Confessions Of A Retired 1st Year Dividend Growth Investor

by: Bob Wells

Alright I'll come clean. I didn't want to do it. I didn't want to go back in the market. After all I had retired in 2008 after escaping the 2008 crash. My 401-K and that of my wife remained intact. We had moved everything to cash earlier that year when the market first started to move sideways. We were happy with cash, at least at first. Slowly though we came to a new realization, these accounts needed to produce income and if they were going to do it for 30 years we had to worry about preserving capital. As interest rates continued to drop, a grim reality set in. More money was going out than going in. If our portfolios were earning 2% a year and we were withdrawing 3.5% they weren't going to last for 30 years. Clearly an adjustment had to be made.

I really didn't understand the market. I was a federal government employee with few investing options, four to be exact. I didn't understand bonds so I did what most federal employees did, I invested in the S&P 500 Index. The 90s were great. The last decade in contrast was anything but. I just couldn't see going back to index funds.

Finally it was January 2011, a brand new year. I watched CNBC, stocks were on the rise. My best friend had taken the plunge earlier and convinced me that I could manage my own portfolio. Slowing I began to realize that a portfolio of dividend stocks could be the answer I was looking for.

I set a modest goal for my first year, 5% - 3.5% for income and 1.5% to bring my portfolio to its level at the start of 2010. I set up my account. I transferred my 401K. As Jim Cramer would say, "I was in the game!"

In February I selected the first 30 stocks that would make up my first portfolio. I had a high yield portfolio with stocks, dividend stocks recommended by a combination of friends and stock gurus like Jim Cramer. The first month was an exciting one as dividend payments first began to appear in my account. The only problem was that some of my stocks were in the red. This wasn't good. So, I began to trade my losers for what I hoped to be winners. My plan now was to cover part of this loss by selecting stocks with higher yield. Overall things were working out just fine until summer. First were the storms, then a nuclear meltdown. Following close behind was the increased unrest in the Middle East. As all my gains were eroding, I moved about 50% of my positions to cash. It was clearly time for a new plan.

I developed what I called my "End of the World" portfolio. I started to investigate stocks that survived the 2008 market crash the best. I learned the difference between stocks with high and low betas. I stuck with my new plan through the remainder of the year, surviving our credit downgrade and financial woes in Europe. It wasn't easy with so many conflicting views from the "experts" about what I should do or what was coming next.

I made mistakes, a lot of them. In the process I learned. I took a hard final look at the year that had just passed. I started with the 30 stocks I had initially purchased. Among the 30 were big winners like McDonald's (NYSE:MCD) and Alteria (NYSE:MO) as well as big losers like Chimera Investment Corporation (NYSE:CIM), Frontier (NYSE:FTR) and Weyerhaeuser (NYSE:WY). There were also great stocks, Kinder Morgan Energy Partners LP (NYSE:KMP), Intel (NASDAQ:INTC) and Health Care REIT (NYSE:HCN) that I sold too quickly when they had their first 2% drop. I had learned the hard way to hold stocks for at least a quarter. I learned not to chase yield. I learned that for me the best source of information was from folks just like me, the folks I continue to learn from every day on Seeking Alpha. I learned what it means to be an investor rather than a trader.

Considering all the mistakes I made and all that I needed to learn, 2011 ended up great. I produced the 3.5% I needed from dividends for income in addition to an additional 3.1% in capital gains. I am less fearful about my investing future because every day I learn more about what is means to be a Dividend Investor.

I hope in the weeks, months and years ahead to give back a little to those from whom I've learned so much. I want to somehow provide a forum for those like myself that are new to individual investing, already in retirement and drawing income from their portfolios. I believe there is more to Dividend Growth investing than just growing dividends. I hope to explore that theme in the weeks and months ahead and hope that many of you will join me.

Disclosure: I am long MCD, MO, INTC, HCN, KMP.