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  • Is The 4% Rule Becoming The 2% Rule? [View article]
    I'm still waiting to hear what David has to say about what happened with his GE and BAC stocks!

    I don't own BAC, but I will tell you what happened with my GE shares. Drum roll....... Nothing. I still own GE and have bought more over the years. I earn modestly more dividend income off my GE shares now than I did before they cut - thanks in large part to the GE dividends I have reinvested into more GE shares.

    I am a firm believer in the 0% withdrawal rule. If you live off dividend income, there are just a few things to keep in mind. First, the best hedge is to diversify your income sources, and to focus on companies with 20 or more years of dividend history. Second, keep an insurance policy - hold enough cash to last you a year or so in case of a catastrophic dividend cut. Third, develope a taste for the cheaper things in life. If you find that you could be happier spending a fraction of what you currently do, a dividend cut equal to said fraction isn't something you're even going to feel. In my case, swapping our 4 bedroom house in Washington DC for a two bedroom apartment in Portugal enabled me to cut our spending down to roughly one third of our dividend income, which will go a long way to creating a spending buffer next time 2009 hits and a chunk of our portfolio companies cut or suspend distributions for some period of time. I don't advocate everyone should do the same, but if you do live off dividend income, being familiar with a lower cost lifestyle or lower cost jurisdiction ahead of time can give you a sense of comfort. If you know that you could be happy spending half what you currently spend, a 50% dividend cut on your portfolio is irrelevant.

    David, thanks again for yet ANOTHER great article. You're on a roll, my man.
    Oct 8, 2015. 08:39 AM | 3 Likes Like |Link to Comment
  • The Intelligent Investor: Was Benjamin Graham Wrong? [View article]
    Graham viewed shareholders as partners in an ongoing venture. Many of today's shareholders hold their positions for nanoseconds, and are not in the same shareholder/ company relationship Graham envisioned. I wonder whether he'd bifurcate his analysis as between long-term shareholders as stakeholders, verses trading algo-fueled hedge fund shareholders.
    Oct 6, 2015. 03:56 PM | 1 Like Like |Link to Comment
  • Dividend Portfolio Review - Am I Down 8% Or Up 8%? [View article]
    It's so tempting, though, right? I did a study of some of my investments, where I compared the returns on stuff I bought over ten years ago. One of those investments was Alcoa, which I bought at a single digit PE ratio (I remember using an average of five or ten years worth of earnings). The other was starbucks, which had a PE ratio of something close to 50, but I bought it anyway because I love their coffee. I figured it was stupid to buy something expensive, but did it anway. I think you know how that lesson turned out. And the thing is, many of the blue chip stalwarts I buy with a high PE ratio do wonderfully over ten year time frames - Starbucks is not an isolated example.

    There is only one thing I have done over the last 20 years of investing that works: identify great companies and then buy them. By "great" I mean the company offers timeless, necessary products and services, has a huge edge on the competition, has high profit margins and a strong shareholder orientation. Once you identify a truly great business, buy the stock at regular intervals throughout your life, never trying to guess whether the stock will be up or down. I'd almost say you shouldn't get too fussy about the stock price either, since chances are, your guess about the value of the company is probably not as good as the overall stock market's guess. I am still very stuck on things like PE ratios, but increasingly, I am seeing that the overwhelming bulk of positive returns in my portfolio doesn't come from buying cheap. It comes from buying quality. Look, going back to my example, Alcoa is just not a very good business. They have tiny margins, face enormous competition, and their product isn't all that special. Starbucks is a great company. They buy coffee for pennies, sell it for dollars, and can raise the price arbitrarily without much loss of demand for their product. And they take care of their employees, so you get pretty good service and want to go back every day. That's the end of the analysis. A computer algorythm can't do that, but you and I can. Almost all of my really stellar investments all into that category, where I can write one or two sentences explaining why it is a good business. And 99% of the time, when I make an investment that isn't in that category, it doesn't matter if I buy at a seamingly cheap price or not - the returns are going to be ho hum at best, and usually far worse than that. Someone once said "I spent the first half of my career looking for bargains, and unfortunately, I found some."

    To sum it all up, there is no right or wrong way to go about investing, but for my part, I would rather spend virtually all of my time trying to figure out if a company has an almost magically great business or not, and then spend the rest of my time hoarding up the stock irrespective of any other consideration whatsoever. When other considerations distract me (interest rate forecasts, valuation calls, you name it), I mainly end up loosing money or opportunities to earn it.
    Oct 6, 2015. 07:47 AM | 2 Likes Like |Link to Comment
  • Quirky Or Sensible? Weighting A Dividend Growth Portfolio By Quality And Income [View article]
    I'd be a little worried about subjectivity creeping into your analysis. I'm sure there are many reasons why you like certain companies more than others, but could that open the door to making emotional or sentiment-driven choices? My only advice might be going forward, when you review annual reports, find a way to do so without looking at the name of the issuing company, to try and keep your mind objective and skeptical.
    Oct 5, 2015. 04:10 PM | 3 Likes Like |Link to Comment
  • Retirement Strategy: The Simplicity Of A More Secure Retirement Portfolio For Regular Folks [View article]
    Regarded - I LOVE this project of yours. The single best way to learn how to run money (or indeed, to accomplish any other endeavor in life) is to sit down next to someone who is actually doing it, and look over their shoulder. You explain to followers what you are investing in, and why, and what your overall process is, I would say you cannot ever possibly worry about sounding like a broken record.

    The best thing about this project of yours, and doing it in real time as you are, is that it increases the chances that you will make mistakes that your readers can learn from - especially if you point them out, examine the lessons you learned from the mistakes and what you will do about it.

    Way I see it, worst case, you help just one person become financially independent. That's worthwhile, and from reading your comments and articles in the past, I know you agree.
    Oct 5, 2015. 02:41 PM | 10 Likes Like |Link to Comment
  • Dividend Portfolio Review - Am I Down 8% Or Up 8%? [View article]
    Fair enough. I have been wrong about my interest rate predictions for nearly 15 years (if you can believe that). I threw in the towel on trying to guess where rates will go, when they will go there, or what reaction the market will or won't have when they do. Hopefully you are a better judge than I am - and with my track record, that's as close to a guarantee as you get in this business. Thanks to my terrible guess work about stock prices, I have decided to confine myself to merely trying to pick out good businesses with solid prospects to generate growing dividend income, and an average PE ratio of somewhere around 15.
    Oct 5, 2015. 02:23 PM | Likes Like |Link to Comment
  • Dividend Portfolio Review - Am I Down 8% Or Up 8%? [View article]
    Great article. RY looks to have a yield of 4.4% last I checked, somewhat lower than the yield you posted. Also, I didn't notice any REITs or MLPs in your list. You and I have similar goals in terms of dividend growth, but in addition to dividend growth stocks along the lines in your list (including companies like RY which grow their distributions organically), I also own shares of higher yielding businesses like REITs, so I can use some of that yield to reinvest and grow my returns that much quicker. In other words, I am looking for more of a yield up front, and to grow my dividend income BOTH from organic dividend increases as well as through opportunistic reinvestments of dividend income. Have you considered this sort of "hybrid" approach to income growth as well? If so, any thoughts?
    Oct 5, 2015. 03:08 AM | 1 Like Like |Link to Comment
  • Dividend Growth Investors: Stick To Your Process [View article]
    Geekette - there have got to be at least 1,000 world class businesses to pick from. I can't imagine a single reason not to own every last one of them. Obviously, not all 1,000 will rally by 1000s of percents, but the odds of hitting ten massively valuable investments like Buffett did are pretty slim. I suspect you are doing the smart, prudent thing, going for wide diversification.
    Oct 3, 2015. 03:54 PM | 1 Like Like |Link to Comment
  • The 'Something For Nothing' Society [View article]
    I'm a bit confused why this was published on SeekingAlpha. This is non-actionable.
    Oct 3, 2015. 03:47 PM | 6 Likes Like |Link to Comment
  • Dividend Growth Investors: Stick To Your Process [View article]
    Hi Robert. I think that's pretty much what will happen by default. Whenever I have enough funds available to justify the trading commission, I'll buy shares in one of my target companies. Since I will be scaling in to each position slowly over time, it should be similar to dollar cost averaging. The only difference is that some months, I will add BUD and skip all the others, or maybe hit two names only. Due to my desire to limit trading commissions, I won't be able hit them all ratably each time I hit the "buy" button. Over a space of 3 or 4 years, I can't imagine it will make much of a difference what order or methodology I select. In my view, the main objective is to just own these great companies, to diversify my income sources among them, and not try to get too fancy with how I do it since, quite honestly, fancy valuation or timing methodolgy is not one of my core competencies. I also have come to a view that if it turns out in ten years that my approach generated lower capital gains or income growth, I won't beat myself up about it - provided I can say I took my best shot.
    Oct 2, 2015. 05:28 PM | 3 Likes Like |Link to Comment
  • Dividend Growth Investors: Stick To Your Process [View article]
    How are you doing, Nut? Been a while. Well, my "detailed" plan is really, really, really dull. I don't think I'll get an A. I'm happy to share it, though. I want to enhance the diversification of my portfolio income, so that every name I already own accounts for at least 1% of my income. Accordingly, I need to add to the following positions:


    Based on today's valuations and yields, I estimate it will take 4 to 5 years to accomplish this goal. My plan: accomplish the goal and don't do anything else until I accomplish it.

    I have reviewed my investment performance as a value investor. The math does not lie. I am very, very bad at valuing businesses, and very, very good at picking good businesses to invest in. If I think a business is cheap, I usually find out the hard way that it wasn't cheap enough. When I think a business is expensive, I typically sit around like an idiot on the sidelines as the stock climbs, waiting for a reversal that never comes. Or I sell too soon and miss out. Knowing the value of a business is probably more important than knowing whether a business is a good business to own - and I am completely incompetent at it.

    Accordingly, the only logical way for me to move forward is to buy the businesses I want to own in something like alphabetical order. Or to pick them at random. If I try to pick them based on price, I'll get in my own way and my performance will suffer. These are just the plain, simple facts, and I'm owning up to them.

    I'd give my own investment plan a B-, but it's the best I can do given my limited abilities as a value investor. Should you or anyone else follow my approach? I'd say no. I bet most people can do a better job than I can figuring out whether a company is well priced or poorly priced.
    Oct 2, 2015. 02:15 PM | 2 Likes Like |Link to Comment
  • Dividend Growth Investors: Stick To Your Process [View article]
    David, I think that this is one of your best articles yet! I will actually check back on this article from time to time as a "keep myself honest" exercise.

    One of the things this article made me think about is the fact that I have no investment goal other than to stick with my process. I cannot know or control whether my process will ever deliver investments yielding 10% on my original cost. I don't feel that it's fair to grade myself on results I cannot control and therefor take responsibility for.

    What I can control is whether I have a smart, rational investment plan that I am completely comfortable with, and whether I stick to it. So, I'd say that those two criteria are the only things that I will consider when giving myself a grade as an investor.

    If you agree, what if we start a free service here on SeekingAlpha: any investor who wants to get a peer reviewed grade on her or his investment plan gets to write it out (maybe we say the plan has to be under 300 words), and then other readers grade the plan. If you know that you have a C minus plan, maybe sticking with it through thick and thin shouldn't garner an A+, right? But it's so much easier to stick with your plan when you know it's at least a B+ level plan.

    For any other readers of this comment, I've shared my investment plan all over SeekingAlpha, but save a few clicks, here it is:

    (1) Own a diverse portfolio of well managed businesses that pay me steadily increasing dividends; (2) spend less than I earn; (3) reinvest the savings as described in part (1), above; and (4) do NOTHING except what is described in steps (1) through (3).

    Part (4) is extremely broad. For example, I don't check my portfolio price or sell stocks because doing so isn't related to parts (1), (2) or (3). When it comes to investing, there are more things that I don't do than there are things that I do, and that's very much by design.
    Oct 1, 2015. 07:14 AM | 3 Likes Like |Link to Comment
  • Enterprise Products Partners: This 6.5% Yield Is A Steal For Income Investors [View article]
    I don't like to try and time market bottoms, and could easily see the MLP sector drop another 50% or more, just as easily as I could see it rally by 50%. I only note that generally speaking, sometime around the point of total capitulation, you start to see articles written by as yet unheard of experts who feel confident that the entire industry is on the precipice of a permanent collapse. It seems we're getting a few of those articles now, sending investors running like lemmings over the cliff. It would be funny, if it were not for the fact that you just KNOW there are some terrified people selling indiscriminately, with real consequences to their retirement plans or livelihoods. It is really spooky to look into this gaping chasm and to see that there is no such thing as "too cheap."

    Anyway, I've continued to use the low prices as an opportunity to gain more MLP exposure, but since I really don't like the multiple tax filings, prefer going with entities that are in C corp form - funds like AMLP, FMO or KYN, but also some shares of KMI too.
    Sep 29, 2015. 12:31 PM | 1 Like Like |Link to Comment
  • The Cafe Brasiliero [View instapost]
    Well, there is a downstairs at the cafe - I haven't gone downstairs yet because it generally is open for lunch, and I only get into the cafe early in the mornings. It is well worth the trip - Lisbon is a very cheap place to vacation.
    Sep 27, 2015. 03:48 PM | 1 Like Like |Link to Comment
  • No Happy Ending? My Vale Journey [View article]
    One year is not a very long time horizon - more in the time period of a speculation than an investment, in fact. With that short a period of time to value something, you have no choice but to attempt to place a valuation on fleeting and wildly chaotic factors such as political climate, commodity fluctuations, and so forth. But in a cruel Catch 22, those factors are not amenable to valuation (what with them being all chaotic and such)- so any attempt to do so will be per se incorrect.

    There is one way to escape that Catch 22, and only one way as far as I can see it. I suggest it might be something along the lines of "invest for the long term" - think about a twenty year holding period, for example. With the passage of sufficient time, the chaotic and unpredictable nature of commodities prices and human affairs are so obvious, literally GUARANTEED to change, that you will not be tempted to try and evaluate them. Instead, you'll content yourself to look at more objective factors (perhaps twenty or ten years worth of average earnings history and earnings growth rates, for example). You'll probably end up keeping your thesis lead pipe simple, too, because you'll know full well how dramatically different things will look in 20 years - enough so that all those little factors like revolutions and global economic depressions will be nothing more than grains of sand on a beach as far as your valuation model goes. It will be a more intellectually honest exercise and hopefully a less expensive one.

    Much can and will happen over a 20 year time period. To manage the risk of a 20 year holding period, lesson number two rings loud and true: diversify to the extent where you can afford a 100% loss on any given investment. And then hang on for dear life. It stinks to ride an investment down 75% (I've done it myself more than once), but if you have 99 other investments that are up 10%, you're still going to be very happy with yourself. The thing is, when you sell that investment that's down 75%, there is chance that it could be wildly undervalued and you'll end up feeling like a dummy when it turns out you sold at precisely the wrong time. Don't invest what you can't afford to lose, and if that means you hold no position that accounts for more than 1% of your portfolio, congratulations: you're in the same boat as I am.

    Now, I don't own VALE. Frankly, I wouldn't touch an investment like that at any price. I don't suggest you hold it or sell it. I merely suggest that you're approach might be more to blame than Mr. Market's cruel paddy whacking of these shares.
    Sep 26, 2015. 04:09 PM | 2 Likes Like |Link to Comment