I'm going to begin this Digest, my second here at Seeking Alpha, by letting you in on a little secret: I'm not supposed to be here.
According to my original plan, I'm supposed to be writing novels instead. In fact, I got my master's in fiction writing, which is what took me to New York City. New York turned out to be a particularly challenging place to be an unemployed grad student, and I found a job as a copy editor at TheStreet.com. I figured I'd work there for a year or two, and then after graduation, I'd continue chasing my dreams somewhere with a lower cost of living.
That was in 2006, and in 2016, I finally did leave my job at TheStreet.com and joined Seeking Alpha. I'm not supposed to be here, but here I am, and this time, I intend to stick around.
Dreams change, and we all find our way somehow. Even when our things go entirely according to our earliest - and best-laid plans, we rarely travel alone. A large part of what convinced me to see this unexpected career path through was the people I met through my work - my bosses and colleagues. A few in particular took me under their wings, and I'm forever grateful to them.
Now at Seeking Alpha, I've got a whole new crop of colleagues and bosses to learn from - including all of you. This got me to thinking: Who have been your teachers and helpers along your way?
So this week's question, which I posed to several members of our D&I community and now pose to all of you to answer in the comments below, is:
Who are your dividend investing mentors, and what have you learned from them?
I was honored when Rebecca Corvino reached out to me recently with an invitation to take part in the Dividends & Income Digest. It's such a pleasure to be an active member of the Seeking Alpha dividends and income community; over the years, I've learned so much from my fellow contributors and readers alike.
Typically, when I think about a mentor, I think of someone who is personally involved in my life (a father, a coach, a teacher, a faith leader, etc.). When it comes to investing, I haven't had anyone like that in my life; I embarked on this journey alone after graduating college with an English degree and take a lot of pride in the fact that I've been successful in the markets without any sort of academic or professional training or guidance in finance. With that said, I didn't succeed without important influences along the way.
My mother and father never really discussed finances with my brother and me growing up, but looking back, they have definitely made an impact on my investing mindset. My parents, neither of whom are college educated, worked very hard to create better lives for their children than they have. My brother and I never really wanted for much growing up, but as I grew older, I realized that we weren't as well off as it seemed; actually, we were living paycheck to paycheck. My parents were always very conservative with their finances and led by example, teaching me the power of the dollar and not to take them for granted. This rubbed off on me and led to a focus on passive income and my rather risk-averse investing style.
I hate to pick just one member of the SA community, because without a doubt, this website, and the dividend and income section in particular, has been a big influence on me, especially when I was just starting out on my investing career and was just learning the ropes. But I'm on a word count limit here, so while thanking everyone, I would like to single out David Van Knapp as a major investing influence of mine. His writings about running one's portfolio like one would a business really resonated with me, and ever since reading his words a handful of years back, I've looked at my portfolio through this business management lens, focusing on efficiency and cash flows rather than the daily prices sitting next to the ticker symbols of my brokerage pages. I had a chance to interview David as a part of my Learning From The Masters series; his interview van be found here.
And lastly (and I doubt I'll be the only member of this forum who cites this gentleman as a mentor/influence), Warren Buffett makes the list. Although I don't believe that Mr. Buffett calls himself a DGI investor, he certainly invests like one. Early on in my investing career, I read a couple of books written by/about him as well as every single annual letter to Berkshire Hathaway (NYSE:BRK.B) shareholders that he's written. He's taught me about the psychological side of investing, especially from a long-term, value-focused standpoint. Like I said in the intro, he hasn't had any sort of personal impact on my life, and we've never met, though this isn't without effort on my part. I tried to meet the man when I was in Omaha a couple of years ago when UVA's baseball team played in the College World Series. The first floor secretary in his building was polite to me but turned me away, saying the Oracle doesn't accept visitors these days (I wasn't particularly surprised, but I thought it was worth a shot).
I'm mostly a self-taught investor, so I don't necessarily have any actual mentors. However, I am a ravenous reader of quality dividend investing books, blogs, and websites. These include:
"Where Are The Customers' Yachts?" by Fred Schwed Jr.
- Wall Street only cares about making itself rich
"Snowball: Warren Buffett and The Business Of Life" by Alice Schroeder
- Long-term buy and hold is all you need
- Temperament is everything
- Money and wealth must have a goal, not an end unto itself
"Thinking, Fast and Slow" by Daniel Kahneman
- Behavioral Finance: master yourself and you can't lose in the long term
"The Little Book That Beats The Market" by Joel Greenblatt
- Mechanical rules based investing is best, take the emotions out of investing decisions
"Boomerang: Travels In The New Third World" by Michael Lewis
- understanding market manias and how to prepare and invest during them
In addition, I do work closely with Brian Bollinger, founder of Simply Safe Dividends, (I'm an analyst for the site) and am big fans of both Brad Thomas, Seeking Alpha's King of REITs, and BDC Buzz, for their specific sector expertise. Great sources of new research ideas.
My mentors are David Van Knapp, Bob Wells, David Crosetti, David Fish and Robert Allan Schwartz. The two Davids, David Van Knapp and David Crosetti, each convinced me that dividend growth investing could work by showing me portfolios that worked and how they picked stocks. David Fish provided the base data to start the process of finding dividend growth stocks. Bob Wells showed me that DGI could be done and a comparatively large number of stocks could be managed without a lot of time once they were picked. Robert provided lots of information on how long high rates of dividend growth would continue and how important credit ratings were. These five gentlemen each provided me with solid examples of what they did and convinced me that I too could do the same things.
I would say there have been multiple people here on Seeking Alpha who I would consider mentors, and who I have learned so much from since becoming a regular reader of SA.
Chuck Carnevale has taught me the importance of valuation in selecting companies, and how they nearly always revert to their historical valuation levels over time. This has helped me to avoid the temptation to overpay for companies I want to own, and to be patient in waiting for the right opportunity to buy them.
Chowder has taught me some important lessons on portfolio management, having a plan, and executing it. His comments are always quite insightful and helpful, and he's always willing to share his opinion when people ask questions. He's also taught me to focus on quality and building a solid base in my portfolio before venturing out into riskier stock types.
David Van Knapp has taught me the importance of dividend growth, and how that can really impact your income over time. He first introduced the 10x10 principle to me, which is the initial yield and growth rates required to produce a 10% yield on cost within 10 years. He also has taught me how to look at how various income streams interact with each other, which he visualizes with a cistern.
David Fish has taught me so much with his U.S. Dividend Champions spreadsheet, which he updates monthly and graciously shares with other investors. This has inspired me to create sector-based watch lists that incorporate some of his info with added information that I collect and analyze, and then share in articles.
My advice to every investor is to know what you are looking for so you can find it.
I found what I was looking for on SA from many wonderful contributors.
I learned that the name of what I was searching for is Dividend Growth Investing, or DGI.
These seven points I found reveal who taught the basics to me and continue to practice it.
1. Have a PLAN and write it down: Bob Wells.
Writing it down is an excellent exercise because you need to formulate it, find it and practice it.
Bob has done it for his present investing, his future investing and for his heirs. I have now done the same for me and my investing. I have a plan written down.
2. Finding the right quality dividend stock to invest in: David Fish and the CCC Lists. Dividend Aristocrats and dividend payers website by Robert Allan Schwartz.
Dividends are what it is all about, and I want mine to be safe, continuous and growing.
3. Due Diligence: DVK = David Van Knapp and his 5 quality and point rating system for stocks.
4. Chowder and his introducing Lowell Miller and the book "The Single Best Investment." You can download the book for free here.
Chowder has a blog that provides what is called the Chowder Rule, a method of wisdom and scoring of dividend growth and stock yield for buying a stock. It is an amazing tool for stock selection. I recommend learning about it and using it. I do.
5. Valuation is, of course, Chuck Carnevale.
Fair Value and Good Value make getting a great yield and great stock at the right price an amazing happy adventure. The price and this knowledge is, however, the key to great investing and his Fast Graph tool makes it easy.
6. Create a portfolio of Quality: Dividend Sleuth.
Keep to strictly rated high-quality investment-grade stocks and success will follow.
7. Reading articles that practice it: Mike Nadel and Dave Crosetti.
These contributors were the first I really enjoyed reading, and they remain that to this day.
There are many others for DGI, but these are my rock-solid practitioners of it.
DGI is where my focus for the meat of the portfolio exists, who I started to learn from and where you can too.
Thank you to them all.
"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."- Warren Buffett
This is a sentiment that I have also held for most of my life. I have always lived on less than I earned and always sought value in every purchase I've ever made. So, you might say that Ben Graham and Warren Buffett confirmed my biases in this regard when I read some of their work and thoughts, later in my adult life. Ben and Warren were more like mentors in the rearview mirror for me.
However, to be honest, I began my investing career with total return leanings. And to be perfectly clear, the emphasis was actually on capital gains with no thought given to dividends at all.
I experienced moderate success on this path. Then the financial crisis of 2008-2009 was upon us, and for the third time in my investing career, large amounts of capital were vaporized in the rush of investors out the exits.
Mentors Found In the Unlikeliest of Places
On his nightly T.V. show, Mad Money host Jim Cramer pounded the table for accidental high yielders as the market continued to slide towards lower lows in the depths of the financial crisis, 2008-2009.
He kept reminding viewers that companies like AT&T (NYSE:T) in normal times could be counted on to deliver dividend yields in the area of 4% to 5%. In the course of the market meltdown, because T's price had fallen so precipitously along with the rest of the market, all of a sudden, investors willing to rely on history and courageous enough to take the plunge, found bargains like AT&T yielding in the range of 7% to almost 8%.
At the depth of the crisis in March 2009, you could buy T for just $21.44. Because the annual dividend at the time was $1.64, buyers at that price captured a dividend yield of 7.65%.
This compares to the current dividend yield of just 4.66%. Plainly, the investor who buys high-quality stocks at value prices is able to obtain much higher yield and income, for life. In this case, it made a difference of 64% more income.
I found his argument very compelling. It encouraged me to do due diligence, research historical metrics and average dividend yields.
This led to combining my bent towards value investing, looking to buy stocks on sale at good value, with a new income approach.
Retirement Lurking Around The Corner
After all, with retirement not too many years off, I should be concentrating my efforts at building a growing stream of income, one that could overcome the ever-present threat of inflation.
I intertwined these methods then boosted income by selling covered calls. In the beginning, starting on March 9, 2009, the very bottom of the market, I experimented with small amounts of capital.
After six months of experiencing success with these methods, I deployed larger amounts as each goal that had been set was achieved. It set off a continuous positive reinforcement loop. After about a year of getting fully invested, I was able to realize an annual income that was several times my former income from employment.
Summing It Up
I guess you might say that for me, desperate times called for desperate measures as I saw years of capital gains evaporate in the depths of the financial crisis. Some readers might find it unusual that I have combined Jim Cramer with the likes of investing giants like Ben Graham and Warren Buffett in my pantheon of mentors. But the truth is, you take your nuggets of wisdom where you can find them.
Combining and synthesizing the best of several worlds makes for a pretty powerful brew.
Please share your own thoughts in the comments below. Who are your dividend investing mentors, on Seeking Alpha or elsewhere? What are the most important lessons they've taught you?
Also, please let me know if there's a topic you'd like to see covered in a future D&I Digest, either by commenting below or sending me a private message. I'd love to hear from you!
Finally, here's some recent Dividends & Income content you might want to check out (if you haven't already):
This REIT Should Benefit From Trump's New Wall by Brad Thomas
Foreign Dividends From A U.S. Investor's Perspective by Ian Bezek
A High Dividend Strategy That Works by Ploutos
Assessing Risk For The High-Yield BDC Sector by BDC Buzz
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.