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The Indexer Who Was Saved By His Stock Picks
- I am an indexer who completely understands that most professionals and most retail investors do not match the simple long term market index gains available.
- Benchmarking is important even for those with lower risk balanced portfolios.
- I have been correcting my Canadian home bias by dollar cost averaging portfolio income into U.S. holdings, that is starting to pay off.
- In 2014, ironically it was my 5 individual stock picks that carried the day for this indexer.
The Main Reason Why Indexers Will Likely Beat Active Stock Pickers
Tue, Jan. 13 • 63 Comments
- As we know most investors do not get the market returns that are available.
- Too many investors practice 'loss aversion' and sell stocks or funds when they see the stock markets collapse - this can contribute to losses and lower returns.
- Indexing is called 'passive investing' on the investment selection front; but its greatest gift is allowing investors to be passive on the emotional front.
- Vanguard research shows that indexers and those in low fee funds were able to stay the course and not react emotionally.
Are You Beating The Market? It's Important To Know
- Benchmarking is a crucial practice of most businesses and it is also important when it comes to the business of managing your portfolio.
- If you are not beating the simple benchmark or index, you may be leaving money on the table. The monies can be meaningful and life-changing.
- If you are beating the market, the benchmark can help you identify why and how you are beating the market, and provide direction on future success.
- Assessing your success or failure is not an easy process. It is extremely difficult for investors to accept 'they did not win'.
- Benchmarking can help identify weaknesses in your approach, and suggest methods of improvement.
Vanguard Dividend Growth - Beating The Market With Regularity
- In a recent article, I looked at the approach of Vanguard's Managed Dividend Growth Fund vs. an income approach popular with Seeking Alpha authors.
- It's probably helpful to clear up the distinction between VDIGX's dividend growth years and its utilities income period.
- Since its move to a dividend growth oriented fund, VDIGX has beat the market to date, over 7, 8, 9, 10, 11, 12 and 13-year periods.
Going Off CCC List To Find Total Return For Dividend Growth Investors.
- In recent articles, I looked at the Nifty Fifty of the market-beating and wonderfully managed dividend growth fund from Vanguard.
- The Vanguard Fund VDIGX has beat the broader market and likely most dividend growth investors by taking a different approach compared to Seeking Alpha authors.
- We see that VDIGX does not chase yield, it pays attention to payout ratio and it might even have a different definition of dividend growth at times.
- We will have a look at a few of the companies held by VDIGX that are not Champions, Challengers or Contenders.
Dividend Growth: Seeking Alpha Style Vs. The Professional
- In a recent article I suggested that the wonderfully managed Vanguard Dividend Growth Fund might make a Nifty Fifty.
- The fund has a history of beating the markets and delivering on the total return potential of dividend growth investing.
- We'll look under the hood of the holdings (read the tea leaves) and see how the approach compares to the Seeking Alpha Nifty 50 for dividend growth.
- You'll see that there is a distinct and different approach of the Vanguard manager vs the "Seeking Alpha" approach.
The Real Nifty 50 For Dividend Growth Investors
- A recent article series polled several Seeking Alpha authors and asked them each to select 50 dividend growth companies.
- That list was trimmed down to a list of 39 where there was some consensus among the panelists, we'll have a look at that group.
- Ironically there is a real 50 company portfolio put together by a dividend growth investor with a history of beating the market - the Vanguard VDIGX fund.
- In a series of articles we'll examine the obvious differences between the approach of a Fund Manager and the Seeking Alpha authors.
What Happened To The Dividend Growth Investor - The Most Telling Examples
- In recent articles I demonstrated what might have happened to a retired dividend growth investor through the Great Recession. Was it a fair portfolio proxy?
- The example portfolio had a core of dividend stalwart companies that made it through the Recession with flying colours, perhaps that was too generous.
- We'll compare the portfolio proxy to the Dividend Aristocrats and indices and funds such as Vanguard's VIG and VDIGX.
- This might be the most accurate take on what might have happened to a dividend growth investor who had to navigate through the Great Recession.
What Happened To The Dividend Growth Investor Who Didn't Cut And Run
- The Great Recession provided a period of unprecedented dividend disruption, with many dividend growth stalwarts cutting, holding or eliminating their dividends.
- We'll have a look at a portfolio example that experienced a dividend cut. The investor holds the dividend cutter through the recession.
- We'll take a look at the results of buy and hold on a dividend cut compared to the cut and run policy.
Do You Have A Written Plan Of Attack For A Real Correction?
- The recent "correction" should certainly be in parenthesis, nothing really happened.
- That little head fake provides a wonderful opportunity for investors to reflect on what they did, and what they might do in the even of a real and meaningful correction.
- What did you do? Certainly it was easy to buy a few stocks or funds, but was it worth it? Did you just waste some dry powder?
- Do you have a plan for the next correction? Do you think you will be able to execute that plan?
When Rates Spiked Violently Did The Balanced Portfolio Get Whacked?
- We know that longer dated bonds can get hit hard in price terms when rates spike.
- Today's investor has largely known the good times for bonds with yields generally falling for the last 30 plus years.
- Previous to this most glorious time for bond investors was the worst of times. From 1950 to 1981 the yield on a 10 year treasury went from 2% to 14%.
- So what happened to a balanced portfolio in this period? What was the cost of holding bonds in the worst of bond bear markets.
- We'll look at the Vanguard Wellington Fund and how it fared in the bond bear vs the bond bull.
What Likely Happened To Dividend Growth Retirees In The Recessions
- The Great Recession delivered the greatest challenge to dividend investors.
- Many dividend stalwarts delivered dividend cuts, holds or eliminations forcing investors and retirees to make some tough decisions.
- What happened to an investor who used dividend growth through the recession, and who had to cut and run on some dividend growth holdings?
- We'll see that a dividend growth core offered some wonderful recovery potential.
- I run the numbers on a dividend growth proxy portfolio that holds a core of consumer dividend payers along with a popular holding that offered a dividend cut.
Portfolio Keeping You Up At Night? Take One Of These
- The recent stock market correction has been picking up steam.
- If you are feeling a little uneasy, it may be time to add an investment that has a history of going up when the markets went down.
- Long-term Treasuries and other bond funds have once again "done their thing" in the recent correction.
- It's not too late to create your SWAN, or Sleep Well At Night, portfolio.
How Retirees Made It Through The Last 2 Recessions
- Many retirees faced a very challenging retirement date from 1999-2002 as they had to navigate through two of the most substantial market declines.
- An all-equity portfolio of any kind would have been challenged and would likely be very wobbly coming out of the Great Recession.
- Sequence of return risk should be addressed for most retirees; the equities that deliver that inflation protection must be protected in market downturns.
- This article provides a very simple asset mix and portfolios that made it through, from 2000, with flying colours.
- The portfolios allowed investors to spend 4% of assets with a 3% annual inflation adjustment from 2000 to present. Now that's a stress test!
For Retirees, Have The Last 15 Years Been The Worst Of Times? Ever?
- Funding retirement is tricky business, to say the least. What works in one period may not work in the next.
- Stocks have typically provided the growth engine that allows retirees to beat inflation and maintain an aggressive spending strategy - and maintain that quality of life.
- But investing in the equity markets takes on additional risks for the retiree, as selling stocks in down years can cripple the portfolio.
- The last 15 years have been perhaps the most trying time for retirees, especially those who began retirement in 1999 to 2001.
Retirees, Don't Count On Stocks To Deliver From Here
- Many retirees count on the stock markets to deliver the robust growth required to beat inflation and provide an aggressive inflation adjusted spending rate.
- The stock markets have periods when they have provided 14% plus inflation adjusted annual gains.
- In periods of high growth, a retiree was typically able to purchase or hold stocks at very attractive and sensible price to earnings ratios. Today is a different story.
- From today, the equity markets may not provide the growth necessary to provide 4% inflation adjusted returns for retirees.
Retirees, The S&P 500 And Cash Are All You Need
- What simple portfolio survived 40 years that included stagflation, the tech meltdown and the Great Recession? The S&P 500 covered by cash.
- This $1 million portfolio delivered nearly $5 million in income from 1972 to 2012.
- The total return of the S&P 500 can do the trick and provide the growth necessary to help retirees beat inflation.
- We'll have a look at the spending ratio of the portfolio and explore what is "the tipping point".
We Can't Redefine Risk, It's The Price Silly
- Investors on average have performed poorly due to the emotional reaction to stock market price swings.
- Too many investors typically do a lot of buying near the tops (when they feel comfortable) and then sell when prices are falling as they are gripped with fear.
- It may be dangerous to try to redefine risk, or suggest that investors who address risk are just pessimists looking for the downside.
- Quite the contrary, any intelligent investor is an optimist by trade. One has to be a long term optimist to invest in the stock markets.
- It may come down to Mr. Buffett's suggestion that if you can't handle a 50% correction, don't invest in the stock markets.
In The Next Correction, Will You Be A Winner Or A Loser?
- As they say, we all look and feel like geniuses in bull markets, but it is in the market corrections when money is gained or lost.
- The vast majority of investors have a habit of buying near the top and selling near the bottom, are you prepared to go against the crowd?
- Are you prepared for a market correction, or collapse? What is your risk tolerance level?
There's Very Little Chance Of Beating A Balanced Portfolio From Here
- This is now the 4th longest bull market in history. We're in the 2nd longest period without a 10% correction. Every day, we get closer to the next correction.
- A re-balanced growth portfolio that holds a modest 25-35% bond component offers the possibility of delivering stock market like gains (or better) with a much lower risk profile.
- The risk return proposition is likely swinging in favor of a balanced portfolio. It might be time to listen to Mr. Benjamin Graham.
Thanks Burger King For The Whopping Profits: Here's Where The Money Went
- I only hold 4 individual stocks, well now that's 3 thanks to Burger King purchasing my favourite known as Tim Hortons.
- I sold 2/3 on the day that it was announced with a 22% spike, and then 1/3 the following day with another 10% increase in profits. Tim Hortons delivered 250%.
- Tim Hortons delivered a 250% return from March of 2006 to September 2014, a wonderful and rare gift for an investor.
- Cash is king, but we need to be in the markets as well. Perhaps I can have my cake and eat it too.
In Defense Of The Shiller CAPE Ratio - It Works!
- The Shiller CAPE ratio measures the price of companies with respect to earnings with a blended approach that takes into consideration a 10 year history of earnings.
- We should remember that Mr. Robert Shiller does not suggest that an investor use CAPE as a market timing device to get in or out of the markets.
- The CAPE ratio does offer long term predictive powers, estimating a range of probable stock market returns from a PE level.
- The current CAPE ratio suggests that today, we are likely looking at very meager or negative returns over the next decade.
Dividend Growth Investors, Prepare To Boost Your Returns
- Selecting a group of dividend growth companies can provide a lower risk or lower volatility portfolio.
- That lower-volatility portfolio may help some investors weather the next storm, but dividend payers can fall hard as well.
- I fear that many dividend growth investors have not conducted a true personal risk assessment.
- There can be a false sense of security when it comes to dividends; even the dividends may not hold up in a major correction.
Selling My Tim Hortons Was A No-Brainer.
- Tim Hortons was the only stock that I held "on purpose".
- Tim's was a great story, the strongest brand in Canada - they sell 8 out of 10 cups of quick serve coffee in Canada.
- Burger King is looking to purchase Tim Hortons, I don't think they would understand what kind of company it is, and how to continue with this incredible solid growth story.
Warren Buffett Hates Bonds, Loves Cash
- Warren Buffett is sitting on his largest cash pile, ever. Warren has a very big chest, war chest that is.
- Warren chooses cash over bonds for the obvious reason that cash is liquid and available. It's dry power that he can quickly fire.
- What can we learn from Warren Buffett and his Berkshire Hathaway Funds sitting on cash for a couple of years, not finding much that is investment-worthy?
- Warren Buffett looks at cash differently than would you and I; to Mr. Buffett cash is a call option that can be priced.
The Same Returns With Half The Risk?
- I created and hold a very low beta portfolio that I have transposed to U.S. holdings.
- With the return of very modest volatility that portfolio mix has outperformed the broader markets in 2014.
- Are we again in a scenario where the balanced portfolios will potentially outperform the all-stock portfolios over the next several years?
- In the scenario of a market correction, the best risk adjusted returns may come from a prudent mix of stocks, bonds and cash.
How Dividends Don't Matter In Retirement; A Few Examples
- Recently I wrote an article entitled Dividends Don't Matter In Retirement Either. Here are a few simple scenarios that demonstrate the power of stock price growth for retirees.
- It all comes down to the earnings power of your companies. Dividends can help us find that profitability.
- Investing for total return, even in retirement can be the path to the most successful retirement, with the most income available.
I'm Not Selling Anything, I'm Buying Everything
- Recently, a Seeking Alpha author admitted to selling most everything due to fears of a market pullback and market over-valuation.
- In my opinion, this author is not yet an investor, but thanks to some recent experience and introduction to emotional risk, he may be on his way.
- This author teaches us that it is paramount to first have a plan when investing, a plan that prepares us and tells us what to do in any market condition.
The Stocks Catch The Bonds - 6.5 Years Later
- The year 2008 provided a very poor start date for monies invested in most stocks.
- From 2008, a typical bond heavy portfolio has outperformed a balanced and balanced growth portfolio that would offer double or more the stock exposure.
- Sometimes, the market announces that we proceed with caution - is this one of those periods where perhaps returns will be nil or minimal in the short-to-mid term?
- According to the Shiller Index, this is the third-most expensive market in market history.
Dividends Don't Matter In Retirement Either
- Stocks are the best performing asset class that provide the best opportunity for growth and returns that can beat inflation.
- What drives that growth is the earnings power of a company; the actual dividends do not drive earnings power, they are a reflection of that earnings success.
- Most would agree that the dividends don't matter in the accumulation phase, but the same holds true when harvesting in the retirement phase. What matters is earnings growth.
Getting The Returns Without The Risk
- A bond ladder can typically deliver the total return of the longest dated bond within the ladder.
- Bond laddering can greatly reduce the chance of having a negative year, even within a bond bear market.
- What's the sweet spot for the duration of a bond ladder if one fears a rising rate environment?
Cutting My Dividends By 35% - Improving My Dividend Growth Portfolio
- Most dividend growth investors on Seeking Alpha appear to invest for yield, that is likely leaving money on the table.
- Dividend growth offers the opportunity to outperform the market with respect to total return, but the magic is growing dividends, value and a low payout ratio.
- I have left behind the higher-yielding Vanguard VYM, and moved into the more pure dividend growth play of the much lower-yielding VIG.
- We should always remember that in the accumulation phase, all that matters is total return matched to the investor's risk tolerance level.