3 Things I Regret About My Portfolio

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Includes: AAPL, CNI, CVX, DIS, KO, MMM, MSFT
by: The Dividend Guy

I often find that many investors sound like a bunch of guys coming back from a fishing trip. When you ask them if fishing was good, they only remember their best catch. They will discuss this single catch with as many details as possible, they will tell you how good they were and how they knew it was going to happen this way. If they don't catch a big one, they will quickly summarize their trip finding some kind of excuse why it didn't work out.

When you discuss investing with people around you, they will most likely tell you about their best trade and forget about the rest. However, we rarely learn from our best moves in life - we usually learn from our mistakes. This is why I think it's important to look back at our past moves and look at what went wrong to make sure it doesn't happen again. I've highlighted three things I regret about my portfolio today.

#1 Having chased returns for too long

When I started investing, I was young and thought of making money, lots of money, with my investments. I didn't realize it takes years to make real money and that I'm not the next Warren Buffett. This is how I wasted a good seven years chasing returns before building a real investing process based on a serious strategy.

Interestingly enough, I've made more money during those 7 years than I'm making now with my dividend growth strategy. Several reasons explain this:

  1. I started investing at a perfect moment (my first 3 years were 2003 to 2006);
  2. I withdrew most of my money to buy a house in 2007, therefore I didn't lose much in dollars in 2008;
  3. I used to spend about 2 hours per day on my portfolio to be successful.

However, if I had started a dividend growth portfolio back in 2003, I would be generating more than double what I do now in dividend payments. Those are great years I didn't use to benefit from the power of compounding interest rates.

#2 Ignoring boring stocks at first sight

When I first started investing in dividend stocks, I systematically ignored any company with yield under 2.5%. In fact, I was even reluctant to pick companies with a yield under 3%. The only exceptions I made back then was Coca-Cola (NYSE:KO) and Chevron (NYSE:CVX), which were paying something around 2.75%. I thought I needed strong yield at first (3%+) to build a dividend portfolio. I also thought that low-dividend yielding stocks would take forever to pay something that was worth considering. I was terribly wrong.

I've made a case about how low-dividend yield stocks outperform high-yielding stocks.

I first bought a company yielding under 2% when I considered Apple (NASDAQ:AAPL), as I was seduced by its amazing growth potential. At that time, the stock was trading low (under $400 before the split), and it just started paying a dividend not too long ago. I thought that worse comes to worst, AAPL would become another Microsoft (NASDAQ:MSFT) - a techno giant full of cash finally distributing its unused wealth with shareholders. It turned out to be a better investment, while the stock price almost doubled and the dividend payout is strongly increasing each year.

After this "success", I bought other companies with lower yields, such as Disney (NYSE:DIS), Canadian National Railway (CNI, CNR.TO) and 3M Co. (NYSE:MMM). The key is to find companies with low yield, but also a low payout ratio and a strong ability to generate strong cash flow. These companies are then able to aggressively increase their payout year after year. When the dividend increases, their stock price usually follows accordingly.

#3 Not saving enough to invest

While I would have a stronger portfolio if I had realized the first 2 things earlier in my investing life, the third thing I regret is also the most important. No matter what you read about investing, there are two metrics that will determine what your portfolio will look like in the future: the time invested in the market (how many years you stay invested) and the amount of capital you invest. I started investing at a very young age (23), but I didn't save very much money so far.

A few years ago, I was able to put between $5,000 and $10,000 per year in my retirement fund. Those were the good years. Over the past 3 years, I barely saved $1,000 per year. We ran into many budgeting challenges, such as a third child, a bigger house and other bad habits worsening our lifestyle inflation. I didn't worry too much because I still have a pension fund at work, and I was working hard on making more revenue.

However, if I had started saving $10,000 per year back in 2003, I would be sitting on a 6-figure portfolio on top of having a house and my pension fund. Even better, this 6-figure portfolio would only grow bigger and faster, as the compounding dividend growth rate would also grow accordingly.

Once I come back from my trip, I will have to work on a whole different budget and prioritize savings. The sooner you save money, the sooner you achieve financial independence. There is no trick, no magic to reach FIRE - it's only a matter of working hard and saving hard!

What about you? What are the things you regret the most about your portfolio?