I left off in Part I at a point where my wife and I had set up our accounts with a discount broker after, as they say in the melodramas, "escaping the clutches of the evil financial advisor." We had several municipal bonds and some stocks that we had inherited and some cash to buy more. We knew that our goal was to produce income to help us maintain our lifestyle. And that was all we knew.
But even with the aim of producing income, initially all I was really thinking about was buying stocks and then hoping they'd appreciate. I hadn't even thought about an income stream. And so I began thrashing around, essentially chasing what Alan Brochstein recently referred to in a slightly different context as "FOTM at the bottom." FOTM stands for "flavor of the month." I'd start reading pundits in places like Yahoo Finance or The Motley Fool. I became the kind of jerk who read all those online ads that begin "Buy these 5 stocks NOW!" "Become a millionaire with PENNY STOCKS!!!" The best thing that can be said about this period is that I didn't act on any of that stuff. Even I could see that if these tips and ideas really worked, there'd be no more poverty in the U.S.
I figured that professional analysts ought to be a good source of recommendations, until I discovered that analyst A will say that company ABC is a strong buy, and on the same day, analyst B at another site will say that he or she is rating ABC "underperform." At this point, "due diligence" meant nothing to me. And even if it had, I wouldn't have known enough about how to practice it. All I knew was that one of the analysts was probably right, but how to know which one?
I even tried my hand at swing trading. (Before I published Part I of this series, my SA screen name was SwingTrades because I first signed up during that period.) I actually had a lot of "success" during the month I swing traded. I forget the exact figures, but I either gained or lost no more than about 50 bucks. I know now that had I been really greedy, I could have lost the farm. But in any case, sitting tensely in front of three monitors all day was not my idea of the good life, even had I made a bundle. But I did start to learn something about technical analysis during that month, so it wasn't a total waste of time at all.
And it was at about that time that I got my first real break. I discovered Seeking Alpha. It took me no time to realize that many SA contributors were a source of true, in-depth knowledge and extensive experience who were not trying to sell me anything other than their considered opinions. It was difficult to believe the generosity they displayed in their extensive writings. I entered my portfolio on the site, signed up for alerts, and followed those who impressed me the most, such as (in alphabetical order) Allen Brochstein, Chuck Carnevale, Dividends4Life, David Fish, Todd Johnson, David Van Knapp, Brad Thomas, and Bob Wells. There are several others as well.
And that's not even to mention all the bright SA folks who leave extensive comments that frequently help you to see both sides of a strategy or idea, and help you to evaluate what you've read.
I also began to avail myself of other resources, for example Investopedia, whose financial dictionary definitions helped me understand the articles I was reading. I became a premium member of morningstar.com for its depth of coverage and wide variety of tools. I learned about specialized sites such as quantumonline.com and others, and learned to consult them regularly.
Gradually from my reading on SA, it became clear -- I can't believe how much time it took for me to realize this -- that dividend investing was the place I needed to focus on in order to produce income, which was the goal all along. "Dividend growth investing," what's that? "Dividend Champions and Challengers," who are these guys? Everything was so new, and I had so much to learn.
But the first SA author to have a real influence on me early on, before I discovered other authors who then, too, influenced me, was Todd Johnson.
I still remember the first article I read by Todd, "2012 mREIT Facts And Opportunities," on January 12, 2012. Of course, I had never heard of mREITs at that time. (I mentioned in Part I that the advisor had put me into 2 non-traded REITs, but I didn't even know they were called REITs.) Of course, the main thing I took away from that article, because most of it I didn't really understand, was that there were stocks out there that I could buy that would pay me dividends of 13.7%, Hatteras Financial Corp (HTS), 14.10%; Annaly Capital Management, Inc. (NLY), and other stocks that paid outsized dividends. This is what I was looking for! Talk about chasing yield.
But I was lucky. Todd is as solid and reputable as anyone I've come across. His research is extensive and he presents it in great depth and clarity, as any of you who follow him know. Of course, I still didn't know that, because I wasn't at the point yet where I could appreciate his work.
But I saw those yields and "knew" that was what I wanted. So I coughed up the money and subscribed to Todd's dividendlab.com newsletter. And when I did that, something happened that just impressed the dickens out of me.
I set up my subscription payment through PayPal. That same day or the next, the subscription was cancelled and I got an email from Todd saying basically that DividendLab wasn't for me, and he didn't really want me as a subscriber! How often has that happened to you? It sure never happened to me. The reason? I mentioned earlier that my screen name had been SwingTrades on SA. Well, that was what I used for my user ID on DividendLab when I signed up. As Todd explained in his email, DividendLab was not a place for swing traders, he and his members and his newsletter portfolio (which is a real money portfolio) were for the long term. Swing traders just didn't belong. That's the kind of honest guy Todd is.
Of course, I wrote him right back and explained that I wasn't really a swing trader, etc., etc., and he let me re-subscribe.
Shortly thereafter, I asked Todd if he'd take a look at my portfolio as it was then and tell me what he thought. He graciously agreed. I've found that exchange, and thought I'd show you what our portfolio was at that point in our investing history.
STOCKS (Common and Preferred)
NZTCY Telecom Corp of New Zealand, Ltd.
JPMPRI JPMorgan Chase & Co.
STDPRE Santander Finance Preferred SA STD FIN 10.5% Non Cum
WFCPRJ Wells Fargo & Co.
AMPPRA Ameriprise Financial 7.75 SNR
IPLPRB Interstate Power and Light 8.375% SR B PRF
PNH PNC Capital Trust E PNC Capital Trust E 7.75% Prf.
CLOSED END FUNDS
KST DWS Strategic Income Trust
HIX Western Asset High Income Fund II Inc
FIXED INCOME FUNDS AND MUNI BONDS
PGBDX PIMCO Global Bond (Unhedged) Fund Class D
VFIIX Vanguard GNMA Fund Investor Shares
SWNTX Schwab Tax-Free Bond
PHT Pioneer High Income Trust
GIM Templeton Global Income Fund
13 municipal bonds from various states
The only thing Todd liked in this listing was T and VFIIX and the municipals we had that were from our state. He said that he, personally, hated preferred stocks, and that was just him. He made a lot of other thoughtful and considered observations that I appreciated, and which began to explain some things to me that I hadn't previously understood.
It's easy to see from the names in this portfolio that we had already embarked on trying to acquire holdings that would really be income-oriented. So I think by that point in January 2012, exactly a year ago, we were headed in the right direction, but we were on the wrong highway. We just didn't have the right names yet, and we had no clear idea of a strategy. All we knew was that we wanted income, and that's certainly not a strategy.
In Part III of this series, I'll bring us up to the point where we are today.