Dividends & Income Digest: Back To Your Roots

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Includes: MSFT, QCOM, XOM
by: Rebecca Corvino
Summary

Every issue, SA explores a dividend and income investing question and shares the responses, as well as highlights recent insightful pieces of opinion and analysis.

This week, contributors take a look back at how they got their start investing (and how far they've come since).

Is there a topic you'd like to see covered in a future D&I Digest? Let us know by commenting below.

For this week's Dividends & Income Digest, I wanted to know more about the collective history of our community. Where did we get our starts, and how far have we come?

I asked several of you to share your stories about your earliest investing days. How old were you, and what prompted you to start investing? Who and what shaped your early attitudes toward investing and retirement - and how have those attitudes changed over time?

Here's what several of you had to say (and the rest of you, as always, please chime in in the comments below):

The Dividend Guy

I started investing the minute I received my first paycheck. I was 23, finished a bachelor degree in finance-marketing, and started as a credit analyst at a bank. The same week, I met with my banker and asked for a line of credit, mentioning it was for my upcoming wedding. I then took $19,000 out of the line of credit (after telling my wife-to-be that I would only use $3,500) and started investing. In fact, we didn't need this money to get married, and I could afford losing my leveraged money.

As a credit analyst, I was working in a department that was doing leveraged loans. I thought it was a smart way to invest as the market was booming, and the interest rates were low. I had lots of success at the beginning.

I was aggressively trading on a weekly basis for three years (from 2003 to 2006). I bought my first house with a $50,000 cash down payment and all proceeds coming from my leveraged account. It felt easy - too easy. In 2007, I sold my first house and bought a new one. I put all my money back in the market in the meantime, trading even more aggressively. That time, I got burnt with one trade where I lost 50% of my investment overnight. I then realized that what I was doing wasn't investing but gambling. It had taken me three years, but I had finally run out of luck. It was time to establish a real investing strategy instead of flipping stocks in my online account.

The bulk of my investments were used to purchase my second house, and this is how I went through the 2008 crash with only $20,000 invested. I studied the market and various investing strategies to finally decide in 2010 to build a dividend growth portfolio. I built my investment process based on 7 investing rules backed by academic studies and my own investing experience.

Since then, I have never made a foolish investment decision and have built a solid dividend growth portfolio.

Kirk Spano

My first investment experience came in high school when we did a stock picking exercise for Mr. Hintz. We all had to pick out four stocks and watch them for a semester. I picked AT&T (T) because my mom worked there; Apple (AAPL) because we used Macs in junior high, which was cool; Humana (HUM) because health insurance seemed important and expensive and like another stock that I forget. The last one probably didn't do well, and I erased it from my memory.

I grew up in a hard-working family and often listened to relatives, friends, and neighbors talking about how things were changing in the 1980s. The consensus from some very smart people in my view was that pressure was being applied to the middle class from the top down.

I remember hearing how taxes were too high on the working person while the rich got all the breaks. I heard how pay and benefits were being taken away. I heard how investing was a Wall Street insider's game.

As I worked my way through college, I fully intended to become a lawyer, but a great uncle who had been a lawyer four decades told me he didn't think I'd like it because I was an "ethical kid." I did some deep thinking and because I loved economics classes, followed that path.

My goal as an investor has always been to help people who ask for help. I wasn't very good at things early on. I was lucky to start my career during the 1990s when everybody was smart because the stock market just went up - a lot like today.

In the late '90s, I watched a TV interview with legendary Quantum Fund investor Jim Rogers. He announced that he was going for a drive around the world for a couple years. He was asked who would manage his money while he was traveling, and he said he sold all his stocks because the market was coming to the end of a bubble.

I watched in amazement as the two announcers smirked at Rogers, one of the greatest investors since the early 1970s. I decided I had some work to do because Rogers was the guy to pay attention to, not the talking heads.

By early 1999, I had sold most of my client's stock funds and stocks. By late 1999, I had bought some defensive positions, including a zero-coupon fund and the Gabelli Comstock Capital Value fund, which was a short fund. I did well during the tech wreck.

Since my Rogers awakening, I have worked hard to "read everything" I could. That was the "best advice" Rogers ever received. Learn everything you can, and you'll be better than most. It's worked out that way. My goal is to share what I learn with folks who ask what I know and help them live better in a tough world.

The Value Portfolio

I originally started investing when I was less than 10 years old. I had heard of the stock market, but I had never understood what it was. However, my father made it his goal to make me comfortable with finances and spent his time teaching me about the markets. As a young kid, the esoteric idea of making money was incredibly exciting. As he introduced me, I would excitedly wake up at 6:15 a.m. - I lived in California - and run downstairs to stare at the markets as they opened and watch the random tickers go up and down. Looking at my enthusiasm, my dad would let me "trade through his holdings." Basically, he gave me a list of stocks that he owned, and I could pick stocks to buy and sell at any time, using my allowance savings, with no transaction fees involved.

Thinking back, while I never made any respectable money off of this, it did serve to reward me for saving my money. I couldn't trade with an allowance that I spent instantly, and this served to reward me for holding on to my allowance. But I did quickly realize that I would never make any significant money, especially in relation to the amount of time I spent staring at the market. As a result, I focused on trying to figure out a strategy for long-term capital appreciation. The name "Warren Buffett" quickly popped up on my list, and I avidly consumed The Intelligent Investor, by Benjamin Graham, Buffett's own mentor. At the same time, I read through Buffett's annual letters. Another great book that I would recommend is Peter Lynch's One Up On Wall Street.

My early attitudes about investing tried to follow the lines of Buffett, where the purpose is to invest in great companies. I looked for companies that I thought were undervalued based on various valuation metrics and bought and held them. However, I quickly came upon several issues that changed my investment metrics. First, while I never invested with money I needed, it would be nice if my portfolio could provide me with some income in the form of dividends. Second, I found that investing in a great company in a dying market wouldn't get me anywhere. As a result, I have since shifted my focus towards top tier companies in quality markets that paid dividends. While that meant I was looking at companies with a higher valuation, I then tried to aim to buy them during down cycles.

For example, I currently think that now is a great time to buy top-tier dividend-paying oil stocks, such as Exxon Mobil (XOM), but a poor time to buy top-tier dividend-paying technology stocks, such as Qualcomm (QCOM) or Microsoft (MSFT). Overall, I think my fundamental attitude is to buy top-tier companies during market downturns.

Best of luck in your investing adventures, everyone.

Investment Pancake

My father and stepmother were murdered in their home by a burglar while I was in law school. My dad didn't leave a will, and I was appointed as the administrator of his estate by default. I had literally zero experience with investing or managing assets and was badly traumatized by what had happened to my dad and stepmother. But none of that mattered. I had no choice but to manage their estates, collect life insurance, pay estate taxes, sell our family home, and reinvest the proceeds, even though on some of those days I struggled to get out of bed. I rarely got around to eating.

My earliest attitudes about investing were shaped entirely by one concern: I was terrified about losing even a penny of my dad's money. I had a recurring dream that there had been some kind of a mistake, and that my dad and stepmother actually hadn't been killed after all. At some point in the dream, I'd realize that I would have to account for everything I'd done with their money. Since my dad kept virtually all of his modest fortune in money markets and CDs, he set a very high bar as far as risk aversion goes, and I largely (but not entirely) followed his extremely risk-averse approach to investing throughout the late 1990s.

My attitudes and approach to investing changed drastically in the early fall of 2002, during the darkest days of the tech bubble crash. I saw that shares of JPMorgan (JPM) were trading far below book value, which made no sense to me. It seemed to me that it was an opportunity to pay 70 cents to buy 1 dollar worth of liquid assets plus all the talent and know-how of the company. After watching the market leading up to and following the tech bubble crash, it was the price of JPM stock that convinced me that there is absolutely nothing rational about stock prices whatsoever. My epiphany was that all of those market efficiency theories that I'd been taught were nothing but fairy tales. A ruse! Pure fiction! For the first time, I decided to trust myself and I bought a huge position in JPM for about $20 a share. And when the shares almost immediately dropped below $18, I bought an even larger amount of shares. In late 2002, I invested nearly everything I had into a basket of hand-selected bargain-priced blue-chip stocks. I still own most those shares today.

Over time, my attitude towards investing shifted away from buying the absolute cheapest stocks I could find to buying international real estate and stocks in superb businesses - even if I have to pay a bit of a premium. I focus almost entirely on compounding my returns by reinvesting cash flow, and by owning companies that do a better job than I could at reinvesting their own earnings rather than paying the earnings out to me as dividends. In time, I found that I was earning far more as a private investor than I was earning as a full-time attorney. That's when I quit and decided to pursue investing my own capital as a career (if you can even call it that). Whatever you want to call it, it was the happiest and best choice I ever made. Recently, I've started trying to list all the things I am thankful for each day. I can't ever complete the list. It just goes and goes and goes.

I think that in the end, my dad would have been very proud of how I handled his money - even though my approach is nearly the polar opposite to how he would have handled things personally, if he were still alive.

Kyle Gunn

I was 27 when I started investing, with a stable job and three kids and a house and two cars but little else to show for myself. I wanted to start saving my money more effectively but knew that over the long term inflation would ruin my purchasing power. I had long been interested in the idea of investing and decided to start myself with retirement in mind. I really just want my wife and I to retire comfortably.

Another contributor here, Dividend Sleuth, recommended I read a book called The Single Best Investment by Lowell Miller. It is actually available for free online in PDF form. Although the book is a tad outdated as far as the companies he writes about, this was a great book to start with and jumpstarted my obsession with reading about this space.

Today, my style hasn't changed much, but I am constantly evolving my ideas and the way I look at money in general. Recently, Mebane Faber and Tobias Carlisle are driving me toward a simple trend-following approach using ETFs and also deep value. It has just been really fun to learn about investing. I still try to keep it simple, and dividends are always nice to see coming in to help the compounding.

Brian Soule

I started literally saving my pennies when I was eleven, but back then, it was just in a passbook savings account. At the time, savings rates were in the 5% range, so it was still pretty exciting to see that interest get posted each month. That was my first realization that my money was earning me more money with no further effort on my part. Well, this was fantastic!

I started investing in the market when I got my first job that offered a 401(k) plan, so I was fresh out of college. I listened to the HR representative describe what a 401(k) was and how much you could accumulate over a career, and I was enthralled. So I enrolled in that as soon as I could, enough to get the company match, of course.

Then, I found out I could open a brokerage account and buy mutual funds with non-retirement money, so I did that. I don't even remember exactly how this worked because the Internet was still in its infancy, so I'm assuming it was phone calls and snail mail. But somehow I got myself invested in a mutual fund, automatically investing I think 50 whole dollars each month.

Not long after that I found out you could also buy stock in that same brokerage account, and you would avoid the expense ratio of the mutual fund. Back in the '90s the expense ratios were about 1.0-1.5% annually, so it was significant. If memory serves, I liquidated some of my mutual fund, and I purchased my first stock, a few hundred bucks worth of 3M Company (MMM). Once I got my first dividend, I knew I'd be investing my entire life - and loving it.

For the first several years of my career, I read every and any book on investing or retiring early I could get my hands on. I was fascinated with the prospect of retiring early, and Social Security did not seem like the kind of thing I wanted to wager my future on. I was confident that with enough discipline and knowledge I could end up like one of the "success stories" that were in all the books I was reading. Walking down the beach with my wife on a Tuesday morning, sipping on a Bloody Mary before my tee time, while everyone else was headed to a cube farm for their 9-10 hours of drudgery.

I still read investment books, and of course dozens, of articles on Seeking Alpha each month. I know that the investing world is far too vast to ever learn everything, so I am sure this learning is a lifelong journey and passion. I hope my articles in some small way help the next generation of investors and inspire others to invest for their future.

Now, it's your turn to turn back the clock. What were you like as a young(er) investor and why? How have you changed?

If you enjoy the D&I Digest and would like to be alerted to future editions, don't forget to "follow" me! And 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):

How To Build A Better Retirement by Colorado Wealth Management Fund

When Markets Get Crazy You Should Buy These 2 High-Yield Dividend Stocks by Dividend Sensei

Searching For A Wide Margin Of Safety In An Uncertain Market by David J. Waldron

Helping Spread The Love: My All New 'KISS' REIT Portfolio by Brad Thomas

How Stock Buybacks Make The Rich Richer (And You Poorer) by John De Feo

Owens & Minor Inc.: Irresistible Yield, Irresistible Valuation by Chuck Carnevale

Weekly Updated Defensive Bond Strategy For A Rising-Rate Economy by Cliff Smith

If The Battle Cannot Be Won, Go Ahead And Fight It Anyway by Trapping Value

Single-Family REITs: Consolidating A Fragmented Industry by
Chilton REIT Team

Yield Went Up As Price Declined by BDC Buzz

Stop Blaming The Bear by Julian Lin

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.