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Dear fellow investors!
This is my first article as a contributor on Seeking Alpha. I am 35 years old and based in Germany. I would like to share my investment strategy and start providing regular updates on the development of my stock portfolio.
I bought my first stock in January 2018 - the German real estate company Vonovia SE (OTCPK:VONOY) (OTCPK:VNNVF). This was an exciting moment for me, and writing these lines now fills me with a similar kind of excitement, as I not only get the chance to reflect on the past one and a half years, but it also feels like the right next step on my journey as a DIY investor.
At first glance, January 2018 seems like a strange time to start investing, as the markets in Europe and the United States were then approaching new all-time-highs and many people questioned when the period of economic growth and the current bull market would come to an end. Nevertheless, I wanted to get started, as I have a long-term investment horizon and assumed that timing the market would probably not work out for me anyway.
My investment strategy
Since the beginning, I invest primarily in dividend-paying stocks. My goal is to create an additional income that will grow over time and - if I am lucky - allow me to retire early. My investment strategy has three main pillars.
The first pillar of my strategy is to avoid one-time investments, instead deploying my capital gradually over time. Each month, I try to save a fixed share of my salary, which I partly invest in stocks and partly put on a savings account that at least pays a little interest. For most of my stocks, I have set up automatic savings plans which split my investments in rather small, monthly amounts. I feel more comfortable with this strategy because it makes me less dependent on timing the market correctly. Of course, this tactic hurts when I think about all the nice dividends that I miss out on, but 2018 taught me that taking it slowly and holding cash makes me sleep better at night. It can also open opportunities to pick up stocks for cheap prices with even better yields in case of a correction or a stock market crash.
The second pillar of my strategy is diversification. My individual holdings currently comprise of companies not only from the US but also from Canada, China, France, Germany, Great Britain, Sweden, and Switzerland. I know there are good arguments that only investing in large US companies may provide enough geographical diversification, as these companies do business in many markets around the world. As a Europe-based investor, however, I like to own shares of some European companies too, and an investment in German or British global players such as BASF SE (OTCQX:BASFY) (OTCQX:BFFAF) and Royal Dutch Shell plc B-shares (RDS.B) saves me the withholding tax on dividends. Apart from geographical aspects, once my portfolio is complete, my individual holdings will also spread across many economic sectors including information technology and telecommunication, consumer goods, health care, financial services, industrials, energy and basic materials, security services, and real estate.
Two ETFs add further diversification: The Vanguard FTSE All World High Dividend Yield ETF (LSE:VHYL) currently comprises over 1.400 stocks of which the largest part comes from the United States (37.9%), Great Britain (9.5%), Japan (6.8%), Switzerland (5.1%), and Australia (4.0%). While this broad index naturally includes some of my individual holdings too, the duplication is negligible and the fund adds many renowned companies to my portfolio, with Johnson & Johnson (JNJ), Exxon Mobil (XOM), and Procter & Gamble (PG) being among the fund's largest positions. Furthermore, I own the Vanguard FTSE Emerging Markets ETF (VWO), which currently includes nearly 1.100 stocks, mostly from China (34.7%), Taiwan (12.9%), India (11.4%), Brazil (8.5%), and South Africa (7.4%). Its largest holdings are currently the well-known companies Tencent Holdings Ltd. (OTCPK:TCEHY) (OTCPK:TCTZF), Alibaba Group Holding Ltd. (BABA), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), Naspers Ltd. (OTCPK:NPSNY), and the China Construction Bank Corporation (OTCPK:CICHY) (OTCPK:CICHF).
The third pillar of my strategy is to invest only in large-cap companies with proven business models and sound fundamentals. You only feel comfortable with the companies you invest in when you have done your own research and are confident about their business model and financial situation. This is particularly the case when a market correction happens, as it did in 2018, a lesson I - like everyone who has just started investing - had to learn. Over the past one and a half years, I have refined the way I look at companies and I have developed a systematic approach I apply to every investment. To sum it up, I do what I presume that most investors do: I look at the business model, growth prospects and the competitive situation of the company, some financial data (development of sales and revenue, debt, equity ratio over the last 5 years), the credit rating, the share price and valuation, the dividend yield, the payout-ratio, and dividend history. I usually compare the data of several companies of the same peer group.
The current composition of my portfolio
When it is complete, my portfolio will consist of 20 equal weighted individual stocks and 2 ETFs. The ETFs will together constitute at least 30 percent of the total value so that all individual holdings will make out not more than three to four percent of the total portfolio value. This should provide sufficient diversification and limit the effort of keeping up with companies' news to a tolerable level.
As I have only started investing last year and gradually deploy my capital, this final composition has not been reached yet, and my stock portfolio looks a bit like a building site. Currently, it comprises 18 individual holdings and two ETFs:
Source: The chart was created by the author.
My largest individual holdings are currently the ones I don't buy with a monthly savings plan, and which I have, therefore, acquired by one-time investments. These holdings are China Mobile Ltd. (CHL), Royal Dutch Shell plc B-Shares, Siemens Healthineers AG (OTC:SEMHF) (OTCPK:SMMNY), and TransAlta Renewables Inc. (OTC:TRSWF) (TSX:RNW). I plan to add to these positions only next year again. For most other stocks, I have monthly savings plans, so that they will catch up gradually. My positions in Alphabet (GOOG, GOOGL), LVMH Louis Vuitton Moët Hennessy SE (OTCPK:LVMHF) (OTCPK:LVMUY), Microsoft (MSFT), Nike (NKE), Securitas AB (OTCPK:SCTBF), and Visa (V) are underweight at the moment which means that I can retain the cash to be able to buy more if share prices go down. Two other stocks I would like to own are currently only on my watch list, as I haven't had the chance to initiate a position yet: BlackRock (BLK) and Waste Management (WM). As mentioned above, I would ultimately like to own equal-weighted positions of all my individual holdings.
As far as my two ETFs are concerned, I am adding to them consistently through monthly savings plans and will deploy additional capital when the possibility arises.
For better visualisation, here is another overview of my current portfolio:
Individual holdings (full yearly amount for 2019 already invested/being invested by monthly savings plans):
|Ticker||Current Portfolio Weight|
|China Mobile Ltd.||CHL||7.5%|
|Royal Dutch Shell plc (B-Shares)||RDS.B||7.8%|
|Siemens Healthineers AG||OTC:SEMHF, OTCPK:SMMNY||8.1%|
|Transalta Renewables Inc.||OTC:TRSWF, TSX:RNW||9.0%|
|BASF SE||OTCQX:BASFY, OTCQX:BFFAF||6.1%|
|BB Biotech AG||OTC:BBAGF||6.5%|
|JPMorgan Chase & Co.||JPM||5.9%|
|Nestlé S.A.||OTCPK:OTCPK:NSRGY, OTCPK:OTCPK:NSRGF||4.4%|
|Rio Tinto Group||NYSE:RIO||4.9%|
|Vonovia SE||OTCPK:VNNVF, OTCPK:VONOY||7.0%|
Zurich Insurance Group AG
|Individual holdings (no position / no full position; plan to buy/add in case of a correction or bear market):|
|Alphabet Inc.||GOOG, GOOGL||1.1%|
|LVMH Louis Vuitton Moët Hennessy SE||OTCPK:LVMHF, OTCPK:LVMUY||1.4%|
|Waste Management Inc.||WM||-|
|Vanguard FTSE All World High Dividend Yield ETF||LSE:VHYL||7.4%|
|Vanguard FTSE Emerging Markets ETF||VWO||5.2%|
The way forward
I am quite happy with my portfolio at the moment and believe in the principle of buy-and-hold. However, this does not exclude the possibility that I might exchange certain holdings if I find better alternatives, or that I might extend or reduce the number of individual holdings. As mentioned above, I am only at the beginning of my journey as a DIY investor.
In my next article, I plan to provide a portfolio and dividend income update for the second quarter of 2019. I hope you enjoyed this article, and to all on Seeking Alpha, I wish you the best of luck and happy investing!
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Disclosure: I am/we are long GOOG, GOOGL, BASFY, BFFAF, BBAGF, CHL, JPM, LVMHF, LVMUY, MSFT, NSRGY, NSRGF, NKE, PFE, RIO, RDS.B, SCTBF, SCTBY, TRSWF, SEMHF, SMMNY, V, VNNVF, VONOY, ZURVY, ZFSVF, VWO, VANGUARD FTSE ALL WORLD HIGH DIVIDEND YIELD ETF. 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.
Additional disclosure: This is not financial advice but only a presentation of my personal opinion and strategy. Investors must do their own due diligence/consult a qualified financial advisor before making an investment decision.