Contribute to my investment strategy

[gstillson]

If I was knocking down 143% in 2018 like you, I wouldn't share my "secrets" with just anybody on the internet. I would be selling my own investment letter and getting the Internet folks to send me money in case I didn't hit the 143% next year.

Best,

VW

Not really any secret. Adjust your risk to the point where you get a 143% gain and you are done. Hard to write a book or anything on that.

 

[Running_Man]

Investment strategy & Plan for portfolio Management​

1) At all times maintain a minimum of 10 investments and no more than 20 20 is about the maximum number of companies one can follow, I would never call on a minimum as you could always just buy index to get your stock allocation up to a more acceptable level. I would strongly urge you to listen to the quarterly conference calls to get a feel of the various types of CEO's and CFO's and if you have studied the balance sheets of the companies you will be able to see which ones are blowing smoke and get out of dangerous situations.
2) Ideally diversified across industrial sectors I utilize only value line stocks and by using their market segments I avoid over concentration in one area
3) Need to provide cash flow
4) No negative equity
5) Avoid total market investments At times these are helpful, but certainly not necessary

When to buy​

1) The company has a good dividend yield at least 2 times 10 year treasuries rate. In my investments 1) Must be rated in the top 25% of all Value Line stocks for Financial Strength and Safety – Goal is to have 8 of the 13 picks with a Safety Rating of 1
2) Must pay a dividend with a reliable record of dividend growth
3) Price Stability must be in the top 65% of all companies
4) Earnings Predictability must be in the top 65% of all companies
5) Timeliness of 3 or higher with a strong preference to stocks rated 1 or 2. The reason is no one cares what Value Line's financial ratings are and they almost always cut financial ratings far earlier than any other market source because there is no pressure to maintain them
2) The dividend payout ratio is under 50% of Total Cash Flow From Operating Activities (yahoo income statement)
3) Positive equity with a low PE and price to book

When to sell/reduce exposure​

1) Long term prospects diminish - I utilize 1) Value Line reduces the Financial Strength at all or if Safety falls below 2. A cut in Safety ranking is a strong reason to sell a stock in and of itself but is not automatic.
2) Timeliness rating falls to 4 or lower.
3) Dividend is cut or expected increase unexpectedly does not occur.
The reason for most of the rules is to obtain a dividend stock that no matter what the market is doing will be bringing a dividend home that will grow in excess of inflation. All of the criteria are by using only the Value Line Survey, for myself I always check further by reading the most recent Edgar filings and trying to listen to management on a earnings call to see if their plans sound reasonable.

2) Price appreciates 30% or more take that percentage off the table This is a bad rule, you need to let winners run, if the outlook is still good, Timeliness or price stability are better indicators
3) Yield drops below 10 year treasuries hopefully from price appreciation Another rule that does not relate to performance I would eliminate
4) Tangible Equity becomes negative (goodwill backed out)

When to hold​

1) Dividend yield is between 2X and 1X 10 year Treasuries
2) Dividend payout ratio is still acceptable
3) No negative equity

You will find if you look for long term stock holdings that meet the goal of above average dividends/ consistent growth/ a dedication to dividends and strong financial strength you can avoid almost all big losers. By itself the price stability will get you out of a stock if it is starting to become really volatile either on the way up or the way down. For an Value Line example of of a company that has met all the criteria for the past nine years: http://www3.valueline.com/dow30/f98410.pdf

For an example of a solid company with good dividends this strategy will keep actually keep you out of here is KO
http://www3.valueline.com/dow30/f2084.pdf

Had one been following this strategy you would have gotten into MMM in 2009 at around 50 and sold in mid October at around 200- and an original investment of 100 shares at 50 costing $5,000 yielding 4% that grew by more than 10 percent per year and would have given you total dividends of $3,300 and a return of $20,000 in mid October http://www3.valueline.com/dow30/f5993.pdf

 

[gstillson]

You could have thrown a dart in 2009 and picked a winner (if you didn't have oil stocks on the dart board)

 

[Running_Man]

That point might make sense if one could consistently identify the good and the bad ahead of time.... but it is well proven that you can't... so buy everything and the history is that the good exceeds the bad in the long run.

Totally disagree with this point as I find it even easier to pick stocks to avoid over actually picking stocks. This is because there are so few people actually looking at balance sheets and the issues they always highlight when times go bad and instead more people trying to figure out what the next 4 week move is going to be....... Cycling Investor is another individual stock investor who utilizes balance sheet analysis to keep a safe dividend strategy even with 100% stocks.

http://www.early-retirement.org/forums/f44/kmi-on-the-road-to-disaster-78237.html

http://www.early-retirement.org/forums/f44/i-like-oil-74689-5.html#post1530334

http://www.early-retirement.org/forums/f44/i-like-oil-74689-8.html#post1550162

http://www.early-retirement.org/forums/f44/when-to-buy-ge-88774.html#post1952167

http://www.early-retirement.org/forums/f44/anyone-like-bank-stocks-29100-2.html#post541970

http://www.early-retirement.org/forums/f44/yields-anyone-31474.html#post581914

 

[Luck_Club]

You will find if you look for long term stock holdings that meet the goal of above average dividends/ consistent growth/ a dedication to dividends and strong financial strength you can avoid almost all big losers. By itself the price stability will get you out of a stock if it is starting to become really volatile either on the way up or the way down. For an Value Line example of of a company that has met all the criteria for the past nine years: http://www3.valueline.com/dow30/f98410.pdf

For an example of a solid company with good dividends this strategy will keep actually keep you out of here is KO
http://www3.valueline.com/dow30/f2084.pdf

Had one been following this strategy you would have gotten into MMM in 2009 at around 50 and sold in mid October at around 200- and an original investment of 100 shares at 50 costing $5,000 yielding 4% that grew by more than 10 percent per year and would have given you total dividends of $3,300 and a return of $20,000 in mid October http://www3.valueline.com/dow30/f5993.pdf

Thanks! Lot to digest and insert into my strategy.

Do you subscribe to value line or use the library? I've run through it at the library from time to time, but really haven't put the time in to utilize it as a tool for investing. It is probably worth the money to get that and or Barrons for a year or so.

I especially like the 10 year financials in the value line. My financial accounting teacher in college made us write a paper analysis and issue a buy or sell recommendation on stock. We had to analyse at least 10 years of the annual reports and 10K. Most web based research doesn't offer 10 years as a button click.

I see XOM, would make the cut, based on a few of the rules, but would fall down on earnings predictability.

I've bought XOM based on their financial strength. XOM yielded less than some others like shell & BP, but I liked the financials better. Value line mostly likes them as well.

 

[Running_Man]

Thanks! Lot to digest and insert into my strategy.

Do you subscribe to value line or use the library? I've run through it at the library from time to time, but really haven't put the time in to utilize it as a tool for investing. It is probably worth the money to get that and or Barrons for a year or so.

I especially like the 10 year financials in the value line. My financial accounting teacher in college made us write a paper analysis and issue a buy or sell recommendation on stock. We had to analyse at least 10 years of the annual reports and 10K. Most web based research doesn't offer 10 years as a button click.

I see XOM, would make the cut, based on a few of the rules, but would fall down on earnings predictability.

I've bought XOM based on their financial strength. XOM yielded less than some others like shell & BP, but I liked the financials better. Value line mostly likes them as well.

I have both purchased the subscription and gone to the library. The Dow 30 industrials are free online as examples.
If you look at the total list right off the bat IBM and MMM are not valid due to "4" in timeliness and Travelers, United Technology and Coca Cola would be suspect because they just got to a "3" after being a "4" AMEX, BOEING HD,JNJ MSFT NIKE DIS are all making the original cut and CISCO is worth a view at 84 45 100 it is getting growth up after being much lower a few years back, but would need to have a lot of good things going for it.
https://research.valueline.com/research#list=dow30&sec=list

XOMhttp://www3.valueline.com/dow30/f3226.pdf

I

Yes there are two rules I have that would keep me from owning this stock, that is the Earnings Predictability of 45. That mean it is less predictable than the average stock and earnings surprises cause larger stock fluctuations and make trending financial results less predictable. Also the Price Growth persistence of 10 means this is not a growing company, which you can readily see from the declining sales. The dividend is solid well covered but Value Line only predicts it to increase about with inflation so for those three reasons I would not be a buyer of the stock.

 

[pb4uski]

Totally disagree with this point as I find it even easier to pick stocks to avoid over actually picking stocks. This is because there are so few people actually looking at balance sheets and the issues they always highlight when times go bad and instead more people trying to figure out what the next 4 week move is going to be....... Cycling Investor is another individual stock investor who utilizes balance sheet analysis to keep a safe dividend strategy even with 100% stocks. ....

Ok, so you've picked the stocks to avoid since it is "easy".... some of those will crater as you think they will and others will rebound... you would likely have avoided Apple when John Scully was running the place before Steve Jobs went back and made it a spectacular success.

But then of the stocks that you don't feel compelled to avoid... which ones do you buy? Most likely you will buy some that do well, buy some that are disasters.... and the same is true for the ones that you don't buy.

Besides... you're retired... is this really how you want to spend your time? Reading SEC reports? I'll just buy the index. If I really want higher dividend stocks then perhaps I'll buy a value index.

 

[Running_Man]

Besides... you're retired... is this really how you want to spend your time? Reading SEC reports? I'll just buy the index. If I really want higher dividend stocks then perhaps I'll buy a value index.

Yes actually I find it interesting, and I am not suggesting anyone to do this, and I do not find any fault with investing in indexes, have done it quite a bit myself. I merely find fault in the assertion that it is PROVEN this cannot be done.

 

[pb4uski]

I was referring to the fact that very few, if any, stock pickers consistently beat relevant index investments over the long run... do you dispute that?

 

[Running_Man]

I was referring to the fact that very few, if any, stock pickers consistently beat relevant index investments over the long run... do you dispute that?

I dispute that Indexes are relevant, since there are 3.3 million of them, 70 for each stock in the world. I think the only statistic that is relevant is the return over inflation for the long run, which is the only reason for owning stocks.

 

[pb4uski]

^^^^ Well.... in the 8+ years that I've read posts on this forum that is by far and away the craziest post that I have ever read.

 

[pb4uski]

.... Besides... you're retired... is this really how you want to spend your time? Reading SEC reports? I'll just buy the index. If I really want higher dividend stocks then perhaps I'll buy a value index.

Yes actually I find it interesting...

Sad.

 

[ESRwannabe]

5) Avoid total market investments

I don't know if this will violate rule 5 or not, but for dividend stocks I like VHDYX and VIHAX which are Vanguard's High Div Yield Index funds, US and Foreign. You can also buy them as ETFs using VYM and VYMI.

Right now VHDYX and VIHAX is what I have my taxable early retirement portfolio in, split 50/50. Last year my div growth rate yoy was 11.95%. Dividend yield is usually between 3% and 3.5%.

Now on top of this I plan to add some ETF investments in:
covered call strat on the Nasdaq using QYLD
BDCs using BIZD
mortgage REITs using REM
equity REITs using VIG and VIGI
various alternative investments using ALTY
muni bond CEFs using XMPT

There are also some mutual funds I want to add:
Matthew's China Dividend fund MCDFX
Matthew's India fund MINDX

Then some CEFs:
John Hancock Tax Advantaged Dividend HTD
Reaves Utility Income UTG
Doubleline Income Solutions DSL

Lastly I'm investing crowd-sourced private real estate using Fundrise.com.


Some of these are tax efficient. The bulk of my early retirement portfolio is in VHDYX and VIHAX which are very tax efficient. These other assets will be significantly smaller. I have around $413k split 50/50 in VHYDX and VIHAX and I am almost done adding to them. Based on 2018 payouts I have div income of almost $14k and the long term div growth rate should be pretty good. I plan to add another $2k-$3k to get the payout to $14k or over, and then I'll start working on these other investments. Probably starting with $10k in each.

Once I have accredited investor status I would like to put some money into Yieldstreet.com also. If I could get my pension valued somehow I'd be an accredited investor already, but I don't know how to do that.

 

[Golden sunsets]

What do you mean by negative equity?

A dividend yield of 2-10 times the 10 year treaury (which is 3.45%) means 7-35% so that doesn't make any sense at all.

High dividend yield generally means that the company doesn't have good opportunities to invest capital at a return that is higher than their cost of capital so they chose to return it to shareholders.... why would one want to invest in such companies?

10-20 tickers is way too low to be adequately diversified... you say you are conservative but you are taking on a boatload of diversification risk that far exceeds the benefits.

As PB, Old Shooter and others have said, 10-20 issues only, is the very definition of risk. I own very few individual stocks, but for those that I do hold, my own ISP requires that no single stock can exceed 2% of my portfolio.

 

[Dash man]

I would dump the rule of dividend yield being twice the ten year treasury yield, and look for stocks that have a strong history of dividend growth. That indicates a healthier company.

 

[CyclingInvestor]

Totally disagree with this point as I find it even easier to pick stocks to avoid over actually picking stocks. This is because there are so few people actually looking at balance sheets and the issues they always highlight when times go bad and instead more people trying to figure out what the next 4 week move is going to be....... Cycling Investor is another individual stock investor who utilizes balance sheet analysis to keep a safe dividend strategy even with 100% stocks.

++

 

[ERD50]

I dispute that Indexes are relevant, since there are 3.3 million of them, 70 for each stock in the world. I think the only statistic that is relevant is the return over inflation for the long run, which is the only reason for owning stocks.

^^^^ Well.... in the 8+ years that I've read posts on this forum that is by far and away the craziest post that I have ever read.

Running_Man, what does your number of indexes have to do with anything? Do you have a source? If that number is accurate, I'd assume it includes a large number of sector funds, which is not what we are talking about. And why would it matter if there is a "Total US Market" passive index fund from multiple houses (Fidelity, Vanguard, Schwab, etc ), if they all track closely?

The relevant question is the apples-apples comparison of a passive broad-based stock index fund versus a stock picker.

Your response looks a lot like the diversion tactics I see on the the EV and Renewable Energy threads. It makes your argument look weak.

-ERD50

 

[ERD50]

... The bulk of my early retirement portfolio is in VHDYX and VIHAX ...

But these don't appear to outperform a 70/30 AA in index funds: (edit to correct 70/70 typo!)

Portfolio 1 Ticker Name Allocation
VHDYX Vanguard High Dividend Yield Index Inv 50.00%
VIHAX Vanguard Intl Hi Div Yld Idx Adm 50.00%

Portfolio 2 Ticker Name Allocation
VFINX Vanguard 500 Index Investor 70.00%
VBMFX Vanguard Total Bond Market Index Inv 30.00%

The div portfolio has lower return, higher std dev, a worse 'worst year', and a larger 'max drawdown'.


Portfolio Initial Balance Final Balance CAGR Stdev Best Year Worst Year Max. Drawdown
Portfolio 1 $100,000 $118,844 6.48% 8.63% 19.32% -9.17% -13.53% 0.65 0.89 0.87
Portfolio 2 $100,000 $120,573 7.04% 7.66% 16.60% -3.44% -10.13%

This is a pretty short look, since: Note: The time period was automatically adjusted based on the available data (Apr 2016 - Dec 2018) for the selected asset: Vanguard Intl Hi Div Yld Idx Adm (VIHAX).

But I don't see the attraction. Short link to portfoliovisualizer.com data:

https://goo.gl/rtsNEk

-ERD50

 

[ESRwannabe]

But these don't appear to outperform a 70/70 AA in index funds:

-ERD50

No offense, but its most likely possible to pick a specific date range to show any conclusion one wants to.

The benefit of a dividend withdrawal strategy is that the 4% rule is based on historical data and assuming it will hold up in the future, where as my withdrawal strategy is being determined by the BOD and executives at every individual company I own, looking at present day data.

IMHO I think that the BOD and executive staff looking at the current data on their company is more reliable and informed then looking at the past assuming the future will work out ok. My withdrawal strategy is based on current data made by the experts at every single company I own.

That is why I follow a dividend withdrawal strategy.

 

[pb4uski]

WADR, I want what I spend to be under my control, not dependent on what some strangers who are officers and directors on companies that I invest in decide. That is why I think total-return investing is preferable. Also, there are some excellent companies out there that pay no or little dividends because they have great opportunities to reinvest their capital and earn an attractive return... why would someone intentionally exclude investing in them?

So if you need a new roof do you write all those BODs and let them know that you'll need a little more this year because you need to replace your roof?

 

[ERD50]

No offense, but its most likely possible to pick a specific date range to show any conclusion one wants to.
....

I'm not offended, but I did try to point out that the dates were not my picking. That's as far back as one of the funds goes, they are the only dates available.

...
The benefit of a dividend withdrawal strategy is that the 4% rule is based on historical data and assuming it will hold up in the future, where as my withdrawal strategy is being determined by the BOD and executives at every individual company I own, looking at present day data.

IMHO I think that the BOD and executive staff looking at the current data on their company is more reliable and informed then looking at the past assuming the future will work out ok. My withdrawal strategy is based on current data made by the experts at every single company I own.

That is why I follow a dividend withdrawal strategy.

Good luck. You can think whatever you want, but I have yet to see any evidence that this strategy provides an advantage. No one has a crystal ball. If the BOD did, we wouldn't see things like what is happening to GE. Wasn't GE a dividend darling for many years?

We had a 'dividend growth' thread a while back. No one was able to provide any evidence of the dividend stocks outperforming the passive broad-based index funds. Some attempts were of the twisted - go-back-in-time-and-buy-these-stocks-that-did-well in-the-following-years strategy. Works well if you have a time machine! Works even better on non-div payers!


-ERD50

 

[ESRwannabe]

WADR, I want what I spend to be under my control, not dependent on what some strangers who are officers and directors on companies that I invest in decide. That is why I think total-return investing is preferable. Also, there are some excellent companies out there that pay no or little dividends because they have great opportunities to reinvest their capital and earn an attractive return... why would someone intentionally exclude investing in them?

So if you need a new roof do you write all those BODs and let them know that you'll need a little more this year because you need to replace your roof?

Sure that makes sense, but there is more than one road to Rome.

I am a defense oriented person. I would rather have a withdrawal strategy that I believe is the safest even if it means my income is variable.

There are lot of ways to offset the variability. When I am 60+ I'll have a pension to set a floor on income. If I retire before then, I'll either be very flexible with spending (ex: expat to somewhere very cheap) or continue to work part-time in the US (i.e. early semi retirement wannabe).

 

[pb4uski]

Sure that makes sense, but there is more than one road to Rome.

I am a defense oriented person. I would rather have a withdrawal strategy that I believe is the safest even if it means my income is variable.

There are lot of ways to offset the variability. When I am 60+ I'll have a pension to set a floor on income. If I retire before then, I'll either be very flexible with spending (ex: expat to somewhere very cheap) or continue to work part-time in the US (i.e. early semi retirement wannabe).

If you want defensive... why not just go with a conventional AA but increase the amount in bonds and cash?.... same success rate but less volatiity.

 

[ESRwannabe]

Good luck. You can think whatever you want, but I have yet to see any evidence that this strategy provides an advantage. No one has a crystal ball. If the BOD did, we wouldn't see things like what is happening to GE. Wasn't GE a dividend darling for many years?

We had a 'dividend growth' thread a while back. No one was able to provide any evidence of the dividend stocks outperforming the passive broad-based index funds. Some attempts were of the twisted - go-back-in-time-and-buy-these-stocks-that-did-well in-the-following-years strategy. Works well if you have a time machine! Works even better on non-div payers!


-ERD50

Right, so I don't have any allusions that BOD and execs will always run things smartly. That's why I use the two index funds which combined have almost 1,000 companies in them. A GE can only impact me by .5% or less, worst case. The two dividend funds weight their stocks by market cap. So, GE is not going to impact me that much more than a total stock market index would.

I'm not looking to outperform. My preference is for the withdrawal strategy. I'm fine having less return for a withdrawal strategy that I am more comfortable with.

 

[OldShooter]

^^^^ Well.... in the 8+ years that I've read posts on this forum that is by far and away the craziest post that I have ever read.

You must have missed this one:

... I will state I believe not only are these studies flawed, the "academics" behind the study know they are flawed. In the latest Yale report, the DOMESTIC US EQUITIES, which are actively managed since the time Ellis took over the portfolio, have outperformed their benchmark by 4.9% per year and the foreign equities have outperformed their benchmark by 10.9% per year, for 20 YEARS. The YALE endowment fund is now over 29 Billion dollars. The smartest institutions in the land hire portfolio manager to pay for college professors to print academic books to say this is impossible. The higher and higher the percentage of the population that uses passive funds the more opportunity there is for the Endowment funds.

(emphasis mine).

@running_man is a crackpot.

I have posted this link to my favorite internet cartoon before: https://en.wikipedia.org/wiki/File:Internet_dog.jpg