True Dollar-Cost Averaging Your After-Tax Account The 'Buffett Way'

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Includes: AAPL, BIP, COST, GOOGL, HON, JNJ, VZ
by: Medical Sales Dad

Summary

Buying low is harder to do than we realize.

Maintain financial discipline by using the numbers to know when to buy.

Trust that you have picked long-term winners, but always watch them.

When I started to make a few bucks in my late 20s, one of my "dreams" was to have a brokerage account where I could buy and sell stocks like a bigshot. I'm in a sales-type job, so my income has always been erratic- slow and steady with occasional windfall bonuses. I believe the way I've earned income over the last 20 years now has contributed to what I consider a successful brokerage "mad money" portfolio worth well over $300,000, in addition to my 401k and IRAs. Here's what I do and will continue to write about.

I make a modest income in the high 5 figures to low 6 six figures. As I mentioned, my income varies month to month, and year to year. This has taught me some valuable lessons in investing and living below my means to a certain degree.

By essentially forcing me to live on my base salary, I have chosen to invest my bonuses for the most part whenever I receive them. Sure I pay off credit cards and take the occasional vacation, but whatever is left after I max out my 401k, I put into my brokerage account. I don't contribute to a Roth IRA right now because I have consistently and barely made too much.

"Buy when others are fearful, and sell when others are greedy." Buffett's famous quote I think sums up investing in the greatest way. It speaks to the discipline needed to invest wisely but also to the long-term consistency needed to become wealthy over time. I feel like I'm getting there and I've never been a 1-percenter. I have tried to invest like a mini-Buffett. In my opinion, this is the best way a busy corporate professional should be investing after-tax dollars, after exhausting a 401k (free matching money) and IRA (tax advantages). Basically, this account was my play money and it has grown bigger than my wildest dreams.

What I've been doing for 15+ years now:

I put cash into my brokerage account whenever I have "extra."

I only buy stocks, rarely sell. This a long-term portfolio, not for use anytime soon. The only stock I've sold was Teva Pharmaceuticals (NYSE:TEVA) because it kept staying at the bottom of my list! At the end, I bought so many shares cheap, that when it finally did start moving, I decided to get out, and managed a decent gain. If I have to keep buying the same stock over and over again, it's not right for this portfolio usually.

As Warren Buffett frequently opines, I buy companies that I'm positive will be around 20 years from now.

I try to diversify, with only 1 stock per sector, hopefully a "best of breed" stock in that sector. I try to own quality. Some sectors are more attractive to me long term, and THIS is the only way I look to make changes to my portfolio - by sector. I own best of breed, so the sector should be in a long-term decline in my opinion. Think HOG or shopping malls.

I also have a bias toward dividend payers, but only because of the inherent growth and stability.

I stay away from "high-fliers" because they require very close attention day to day, and I'm not willing to do that with my schedule. I've tried this and mostly failed because many became penny stocks.

In my brokerage account, I have chosen 7 stocks, yes 7, all in my opinion, stable and long-term companies. I keep a watch list of other best of breed companies in other sectors that I may add to the portfolio if things change. Right now, I have Target (NYSE:TGT), Starbucks (NASDAQ:SBUX), and Waste Management (NYSE:WM) on my watch list - great businesses I'm sure will be around in 20 years.

I organize them by the total dollar value owned and aim to have equal parts of all 7 companies.

When I buy shares, I only buy the company that is listed lowest in my total dollar amount, essentially buying the shares that are my smallest holding, i.e. the cheapest of the 7 at the time.

For instance, if I have $7,000 in 7 stocks, I shoot for all to be around $1,000 worth. I'm not sure which company will do the best over the long term, so why pick one? If Stock 1 drops 10% ($900), and Stock 2 grows 10% ($1,100) and all other tread water, I'll buy stock 1 at that time.

My portfolio right now [Apple (NASDAQ:AAPL), Honeywell (NYSE:HON), Johnson & Johnson (NYSE:JNJ), Costco (NASDAQ:COST), Alphabet (NASDAQ:GOOGL), Brookfield Infrastructure Partners (NYSE:BIP), Verizon (NYSE:VZ)]. The money I have used to build this account was my quarterly bonuses, sometimes $1,000 or sometimes up to $10,000 if I'm lucky. After taking care of bills, cc debt, etc., the rest went here since 2001. If I got a few extra bucks, I usually put it here.

My Portfolio

Ticker shares total $
Brookfield Infrastructure Partners 1293 54,213
Johnson & Johnson 449 50,369
Honeywell 437 49,991
Verizon 971 49,915
Costco 308 46,125
Apple 478 44,489
Alphabet class A 62 44,073
$339,175

I'll discuss this further in subsequent posts, and welcome any feedback!

Disclosure: I am/we are long AAPL, HON, COST, VZ, GOOGL, BIP, JNJ.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.