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chowder
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My primary objective is income replacement! ... The objective is to start earning an income stream now, to replace the income that will be earned throughout the working years. I want that income to be reliable, predictable and increasing. The income stream will need to continue to grow to stay... More
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  • Let's Start From The Beginning 46 comments
    Apr 8, 2013 6:39 PM

    The internet, the Information Age has made it possible for investors to quickly and easily learn about investing. You can follow price movement, earnings announcements, and even get research reports, all in real time. Networks have all day business news, market analysis, and prognosticators on future performance. There is an expert behind every tree, around every corner, and they are sitting there waiting for the click of your mouse to provide their analysis, and there are enough of them to provide conflicting views. Mama Mia!

    You read a report here, you get a tip there, you see a fund that has performed better than you and you start to wonder if you are on the right track or not. You see an enticing tip and analysis on a message board, see or read about one in the Wall Street Journal, or read about one in a magazine while on a flight to wherever it is you are going. Information is everywhere!

    You have investment firms with analysts saying go long and short on the same company, at the same time. What is that all about? This company is a buy. No, the same company is overvalued and it's time to take profits, all from knowledgeable and experienced analysts, and all with opposing views. Information is everywhere!

    People love to justify. We each have a belief system and we will do whatever it takes to confirm or justify those beliefs. One academic study says one thing and another academic study says the opposite. Who's right and who's wrong?

    There is so much information available in real time, that it is virtually impossible to keep up with the flow of the news, the flow of ideas, or the flow of advice which often contradicts everything you think you know.

    Where is the best place to put your money? Do you change where you put it? Are you supposed to guess where interest rates go? Should you be in growth stocks? Value stocks? Mid-caps? International? Emerging Markets? REIT's? Sector Funds? ETF's? The list goes on.

    Where do you invest your money?

    Since we are starting at the beginning, it's imperative that we define what it is we wish to achieve. That begins with establishing some goals. What is it that you wish to accomplish?

    Each of us may want different things, so your goals should adjust accordingly. I'll share mine as an example of how to establish an investing goal. If it doesn't fit you, then adjust it. It's the concept you must grasp!

    One of the first things I learned in Leadership training was that in order to succeed as a leader, you needed to form a Master Mind Alliance with those around you. We often call it being on the same page together.

    The first step in forming a Master Mind Alliance is to adopt a "Definite Purpose." ... You did catch that I hope! ... A "Definite Purpose." ... I often refer to my "Definite Purpose" as a "Mission Statement."

    Once you have your "Mission Statement" every company you purchase needs to support that objective. Once a company no longer supports your "Mission Statement" you must be cold blooded enough to let it go. It's either a part of your "Master Mind Alliance" or it isn't. It's up to you to act accordingly.

    You start with establishing your Primary Objective. My Primary Objective is income replacement. I want to replace the income I earned in my working years with income from my assets without having to liquidate any of those assets, and I want to do it at a rate above inflation.

    With this goal in hand, I know exactly how much income my assets need to generate and I know how much time I have to get there. From this I established my "Mission Statement." My "Mission Statement" is to build an income stream that is reliable, predictable and increasing.

    From this point on, every position needs to support that objective. I'm in charge of the "Master Mind Alliance." It's up to me to surround myself with companies that are on the same page with regard to hitting my objectives.

    Now this is important! ... With these goals in mind, I then determined that the best and safest way to achieve them was to understand that the forces of time, modest and reliable growth, and more importantly, the power of compounding are on my side.

    The goal then became, rather than playing the market with Mutual Funds, ETF's, Options, or trying to determine which sectors to invest in based on market conditions, or worrying about overvaluations; I would start to acquire ownership in long-term, ongoing successful businesses. I decided to become a passive and partial business owner as long as the business met my "Mission Statement."

    This is known as "common sense" investing.

    Common sense investing means employing a strategy that's linked to the actual corporations in which you're invested. Investing is about being a partial owner of a real business.

    Common sense investing means your strategy needs to be effective in virtually all market conditions. Common sense means spreading out your risks, but not so much that you lose control over your portfolio.

    Let me tell you a secret. Prior to changing my view from playing the market, (I used to be a swing trader), to being an acquirer of successful businesses, price movement often made me feel powerless. I felt like I was always at the mercy of the market. Price movement often made me feel intimidated, and if you knew me, you'd know I don't intimidate easily.

    Once I took the Warren Buffett approach of owning companies, as opposed to playing the market, I developed a peace of mind with my investment style. I don't follow price, I follow earnings and dividend growth, which in essence is my share of the company profits. As a partial owner of an ongoing successful business, I expect my share of the profits, without having to liquidate ownership.

    As a business owner, I ignore short term price movement. I don't care about one or two year performance levels against the market. Every successful business goes through a period of underperformance. I'll look to see if they have a history of overcoming adversity and then try to determine if current management will continue to do so. More importantly, they must raise the dividend while overcoming that adversity. As long as they do, I stick with them.

    In closing, let me say that the best way to sum up this instablog is this; you've got to tune in to who you are, what you want, how you will behave in certain conditions, and make the changes necessary to invest only in the companies that fully support your objectives. You can either play the market or become an owner in long-term, well-established businesses. That choice is yours!

    Dividend growth investing to me is about being a partner in an enterprise that shares the profits with me and increases the amount of profits shared every year. It's about harnessing the true power of time and growth, the incredible accumulation of modest gains into enormous ones, which is the essence of compounding.

    Find a business with reliable growth that will share that growth with its owners, be patient, and watch it grow. Fast growth is not the goal, for fast growth is not reliable growth. Reliable growth, no matter how modest, is what will reward you in the end. The power of compounding is the key.

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Comments (46)
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  • Dividend Sleuth
    , contributor
    Comments (1547) | Send Message
     
    My Primary Objective is ... to replace (earned) income ... with income from my assets without having to liquidate any of those assets, and I want to do it at a rate above inflation.

     

    My "Mission Statement" is to build an income stream that is reliable, predictable and increasing.

     

    I don't follow price, I follow earnings and dividend growth....

     

    Gems of wisdom. I'm sure I'll be quoting you. Thanks!
    8 Apr 2013, 08:17 PM Reply Like
  • Bob Wells
    , contributor
    Comments (5171) | Send Message
     
    chowder...

     

    A nice addition to your rapidly growing collection of articles. As always practical straight forward investing advice.

     

    Take care
    Bob
    8 Apr 2013, 08:24 PM Reply Like
  • Garthilk
    , contributor
    Comments (588) | Send Message
     
    Very excellent advice and analysis. It's great to read articles like this and it helps me affirm and nurture the soft foundation I have laid in my retirement plans. (Just started saving for retirement 17 months ago).
    8 Apr 2013, 08:29 PM Reply Like
  • raykrv6a
    , contributor
    Comments (2477) | Send Message
     
    Chowder, you need to write a book. My problem is when a stock moves years of dividends, I need to trim the profits off and reinvest.
    8 Apr 2013, 08:45 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » Ray, I understand the need for some people to do that, but then it depends on where the money goes. Does it create a higher level of success or not?

     

    Project $3 Million is one of the portfolio's I manage and I publish the results online monthly. At the bottom of the monthly updates, I list the companies that were sold in the past, the reason why, and where the money was reinvested. That way people can learn from my successes and failures, and I have my share of both. ... Ha!

     

    http://bit.ly/rBJkXG
    8 Apr 2013, 08:52 PM Reply Like
  • raykrv6a
    , contributor
    Comments (2477) | Send Message
     
    Yep, I follow your project to see what's up. I've made my share of mistakes too. I just can't believe this market.
    8 Apr 2013, 09:07 PM Reply Like
  • dividendbonanza
    , contributor
    Comments (395) | Send Message
     
    "It's about harnessing the true power of time and growth, the incredible accumulation of modest gains into enormous ones, which is the essence of compounding."

     

    No truer words were ever spoken. When I was young I would have let the word modest deter me from adopting the strategy. Live and learn.
    8 Apr 2013, 09:14 PM Reply Like
  • maybenot
    , contributor
    Comments (3370) | Send Message
     
    Chowder -- thanks for the article. You and Bob Wells made it all so clear: you gotta have a plan.

     

    So I developed (i.e. stole ideas from you & others!) for my business plan, my mission statement, and specifics of how to achieve my goals.

     

    It has made all the difference. Because whenever I think of doing (scary word!) something with a stock/company -- I simply remind myself of my goals/plan: "Does my potential 'doing' match up with my goals/plan?" -- it is wonderful to have this foundation.

     

    So -- thanks again and I look forward to your next one and updates on your 3M portfolio.
    8 Apr 2013, 09:29 PM Reply Like
  • spielerman
    , contributor
    Comments (204) | Send Message
     
    one of the points that I keep making with investors is, "if you don't stick with your plan, you really didn't have a plan." In essence, this is a form of market timing. The conviction to write, and stick with your plan is what will determine investment success. Long live the chowder rule!
    8 Apr 2013, 09:32 PM Reply Like
  • Sir Duke
    , contributor
    Comments (115) | Send Message
     
    Great post! Peace of mind and feeling comfortable with your investment is #1. Focusing on the income stream has helped re-frame how I see stocks. I liked the part about not getting emotionally involved with a position. If a company isn't contributing (i.e. div growth) they get cut from the team. It's fun being the boss!
    8 Apr 2013, 10:14 PM Reply Like
  • billinsd
    , contributor
    Comments (1413) | Send Message
     
    I wonder how many people truly have a mission statement ?
    My guess is,not many.
    Happy to see David Fish has added "The Chowder Rule" to his CCC lists.
    If I ever get re employed,I will have to change my mission statement !
    9 Apr 2013, 07:39 AM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » Bill, I have my Mission Statement taped to my computer screen so that it's always in front of me. It reminded me that COP is no longer meeting the criteria. The dividend is not increasing and management has hinted that it may not this year either.

     

    If the dividend is not increasing it no longer qualifies for my dividend growth portfolio since the key to compounding is a growing dividend. So, I am looking for a replacement.

     

    When COP starts raising the dividend again, I'll repurchase them again. Easy peasy .
    9 Apr 2013, 12:22 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (12742) | Send Message
     
    "It reminded me that COP is no longer meeting the criteria. The dividend is not increasing and management has hinted that it may not this year either."

     

    Chowder, could that be because of the PSX spinoff?
    9 Apr 2013, 04:05 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » It could be Robert, but it doesn't matter, that's past history and I've been rewarded for that. I'm looking forward and COP has a lot of money going into capital intensive projects. Those projects should help COP down the road, but it doesn't help me meet my Mission Statement of an income stream that is reliable, predictable and increasing, in the near term.

     

    Management has hinted that there won't be a dividend hike this year. That's good enough for me to move on, especially when I can get the same yield elsewhere and still get the dividend growth.

     

    I can envision coming back to COP at a later date, but for now, it either supports my Mission Statement or it doesn't. If it doesn't I move on.

     

    I've been burned too many times for justifying dividend freezes. No more. Even if I'm wrong, I'd rather be wrong on the side of caution, especially since that caution is going to see the income flow increase because of the change.

     

    I'm not saying others should switch. Their objectives may be different than mine, but I'm staying true to my Mission Statement, otherwise why have one? ... Ha!
    9 Apr 2013, 04:33 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » An edit to my message to Robert.

     

    If I didn't own COP and was looking to purchase a company today, as a dividend growth investor, I wouldn't purchase this company until it started raising the dividend again. I wouldn't be trying to justify the PSX spin off.

     

    So why use a different set of rules because I owned it?

     

    When KRFT split up with MDLZ, management came out with a strong statement about dividend growth. I bought it before it raised the dividend based on management's comments.

     

    COP's management isn't coming out with those type of comments. They want a good yield, but not a peep about growing it. So, I discount the PSX spin off and try to look forward.
    9 Apr 2013, 04:40 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (12742) | Send Message
     
    Chowder, I appreciate your reply, as I was considering buying COP. I will rethink it in light of what you said. Thank you!

     

    Robert
    9 Apr 2013, 07:31 PM Reply Like
  • Wranglerblue
    , contributor
    Comments (4) | Send Message
     
    Chowder, thank you for your articles. I am confused by your comments on COP. According to David Fish's CCC, COP has a 1yr DGR of 14.9 and the chowder rule of 17.5.
    9 Apr 2013, 07:36 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » Wrangler, David may have a different rule in play because of the PSX spin off. Here is the dividend history from COP's own website:

     

    http://bit.ly/YbCHQI

     

    COP may prove me wrong and come out with an increase later this year. For now, that predictability isn't there like it is with a PG, KO, MO, CVX or the other companies I own.

     

    The company has been selling off assets and putting the money into Cap-ex and share buybacks. I don't like share buybacks without first raising the dividend. It may work for others, and that's fine as long as it supports their objectives.
    9 Apr 2013, 08:35 PM Reply Like
  • rnsmth
    , contributor
    Comments (1922) | Send Message
     
    I sold on Monday too. Trying to decide whether to open a new position or fatten up some current ones.
    9 Apr 2013, 08:35 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » Ron, I didn't sell COP until today. I'm going to fatten MO tomorrow with the proceeds. A higher yield and a still growing dividend.

     

    I'll watch the market movement early in the day and decide if I enter MO late in the session. If it's down on the day, I'll hold off. If it's up on the day, I'll buy

     

    I have another account where I may replace COP by fattening KMP. It's a taxable account so I can get a higher yield, increasing distribution and save on taxes as well..

     

    I would like to add to CVX, but I'd take an income cut to do so. I looked at RDS.B but their dividend history is irregular. BP still has legal hurdles to work through and I'm not paying a foreign tax to own TOT. So, I'll go out of sector.
    9 Apr 2013, 08:48 PM Reply Like
  • rnsmth
    , contributor
    Comments (1922) | Send Message
     
    HA! I even looked at CTL today :)

     

    May do an add to ARCP, DLR and a utility. If AVA's payout ratio had not ballooned, I would be all over it, and may still buy it
    9 Apr 2013, 08:52 PM Reply Like
  • jdhd
    , contributor
    Comments (511) | Send Message
     
    chowder...if I remember correctly David looked at the split of COP and PSX and viewed the 66 cents as an increase for COP.
    9 Apr 2013, 08:59 PM Reply Like
  • HiloBeMagical
    , contributor
    Comments (356) | Send Message
     
    "If I didn't own COP and was looking to purchase a company today, as a dividend growth investor, I wouldn't purchase this company...
    So why use a different set of rules because I owned it?"

     

    Spot ON, Chowder. If there are two things I wish I knew down-deep 25 years ago, they would be:

     

    1) The power of compounded dividends! "The money my money is making me is _nothing_ compared to the money my money made me is making me."

     

    &

     

    2) "Emotions have NO place in portfolio management."

     

    Great article. Thanks.
    Hilo
    10 Apr 2013, 04:11 PM Reply Like
  • JGC67
    , contributor
    Comments (36) | Send Message
     
    Very timely blog for me. All of your blogs have provided valuable information, which has become part of my learning curve. Thank you.
    9 Apr 2013, 12:48 PM Reply Like
  • Dividend Sleuth
    , contributor
    Comments (1547) | Send Message
     
    I like the idea of posting your mission statement on your computer. At the bottom of my spreadsheet I have 3 questions, which are designed to make me think at least twice about any trade:

     

    1) Does it raise the quality of the portfolio?
    2) Does it raise the income of the portfolio?
    3) Does it raise the cash position of the portfolio?

     

    If a potential trade doesn't do at least one of those, forget it. If a potential trade does two of those, seriously consider it. Rarely, very rarely, I've found a trade that does all three.

     

    Thanks for sharing your investment philosophy with us.
    9 Apr 2013, 02:52 PM Reply Like
  • Cheesecake7
    , contributor
    Comments (131) | Send Message
     
    Hi, this helps me a lot< I am one of those who had no game plan. I had bought SIRI at 38 cents and sold it at a 1.70....I thought I could do it again with something else and all I did was lose all the profit I had made. Now I sit back again at square one. I have had no mission statement. I wish to replace income and replace what I lost in profit. I don't want to do it by swing trading. I really do like the idea of a master plan. I really like and understand things better when it is lined out for me. Thank you so much for adding to this whole conversation.
    1) Does it raise the quality of the portfolio?
    2) Does it raise the income of the portfolio?
    3) Does it raise the cash position of the portfolio?

     

    I want to own companies who "pay me" to use my money and if they don't do that then get rid of them. Thank you.
    9 Apr 2013, 05:31 PM Reply Like
  • Pizza face
    , contributor
    Comments (22) | Send Message
     
    Thanks for the info Chowder, I enjoy your articles. Even though you are a Aresenal fan!
    9 Apr 2013, 07:35 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » Pizza face, I bet you never thought a Gooner fan would have anything worthwhile to say, eh? ... Ha! Ha!
    9 Apr 2013, 09:42 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » Let me say that I think COP is a good company. In looking forward, I think it's value is more of a capital gain company as opposed to a dividend growth company.

     

    Since the income growth is my number one priority, that's what I must focus on. A lot of people are in the capital gains game and for those people, COP may be a keeper.

     

    COP had an opportunity to raise the dividend back in Feb and chose not too. I think they are thinking they bought some good will with the PSX spin off and are buying time. That hasn't stopped them from buying back shares though and that's part of my concern.

     

    The company is restructuring and I don't like that uncertainty when I'm not getting a pay raise while I wait.

     

    I look at a Value Line report and they too think COP will not raise the dividend this year and are calling it a capital gain play. They do think XOM and CVX will raise the dividend though, and so do I.

     

    I'll look at past performance in my due diligence to purchase a company, but once in, I must look forward, I have money at risk. A company has my loyalty as long as they are still doing the things I bought them to do. COP was raising the dividend at a double digit rate. That has stopped. That's a fundamental change to me and when the fundamentals change, I change. That's what this instablog was all about. Setting a Mission Statement and owning only the companies that are on the same page with your objectives.
    9 Apr 2013, 09:40 PM Reply Like
  • BigIslandBum
    , contributor
    Comments (408) | Send Message
     
    Nice article Chowder. You stated...

     

    "Management has hinted that there won't be a dividend hike this year. That's good enough for me to move on, especially when I can get the same yield elsewhere and still get the dividend growth."

     

    I'm curious as to what you're looking at for replacement. Yields on quality seem quite low at this point.
    9 Apr 2013, 09:41 PM Reply Like
  • Mr_Enduro
    , contributor
    Comments (4) | Send Message
     
    After reading many articles here on SA. It help me make the decision to reorganized my finances to a DGI strategy. Long MCD, T, COP, KO, LO, MO, SO, F, INTC as core stocks. AGNC and PSEC to help beef up dividend reinvestment's. I am working on blog post from my rookie point of view. Hopefully, this will help others. One thing that I would add is to read "EVERYTHING" Chowder writes. Thank you for your time, effort and knowledge.
    9 Apr 2013, 11:28 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » You aren't going to believe this! As most of you know, my favorite investing book is "The Single Best Investment" by Lowell Miller and I recommend the book to everyone who talks investing with me.

     

    I have read the book so many times, the binding is falling off. ... Ha!

     

    Lowell Miller found out about that and had his secretary contact me today via message, asking for an address to send me a free autographed copy. ... How cool is that!
    10 Apr 2013, 04:22 PM Reply Like
  • Eric Landis
    , contributor
    Comments (709) | Send Message
     
    That's awesome. I read the book on your recommendation and thought it was great. I've turned into a DGI convert as a result!
    10 Apr 2013, 05:03 PM Reply Like
  • BigIslandBum
    , contributor
    Comments (408) | Send Message
     
    Very cool chowder, you definitely deserve it!
    10 Apr 2013, 05:07 PM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (12742) | Send Message
     
    "Lowell Miller found out about that and had his secretary contact me today via message, asking for an address to send me a free autographed copy. ... How cool is that!"

     

    Very cool - well done, Chowder!

     

    Lowell should pay you a commission for each copy of the book that someone buys because of your mentioning it. :-)
    11 Apr 2013, 02:35 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (3180) | Send Message
     
    Thank you. Chowder for the good post!
    SDS
    10 Apr 2013, 10:59 PM Reply Like
  • Cheesecake7
    , contributor
    Comments (131) | Send Message
     
    I will look up the book. thanks...
    11 Apr 2013, 10:31 AM Reply Like
  • georgebeddoe
    , contributor
    Comments (876) | Send Message
     
    Chowder, I'm puzzled. (Before I explain why, let me say I agree with just about everything you have written at SA (that I have read so far). It informs and inspires me. Okay, I'm puzzled. Your goal is to increase your income stream every year. You automatically reinvest all dividends. You add new cash to your portfolio, I'm gathering, regularly. Do you ever take anything out? Do you have expenses that need to be met by some of the income you are generating in your portfolio? That is why I'm puzzled. I hear you saying everything is going in and is being compounded by dividend growth and reinvestment of dividend growth, and new money buys new positions or adds to existing ones. My question then is why build the income stream if you're not spending at least some of it?

     

    I need the income for travel, home improvement and maintenance, and for growing funds for my six grandchildren's college education. (I have a really good defined pension plus a tiny bit of social security, so regular expenses are met. And I live frugally.) I reinvest the dividends from my core holdings automatically, and I accumulate the dividends from my satellite holdings. From these satellite holdings' dividends, I use the accumulated cash to either buy new positions or to add to existing core positions, or to spend outside the portfolio when I need to. I would love to reinvest all dividends automatically.

     

    So how and why do you do it again so I'm not puzzled?

     

    Warm regards,
    George
    16 Apr 2013, 12:28 AM Reply Like
  • Robert Allan Schwartz
    , contributor
    Comments (12742) | Send Message
     
    "why build the income stream if you're not spending at least some of it?"

     

    I can't speak for Chowder, but if a person has not yet retired, and is still in the "accumulation phase", then they are reinvesting income now in order to hypercompound and enjoy more income later, when they do retire.
    16 Apr 2013, 08:57 AM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » George, I take nothing out of my accounts. My travel money, and I have several trips planned this year, come out of household budget money.

     

    I've done a ton of home maintenance as well and that came out of household money, as did my taxes yesterday. I haven't received a refund check in over 40 years. ... Ha!

     

    I have no grandchildren. Both kids are grown and knew I wasn't going to pay a nickel toward college. I told them if they were smart enough to go, they were smart enough to find someone else to pay for it, and they did. The Government will pay for my son and my daughter received a full academic scholarship which included room and board.

     

    I have no debt.

     

    I will start drawing from the accounts in about 3 1/2 years though. But for now, I don't touch anything. Contributions continue and dividends continue to be reinvested.
    16 Apr 2013, 07:17 AM Reply Like
  • Robert.from.Ct
    , contributor
    Comments (376) | Send Message
     
    What am I missing? Your Project 3 million states the portfolio is for a 28 year old and you state above that in 3 1/2 years you will be drawing from the accounts? I am confused..........Kindest Regards,Robert.
    8 May 2013, 09:34 PM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » Robert, sorry for the confusion. I'll have to correct that. ... I'm in my 60's. ... The portfolio Project $3 Million doesn't belong to me. I manage portfolio's for several family members, friends and siblings of friends. This is one of the portfolio's I manage, which belongs to a 28 year old, and I am allowed to post it publicly for learning purposes.
    8 May 2013, 09:59 PM Reply Like
  • Robert.from.Ct
    , contributor
    Comments (376) | Send Message
     
    Thank you for your prompt response....Now I understand.....I am 62 and Time and Tide waits for no man........To be 28 and have your knowledge is a wonderful thing. When I was 28 I thought I knew it all...LOL........Looking back at the past I realize I was in the dark ages.........Kindest Regards,Robert
    8 May 2013, 11:09 PM Reply Like
  • georgebeddoe
    , contributor
    Comments (876) | Send Message
     
    Thanks for your response, Chowder, and yours RAS. Now that you have said you take no cash from your portfolio, I am no longer puzzled. I'm retired and need to from time to time. I thought you were retired, however, which led to my puzzlement. I'm over 70 and you're not. So our goals are slightly different. I still plan to increase my income stream every year. My total return is a tad less than the S&P 500, however, as a result of withdrawing cash for overseas trips, house, and funding college accounts for 6 grandchildren. George
    16 Apr 2013, 12:22 PM Reply Like
  • Edge Water
    , contributor
    Comments (2) | Send Message
     
    Chowder
    Thanks so much for all you've done here on SA and Project 3 Million. I'm now 38 and I've been researching DGI for around 4 years, but has taken me until now to be now fully invested in a self-directed DG portfolio. I guess what got me into DGI was that there was something that really bothered me about my Managed Accounts. I eventually figured out that it was two things;
    1)Once I looked into it, I realized the large effect of account fees and Mutual Fund MER's over the long term.
    2)Reviewing the advice received over the years for my and my parents investments, I realized that a Financial Advisor has approximately the same responsibility for their decisions as the weather man.

     

    So, over the past year have managed to create all new self directed accounts (Scotia I-trade). Even tho the market has run up, I feel pretty good about the buying decisions I've made, picking up all companies at sound valuations (thanks to Fast Graphs and my investing "rules" comprised of some of your own and others on SA). I have yet to unleash the funds from my wife's account, as I feel I've already taken advantage of the existing reasonable prices out there with my own account. So I'm in a bit of a fix with her stuff, but believe I'll wait for deals to come along. I don't know enough about options and find them confusing-can't seem to keep calls and puts straight.

     

    Sorry about the long post, but here is my immediate concern. I've been trying to forecast cash flow for retirement, similar to what you've done for Project 3M, in order to determine/confirm what we need to adding to our investments each year. So I've been using numbers like 8% for return until retirement and then 4% yield after that. But I'm having some difficulty understanding these #'s so I was hoping you could clarify. In project 3M;
    1) Is 8.25% total return? capital gains + dividends.
    2) I've seen the 4% rule in two places -dividend funded retirement as well as capital depletion funded retirement. In your Project 3M, with Chowder Rule adhered to, I have a hard time believing that after 40 years, the yield will be only 4%. Is this just a margin of safety, or are you planning to sell your higher yielding companies for lower yielding, lower risk companies? Or is this an inflation adjusted #?

     

    My concerns for the above stem from the fact that when I run my cash flow #'s out well into retirement, small changes in any rates make a big difference over time. (glad I got rid of those managed account fees and MER's!!!!).

     

    Any help on the above would be greatly appreciated. I apologize if these questions have already been answered and I wasn't able to find them...
    8 Dec 2013, 10:16 AM Reply Like
  • chowder
    , contributor
    Comments (7293) | Send Message
     
    Author’s reply » The 8.25% number will come from dividends, dividend growth and cash contributed on a monthly basis. I don't care where it comes from as long as it comes. ... Ha!

     

    The 8.25% number just happened to be what it took to achieve the long-term objective. I was pleased to see that is what it would take as I think it allows me to be a little conservative, to help insure the objective is achieved.

     

    I don't know what the yield will be 40 years from now. I know what it is I'm trying to achieve now. It doesn't matter to me what the yield is as long as the dividend growth is higher than the inflation rate 40 years from now.

     

    My margin of safety comes in with the current "total dividend return" I'm trying to achieve, what others have dubbed the Chowder Rule.

     

    I'm looking for an 8.25% total return compounded. I wanted my total dividend return to equal the 8% or better to take pressure off of the share price.

     

    I decided I would look for a 12% total dividend return to provide my margin of safety. In other words, I wanted the current yield, when added to the 5 year compounded annual growth rate of the dividend to equal 12% or more, using a 3% yield minimum.

     

    For example, the yield on CVX is 3.2% and the 5 year CAGR is 9.08% for a Chowder Rule number of 12.28%. It qualifies for purchase as long as the valuations check out.

     

    If the yield is lower, I want a higher dividend growth rate and I use 15% for a Chowder Rule number.

     

    For example, DE has a yield of 2.3% and a 5 year CAGR of 13.84% giving me a Chowder Rule number of 16.14%. It qualifies for purchase.

     

    I use a Chowder Rule number of 8% for utilities. I include telecom and MLP's under the utility umbrella.
    8 Dec 2013, 03:43 PM Reply Like
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