Welcome to our weekly passive-income portfolio (PIP) update—#12 in the series! Before we get to the update, I wanted to take a moment discuss why dividend-growth investing is NOT for everyone!
I came across a tweet this week that I feel is important to share and which embodies many of the reasons that dividend-growth investing may not be for you.
I have blurred the identifying information because my goal here is not to challenge the poster but, rather, to refute all the underlying problems cloaked within their statements—because I hear similar things all the time.
While I am personally (1) heavily engaged in dividend-growth investing (as well as growth investing and trading) and (2) heavily engaged in helping others begin or advance their dividend-growth investing either in person or through our Wicked Capital website, I want to be absolutely crystal clear…
You have to be you! If you don’t think DGI fits you and your needs… then don’t do it!
If not… then don’t!
The rest of the world really doesn’t care one way or the other what you do. It’s your life—take control of it for yourself.
Dividend-growth investing is hard.
It’s not difficult from a knowledge, skills and abilities perspective… but it is extremely tough from a mental/psychological perspective!
I interact with so many folks who, like this individual, know in their gut that dividend-growth investing is the right thing for them to do… but they just can’t commit to it because, in their heart (emotionally) they want an easy “get rich quick” gravy-train.
There’s literally nothing anyone can say—including myself—to convince them to pull the trigger, bite the bullet, and simply start doing it.
You can lead a horse to water, but you simply can’t make ‘em drink it!
It may sound cliché, but the dividend-growth journey can seem intimidating and overwhelming. You have to focus on one little step at a time in the beginning.
Investing (and which approach to utilize) is and always will be a highly-personal decision.
However, those who procrastinate or chase-after get-rich-quick schemes rarely ever achieve their financial goals and typically find themselves 20-years older, wishing they had just committed to investing in the first place.
Unfortunately, you can’t recapture that lost time when it comes to investing—that’s not how compounding works and there’s a steep opportunity-cost to be paid.
Let’s take a brief look at some of the underlying logical fallacies in this tweet…
The objection that dividend-growth investing requires a lot of money is a strawman argument.
All investing (and trading for that matter) requires a lot of money to make a lot of money! There’s no way to turn $100 into $10K overnight—unless you’re gambling.
You have to look at investing in terms of your rate of return on capital—not in terms of dollars. It’s all about how efficiently you can put your money to work for you over the long run.
What are the alternatives?
Growth investing and trading both require a lot of money to make a lot of money as well.
Furthermore, they may produce occasional big winners, but it’s hard to repeat that success.
Google was a 1 in 100 stock… buy in the early days you had no way to know it would be the big winner. Hindsight is always 20/20!
How much money would you have needed to invest in 100 growth stocks to produce that winner? A lot!
And with that kind of diversification spreading your capital out, how much would you have really made on your Google position? Not much… unless you already had a lot of money to start with.
Sure, you may have gambled on just Google and won… but that would have been like pinning the tail on the donkey drunk. It’s akin to playing the slots—highly unlikely, not repeatable, and with a negative expectancy.
If you’re interested in learning more about the gambling vs. investing distinction, I recommend reading my article The Fundamental Reason Why Investing is Not Gambling.
When you focus on your rate of return rather than trying to hit the jackpot in terms of dollars, dividend-growth investing is a solid choice. It’s less risky, cash-flow centric, and repeatable. It provides you with a great starting yield and leverages the power of compounding—fueled by additional dividend growth.
As such, you can start with whatever you have—you don’t need “tons of money.” It’s about the steadily-increasing rate of return and the power of compounding.
Again, this objection to dividend-growth investing is a strawman argument and involves a flawed focus on the wrong thing: fast money rather than long-run wealth and income. It’s the classic tortoise and the hare, rate vs. dollars, slow and steady vs. fast and volatile dichotomy.
You have to make your own choice… but (spoiler alert) the tortoise always wins in the long-run. Those seeking instant gratification in the markets almost always fly to close to the sun, melt their wings, and crash and burn.
Read our portfolio update below and see for yourself all the possibilities that dividend-growth investing can provide you with.
The objection that dividend-growth investing takes too much time is equally false and yet another strongman argument.
Let’s be clear: There’s no free lunch or short cuts in the market.
Regardless of how you chose to invest or trade, it will take time to build wealth. Again, what’s the alternative?
What matters is not how much you make in a week, month, or year. Rather, what matters is how much you make (and keep) over the long-run!
Compounding does take time to work its magic, but—unlike other approaches—it is a steady and consistent provider of exponential growth over the long run.
To borrow an analogy from Jim Collins’ bestseller Good to Great: Why Some Companies Make the Leap… and Others Don’t, compounding is like a giant flywheel.
It takes some time and effort to get it spun up, but once you do… it’s like momentum on crack!
Again, you can have a few big wins with growth investing and/or trading, but it’s hard to repeat, even harder to consistently repeat over longer periods of time, and the losses greatly reduce those big but infrequent gains that everyone likes to picture in the heads.
In the end, it’s about a dependable rate of return. With dividend-growth investing, you get a great rate of return that (a) continues to rise and (b) is as dependable as you can get with the market.
The problem with most folks is that they have the necessary facts… they just don’t equal what they want them to!
Folks want instant gratification and fast money. Unfortunately, the facts simply don’t support that option.
Shaping data to fit our preconceived expectations and emotional desires is dangerous when it comes to money and investing.
The facts should always shape our conclusions. Our thesis or desires should never shape our analysis of those facts.
Don’t drink the guru Kool-Aid! They’ll convince you that you can make an overnight fortune in just about every exotic financial instrument imaginable (penny stocks, options, futures, mini-futures, growth stocks, etc.)—it’s a virtual soup de jour of trading and investing techniques for instant wealth and success beyond your wildest dreams.
The inconvenient truth is that the facts (reality) simply don’t support that belief. That’s why 90% of traders lose money (and those that ultimately succeed spend years losing and/or breaking even as they learn their craft) and the average retail investor produced a 1.9% annualized return over the past 20-years of history’s biggest bull-market… greatly under-performing the market and even inflation!
Humans—including you and me—are woefully inept at picking winners and timing markets. Dividend-growth investing, with its focus on yields, cash flow, and the long game (rather than capital appreciation and short-run timing), provides a solid opportunity and edge.
Whether you chose to embrace that is up to you… but don’t buttress your decision (or lack of one) with logical fallacies—you’re better than that!
I’m not saying growth investing or trading is bad. I engage in both. However, what I am saying is that excluding dividend-growth investing from your investing plan—especially based on logical fallacies, confirmation biases, or unrealistic expectations—is foolish.
With dividend-growth investing, you get:
But it’s not easy and it’s not for everyone!
There’s no instant gratification and it requires:
My advice is be honest with yourself. Evaluate your investing options from an unbiased perspective—incorporating all the less-visible secondary and opportunity costs.
Stop making excuses and avoid analysis by paralysis. Take responsibility for your financial future. If you don’t, no one else will!
If you don’t, by the time you finish chasing those “greener grasses,” you’ll likely find that all you accomplished was wasting precious time and capital—time and capital you could have put to work priming that compounding cash-flow pump in a growing dividend-growth portfolio!
To see the impact of wasted time on your return potential, check-out my article When’s the Best Time to Start Dividend-Growth Investing.
Now let’s get our weekly passive-income portfolio update!
As we close out the week and our fifth month since portfolio inception, we currently have a portfolio value of $3,447.68—up from our starting value of $500 on March 13th.
In terms of market performance, we are down -8.2% since inception, down -4.2% over the past quarter, and down -4.4% over the past month.
I know we continue to see a lot of red—but, as I continue to repeat, I’m very excited about that. We are seeing tremendous opportunities to increase our yield-on-cost in a large number of undervalued stocks.
As I eluded to above, dividend-growth investing is not easy nor for everyone. It requires strategic thinking and mental toughness. You have to be a contrarian and stick with your plan.
Winning at the dividend-growth game long term requires a very different mindset. Please, I highly encourage you to read my recently published article Paradigm Shift: Dividend vs. Growth Investing Mindset.
It will open your eyes to how you need to play the game and the counter-intuitive mindset you need to approach it with!
We have earned $61.31 in dividends since inception, $48.55 over the past quarter, and $29.90 during the past month. We’re looking forward to the end of the month, when we can share the information on our dividends paid—including our updated trend.
Dividends continue to trend in the right direction with basically 49% of our earned dividends coming in the last month (representing 17% of the portfolio’s lifespan).
Our yield-on-cost (YOC) has risen to 7.89% and our current yield is 8.38%. Again, as I noted above, we are seeing lots of opportunity and plan to continue deploying capital to build our YOC.
It is worth noting that as we deploy capital into positions with the most value opportunity, this will skew our allocations in the short-run. However, over time, we will naturally back-fill to rebalance as value opportunities shift.
Below is a graph of our YOC and current yield since inception. From a portfolio-level perspective, anytime YOC is below the current yield, it’s a targeted buy zone—there is opportunity to increase our capital efficiency (i.e., raise our YOC).
As you can see, our YOC is trending up and chasing current yield as we deploy additional capital into specific opportunities. We’ve actually gained about 1% in available current-yield across the portfolio over the past two months.
Additionally, here are our current allocations by capitalization, asset type, and sector:
Finally, during my Twitter exchange with the gentleman discussed above, he stated that a yield in the 7-8% range (and I’m assuming he meant current yield) could only be achieved by chasing yield in bad companies.
Obviously, I couldn’t disagree more. Quality is our first factor requirement before initiating or adding to a position—as we always teach and recommend on our site. Doing so still provides plenty of excellent opportunities to find strong yields. Additionally, we aggressively mitigate idiosyncratic risk through extensive (but effective and efficient) diversification across a number of key variables.
To learn more about our dividend-growth investing approach and process… keep coming back and exploring our site! My sole purpose is to share knowledge, advice, and ideas that will help you and the entire DGI community improve their investing performance—from beginners to the more advanced.
Below is a list of our current holdings in our Wicked Capital passive-income portfolio. Everyone can easily explore our public portfolio by using the links in the conclusion; however, to make things super easy and convenient, here they are:
Let’s be clear, first, dividend-growth investing is a subset of broader value investing. In value investing, we seek to capitalize on short-run market overreactions—a contrarian approach. This means we buy when stocks are at a discount—but at a discount to our estimated intrinsic value, based on sound fundamental analysis.
They’re on sale for a reason! Typically, this is because of short-term catalysts that have caused the stock or group of stocks to fall out of favor with the market. Our job is to identify which ones represent real long-run value (quality) and which ones are value traps (junk).
Second, the best dividend-growth stocks aren’t glamorous. If you’re focusing on the growth-stock darlings of the market (the ones everybody is talking about and are all over YouTube), then you’re going to face very low yields—if any.
In conversing with this individual through additional tweets, I don’t think he understood either of these concepts, had the right mindset for a contrarian approach to investing, or had the drive to perform the fundamental analysis that dividend-growth investing requires.
If you’re only going to buy the most popular/trendy companies and buy them when they’re hot (following the herd), then you’re going to generate low portfolio yields and, likely, will not be successful in dividend-growth investing over the long run.
Some may see this as the “safe” approach, but I would argue it’s ineffective, inefficient, and risky due to a low margin of safety—and it’s not the best approach to dividend-growth investing.
You can be aggressive and generate high yields… but you have to have a solid process and be smart, strategic, and contrarian!
You can explore how these positions above are organized in our portfolio—including target allocations—using our M1 Finance links below.
We hope you’ve enjoyed this week’s update on our public-view dividend growth portfolio and my always-opinionated (but usually valid and hopefully beneficial) discussion.
You can always view our Wicked Capital dividend growth portfolio at https://m1.finance/1zUclN2JL
If you’re interested in starting an M1 Finance portfolio, please consider using our referral link https://mbsy.co/sZVS3 and we’ll both get some free cash!
That’s just one more reason to start your dividend growth investing today! It’s never too soon to start working towards your financial freedom!
If you’re interested in dividend growth investing—you’re in the right place! We focus exclusively on helping others be as successful as possible with this approach and we hope you’ll continue to return to our site to learn, grow, sharpen your skills, and find effective and positive ideas and motivation!
Soak it all in, take and use what you want, modify it to fit your unique situation, and keep building that portfolio with a solid process and winning mindset!
Always remember, investing involves substantial risk of loss and is not suitable for everyone. The valuation of investments may fluctuate, and, as a result, you may lose substantial amounts of money. No one should make any investment decision without first consulting his or her own financial adviser and conducting his or her own research and due diligence.
You should not treat any opinion expressed on the Wicked Capital website as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of opinion for entertainment purposes.
The opinions are based upon information we consider reliable, but neither Wicked Capital nor its affiliates, partners and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such.
Past performance is not indicative of future results. Wicked Capital does not guarantee any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment discussed on this website.
As noted above, strategies or investments discussed may fluctuate in price or value. Investors may get back less than invested.
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