Welcome to our weekly passive-income portfolio (PIP) update—#15 in the series! Before we get to the update, I wanted to take a moment discuss the issue of portfolio churn and how it destroys your dividend-growth investing potential.
There are very few investing topics that I am more passionate about than churn! It is wrong for so many reasons and yet I see it literally all the time!
I was surfing Twitter and YouTube yesterday and, as usual, found case after case of “DGI” folks talking about how they were getting out of position ABC and jumping into XYZ. Never mind that they just started their position in ABC 4, 5 or 6 months ago! Nothing to see here (except for woeful displays of investor ineptitude)… just move along to the next video or tweet!
And most of them were (1) actually proud of the churn and (2) purporting to be long-term investing “mentors” or sources of beneficial “advice” for others???
For the love of all things cute and cuddly people… please stop the churn!
We’re trying to make money… not butter!
We have a lot of great information to share in this week’s portfolio update; however, please allow me to engage in a brief (I promise) Doug rant—one you may find entertaining or even helpful (if you’re a churner).
We live in a world of instant gratification and attention spans shorter than that of a fly. This, unfortunately, is a behavior that spills over into investing—with (not surprisingly) bad results.
Dividend-growth investing is a powerful and proven approach to generating passive income and wealth… but it is a long-term strategy!
When I look at the portfolios of many so-called dividend-growth investors, I see more churn than a washing machine!
The reason for this typically boils down to two critical problems: (1) a lack of patience and (2) an aversion to boredom.
While there are legitimate reasons to exit a position (see my article 3 Reasons to Sell a Dividend-Growth Stock… and When NOT To!), 95% of this churn represents a case of simply wanting to enjoy the “flavor of the week.” In other words, “I’m bored with stock ABC so I’m going to jump on stock XYZ because everybody’s talking about it and it looks exciting!”
Let me be crystal clear, if you are seeking excitement and an adrenaline rush… become a day or swing trader!
But understand, trading really means exchanging your money for excitement. Ninety-percent or more of traders just handover their money to boring, patient investors for the opportunity to partake in the thrill-ride. After all, Warren Buffet said it best when he quipped, “The stock market is a device for transferring money from the impatient to the patient.”
Long-term investing IS boring. However, it will make you money (lots of it) over time.
As a long-term investor, you have absolutely no business entering a position and becoming a fractional owner in a business if you don’t plan on staying in that position for a long time—and by “long” time, I mean 10+ years (preferably 20+).
If you’re not willing to make that kind of a commitment to a position… don’t enter it! Period. End of story.
Yes, unforeseen things can happen—things that might require you to exit your position early. However, that is NEVER the plan. Plan the investment and invest the plan!
Churn for the sake of churn—predicated on your lack of patience and discipline—is not a beneficial nor sustainable long-term investing plan. Best case, you will simply spin your wheels and never get anywhere… worst case, your market timing will be poor (as it is for most retail investors) and you will continually bleed money and potential returns!
You have to be disciplined and learn to (1) ignore the noise and (2) avoid succumbing to shiny object syndrome.
Being a long-term investor is about the process. You must understand your process and stick with it. If you do, you will be successful over the long-run. If you don’t, you will fail.
Beyond embracing the proper mindset (see my article Paradigm Shift: The Dividend vs. Growth Investing Mindset), if I had one piece of advice to share with folks that has had a huge impact on my investing success over the years, it would be HAVE AN INVESTING PLAN!
Whenever I see excessive churn in a “long-term” investor’s portfolio, I always ask them what their investing plan is. Honestly, I have yet to find one case where the individual:
Failing to have a clearly-defined investing plan and/or overdiversifying your process is a sure-fire way to fail at investing, or at least minimize your potential return over time.
You can’t be a jack of all trades. You must define your specific investing plan and stick with it.
If you want to be a successful long-term investor (e.g., a dividend-growth investor), embrace the process and stop the churn!
[Hint: The first step to recovery is to admit you’re a chronic churner!]
Now let’s get our weekly passive-income portfolio update…
As we close out our 27th week, we currently have a portfolio value of $4,179.25—up from our starting value of $500 on March 13th.
In terms of market performance, we are up 1.0% since inception, up 0.6% over the past quarter, and up +4.4% over the past month.
We have earned $73.92 in dividends since inception, $55.88 over the past quarter, and $15.20 during the past month.
Dividends continue to trend in the right direction with basically 76% of our earned dividends coming in the last quarter (representing 44% of the portfolio’s lifespan).
Here’s a look at our paid-dividends trend:
Note, the dividends paid for September are through 9/20—we have a number of payments scheduled for the remainder of the month.
Our yield-on-cost (YOC) has risen to 8.3% and our current yield is 8.4%.
As we continue to note, we have benefited from a recent period of broad opportunity with yields and, while the scope of that opportunity is currently narrowing, we still have a number of targeted positions that continue to provide opportunities.
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 has been trending up and chasing current yield as we deploy additional capital into specific opportunities. We’ve actually gained about 0.9% in yield-on-cost across the portfolio over the past two months—thanks to an effective process that efficiently deploys our capital.
As this is a long-term investment portfolio, almost everything we do is from a strategic perspective; however, we always try to capitalize on tactical opportunities along the way. This coming week will be one of those times. The markets seem to be at an inflection point and we have made a tactical decision to wait a week and not invest any additional capital. We have a fixed amount of capital available each month and we want to keep a little dry powder available should the markets decide to push lower over the coming week.
We are comfortable with our where we sit in terms of YOC vs. current yield and feel the extra patience provides a strong risk-reward opportunity for us.
Please note, we consistently fund this portfolio according to our investing plan and process—as we recommend that everyone should do. We are talking about a one-week pause—not a break in funding discipline.
Below is a chart of our portfolio’s current yield-variance distribution.
As we have narrowed the above-mentioned yield opportunity gap since the start of August, the distribution has shifted to the right. However, it clearly identifies remaining opportunities with targeted holdings—opportunities we will continue to capitalize on by efficiently deploying capital.
To wrap up, here are our current allocations by capitalization, asset type, and sector:
Additionally, here are our allocations for our two sectors that include additional industry/type subsets:
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!
Remember, dividend-growth investing has a long-term focus. As such, DGI portfolios should have little to no churn.
To reduce your churn, I recommend:
Things will happen—they always do. However, having to unexpectedly exit a position because of a well-defined sell trigger (beneficial) is entirely different from haphazard and purposeless churn (harmful to long-run returns).
Stay hungry my friends and good investing!
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.
Investments or strategies mentioned on this website may not be suitable for you. The material presented does not take into account your particular investment objectives, risk tolerance, financial situation, or needs and is not intended as recommendations appropriate for you. You must always make an independent decision regarding investments or strategies mentioned on this website. Before acting on information provided on this website, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from your own licensed financial or investment adviser.