prosperity: please, don’t.)
I’m coming up to the the first anniversary – as I detailed here with an update – and around that time I re-evaluate my holdings. And at anniversary time I come face to face with most – if not all – of the dangers the individual investor must confront.
- selling on bad news – a month ago I disparaged media analysis of McDonalds’ current troubles. Millennials are seeking better quality fare, McDonalds menu is too complex, source material quality issues in China and the list went on. My response was simple: this was not McDonalds’ first rodeo, they’d struggled with poor PR before and frequently, and had managed to continue rewarding patient investors. This week $MCD management acknowledged issues with millennials … Crap. So; do I stick with my guns?
- you can never go wrong taking profit – Walgreens was the stock that had a very good run, at least until they caved in to the corporate patriotism movement. I owned Apple once. Back when they were Apple Computers, Inc. The move into music confused me: are you a record company (I foresaw a successful suit by Apple Records – got that wrong, eh?) or are you a computer company? I was uncertain, and you know what they say about investors and uncertainty. Having enjoyed a pretty decent run, I sold my holdings in 2004 at a split-adjusted ~$1.90. That brings me back to $WAG and my dilemma, yes?
- know what you own – or in my case, why you own it. My reader knows that I have established Rules, and while I may not be able to – intelligently – articulate HCP’s business, I can tell why I own it, why it is in this portfolio. So with all five constituents, has anything changed in the last twelve months? Yes, there may be market challenges to all five, whether it is environmental ($CVX), millennials ($MCD), Fed rates ($HCP), the ethical challenge of cigarette sales at a government-subsidised pharmacy ($WAG) or the current activist hysteria over sugary drinks ($KO); all have faced challenges.
- chasing performance – or in my case yield. Herein lies the greatest risk for me, for while I am in this for retirement income, I am not only not ready to draw on this portfolio for income, I am also no longer retired, sadly. In effect, I can forego the juicy yield and instead invest for dividend growth. This freedom then opens up the field of candidates for me, or, if you like, provides greater choice. Anyone who has ever gone for dinner with me knows that a menu is a source of stress for me. Keep it simple, stoopid, and give me my DOGS.
- analysis paralysis – a paradox for sure, because you should do your homework, but at some point you’ve got to “shoot the puck”. Can’t score if you don’t. How much homework is enough? Fundamental analysis is great, but, as I found out it is no guarantee of future behaviour. Case in point: this entire portfolio and this post! None have performed as expected based on their past behaviour! So you look at numbers and you read others’ analyses and posts and what-not. Soon you discount naysayers as trolls, and scan for the good news, like this, on Chevron:
“To be sure, the company has spent more than its net income on capital expenditures in the last 3 years … however, the investment projects are just about to begin bringing fruit. Although the management has fallen slightly short of its own expectations in the last few years, its excellent past record almost guarantees that the production goal will approximately be met in 2017”
Welcome to The Echo Chamber!
For those shut-ins or playing the board game at home, the incumbents being reviewed are Chevron, HCP, Coca-Cola, McDonalds and Walgreen; candidates to date are Church & Dwight, CVS Caremark and Altria. Candidates do not meet my current yield goal, but their dividend growth is nothing if not phenomenal. Cross your fingers …
And that is why I love my DOGS!