Week 9 Deposit and Rule #5 comes up for the first time

I haven't talked much about the rules of my portfolio apart from rule #3 which is the weekly deposit. That changes this week...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

As the portfolio grows there will be more options open to the portfolio. As that happens I will need to keep an eye on the Rules to the Model Portfolio.


Weekly Activity
$100 deposit into Investing

Model Portfolio Totals

Trading Account: $0

Investing Account: $593.40
Stock: $0
REITs: $0
Bonds: $269.90
     PCY: $269.90
Manuevering: $323.5

Savings Account: $300
Emergency: $250
Portfolio Protection: $50
CDs: $0
Precious Metals: $0




Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax advisor. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Dividend Investing Weaknesses

I want to talk to you guys about some of the risks and drawbacks to dividend investing...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

As I mention in the video, I really hate when people only tell you what they want you to hear about a topic. Especially when its linked with selling a book, video, or newsletter subscription. I'm all for people wanting to sell a product or that believe their information is worth charging a price. Everyone needs to make a living. But at that point selling a product is or is in danger of becoming the primary motivator for what the person does or doesn't say.

So while I am an avid fan of dividend investing, I have to keep in mind that everyone watching and reading what I have to say is where I was many years ago. Forming their own ideas about how to build their own portfolio.

On the other hand I presume you arent watching and reading me because you want a textbook like experience. Presumably you want a living working exchange in watching the decisions a person makes and what the think about. So here are some ways to mitigate the risks.

Dividend cuts and eliminations: Keep an eye on what the company is doing. Are they saving money, growing the company, buying others? The dividend will be safer. If they are firing top management, involved in product recalls and lawsuits, and have a lot of debt then that increases the odds that a dividend will be cut.

Too much tempting capital gains: This one will have to come with experience in the markets. And to be honest? Its not a bad position to be in all in all. Sell a 100% gain position or keep a great yield on cost. I certainly am not complaining of having had to make the choice so don't get me wrong. But its something that will be encountered from time to time.


Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax advisor. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Overview of the strengths of Dividend Investing

As I have mentioned before, dividend investing takes a different mindset to use as a core pillar of a strategy. At first glance it appears to have weaknesses. To find its strengths you have to yank out the calculator...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

I threw out a lot of numbers in the video so I want to expand upon it more here.
For my March 2002 purchase I took the close price just before that dividends ex-dividend date. For each compounding of the DRIP I took the close price of the payout date.

How does the stock-split math work with the $14.47 price I mentioned?
February 1995: The actual share price back then was $57.88. However JNJ split the stock 2:1. Meaning you know own 2 shares for every 1 share pre-split. They did that twice, once in 1996 and then again in 2001. When a company splits like this where they double the number of shares the price per share is halved. This is to keep the actual total wealth per investor the same. That $57.88 for 1 share turned into $28.94 for 2 shares. If the price didn't get halved it would double the value of the company automatically. Share price is a measure of the value of the company. JNJ didn't double their sales or double their factories.

Since they had another split for 2:1 we would half the price again which is where we get the $14.47 price. Every 1 share today had the equivalent dollar value back in 1995 of $14.47. You pretty much have to do this because what if you want to compare how 3 current shares did back in 1995? Its gets messy.

Further comparison to the 10 year bond
The video was starting to get pretty long so I cut out the following part but I really want to talk about it
In 2002 we bought are 4 shares of JNJ for $289 (excluding commissions). Back in 2002 according to the Federal Reserve Historical Stats a 10 year US Treasury had a yield of 4.6%.
The following is how much money every year we will get paid by each
JNJ stock : $1.64, $3.76, $4.54, $6.28, $7.18, $8.17, $9.04, $10.21. $11.28 (2011 estimated)
Total: $62 total paid.
10y US Treasury $300 @ 4.6%: $13.8, $13.8, $13.8, $13.8, $13.8, $13.8, $13.8, $13.8, $13.8:
Total: $138

Keep in mind that in 2002 JNJ had a yield of 1.3% so though its catching up to the 10 year bond's 4.6% yield in those last couple of years it couldn't overtake it.
By the end of 2011 the bond expires. We have our money back but no more income. We have to go buy another one. As of right now the yield is 2.95% so we lost some yield there.
Now that $300 is only going to get us $8.85 per year. One could take all of bond income and buy a bigger bond. A $438 bond @ 2.95% makes $12.92/year
JNJ? We were not forced to sell so we are still making out $11.28/year which will continue to DRIP for more shares and continue to get their payout raise per share. It will quickly overtake our bond.
I didnt drip in the bond payments because you cannot. The US government doesn't allow it as far as I know. One would either have to buy into an ETF that allows it or wait and save up their bond income to buy a second one.

So when I say its hard to see the strengths of dividend investing it really can be. Keep in mind that this was from the absolute worst time to be buying JNJ. If I were to use the 1995 example? Things get real juicy but I think you can see where it ends up at.

Week 8 Deposit and Dodd-Frank Act

Its been two months already. It seems like just the other day I was kicking around the idea of starting a blog. Just goes to show you how quickly things can build up.

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

The Dodd-Frank Act is 1,600 some pages. Most will comment or joke that nobody has read it all let alone the members of Congress that passed it. Along with what I mentioned in the video that they are still writing the rules, there is the possibility that Congress won't like those rules and pass another law to change it or other parts of the Act. So all the freaking out? It may be temporary and then we will have something else to freak out about.

It can turn into a never ending cycle where all one does is whine and complain about how its not fair. What is that type even doing in the financial markets if they arent trying to make money?

Weekly Activity
$100 deposit into Investing

Model Portfolio Totals

Trading Account: $0

Investing Account: $492.80
Stock: $0
REITs: $0
Bonds: $269.30
     PCY: $269.30
Manuevering: $223.5

Savings Account: $300
Emergency: $250
Portfolio Protection: $50
CDs: $0
Precious Metals: $0

Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax advisor. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

How to measure financial success

As soon as you make your first investment or trade you are going to start looking to see how well you are doing...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

Here is the breakdown of what I found on the census site and on sites I would consider trustworthy enough...

Average Family Bills / month.  2 adults, 2 kids
Mortgage: $1,733 ($323k @ 5% for 2009 homes) http://www.census.gov/compendia/statab/2011/tables/11s1191.pdf
House insurance: $64/90 ($778.84/year) http://www.census.gov/compendia/statab/2011/tables/11s1221.pdf
Utilities: $316 ($158.33 electricity x2 for water and gas) http://www.energysavers.gov/pdfs/energy_savers.pdf

Car payment: $386 guess ($20k @ 6%) This number I estimated.
# of cars/family 1.16   (135m cars / 116m Househoulds) http://www.census.gov/compendia/statab/2011/tables/11s1095.pdf
Car insurance: $62 ($749.88/year) http://www.census.gov/compendia/statab/2011/tables/11s1221.pdf
Gas: $162   (43 gallons/month) http://www.nacsonline.com/NACS/Resources/campaigns/GasPrices_2011/Documents/GasPriceKit2011.pdf
  Cost $3.79 http://www.eia.gov/

Credit card debt: $5050 on card
http://www.census.gov/compendia/statab/2011/tables/11s1187.pdf
# of cards: 6.37 (177m cardholders, 1128m cards)
Balance:5050,  792.55/card  (894b debt outstanding)
Rate 13.4% (2009) ($56/month just interest)
Cellphone: $100 (family plan 3 phones). http://www.wireless.att.com/
Food: $806 http://www.cnpp.usda.gov/Publications/FoodPlans/2011/CostofFoodApr2011.pdf
Health Insurance: $333 http://www.ncsl.org/?TabId=14509
Life Insurance: $42 state farm

Tv/Internet: $100 (http://www.comcast.com/Corporate/Learn/Bundles/bundles.html?)

Misc: $200/month. 
    Clothes, gifts, charity, entertainment, car repair.

Total bills / month: $4420
Average household income: $4191 / month (50,303) http://www.census.gov/compendia/statab/2011/tables/11s0700.pdf
Average family income where Husband and Wife worked   73% ( 33,954 / 46,201   http://www.census.gov/compendia/statab/2011/tables/11s0700.pdf
Income for 2 kids $76,575 (http://www.census.gov/compendia/statab/2011/tables/11s0700.pdf)
Average income: $6381/ month
So half of all the above monthly bills divided in half for the dual income family brings and including the taxes I will have to pay as a theoretical family member...
TARGET: $2,762 after taxes (25%)

Dividend Growth Investing: 1 - Why dividends over capital gains?

I begin yet another series of discussions about the financial markets. This time on dividend growth investing...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

Dividend investing is the topic I am most passionate about in the financial markets. Its the thing I can "geek" out the most on. I've tried my hand at buy low, sell high. I've read up on (better never actually have) naked short sold stock. We have penny stock investing, value investing, momentum investing. All sorts of strategies of investing but they all have one thing in common. You have to make the decision when to sell. That opens up the risk and consequences of "what happens afterwards".

For me and my investing personality style, I found I would get too frustrated when I sold and the price went higher. Even when I had a great profit I would think I was "wrong" because I didn't sell at the top. Not only is that just a silly notion but it distracts one from their next investment or trade.


Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax advisor. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Week 7 Deposit

Its time for another weekly deposit...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

My weekly deposit format of data will be a work in progress as new information comes in as with purchases...

Weekly Activity
$100 deposit into Investing
Purchase 10 shares of PCY @ $27.15

Model Portfolio Totals

Trading Account: $0

Investing Account: $395.40
Stock: $0
REITs: $0
Bonds: $271.90
     PCY: $271.90
Manuevering: $123.5

Savings Account: $300
Emergency: $250
Portfolio Protection: $50
CDs: $0
Precious Metals: $0



Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax advisor. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Investment Purchase: PCY

Here I talk about my first purchase for the model portfolio...

I've followed PCY for several years now and like it. When I bring it up in conversation and get to the part of which countries are in the fund, (Turkey, Qatar, Bulgaria, Columbia) a lot of people get turned off because that is "risky" and that U.S. bonds are so much safer. When I ask why they believe that they almost always seem to give a  "just because they are" reason.

That sort of thinking can be lethal to a trader and investor. Things change and common mentalities and theories on investing should be challenged and each investor should determine what is appropriate for themselves.

I have been talking in the past couple videos the idea of not shadowing and this brings up another reason. When shadowing someone you run the risk of falling into someone's line of thinking, without fully knowing why they think a certain way. You then start agreeing with something you don't fully understand and that spirals into other investment decisions you will make.

Here are the links to the various funds I mentioned in the video for those that want to research further...
PCY: Powershares
EMB: IShares
EBND: Spdrs
ELD: Wisdomtree

Here is a chart comparing several of the funds I talked about.

This is from finance.google.com and shows the % gains and losses of each one if they all started with the same purchase amount at the same time.

We can see that PCY (blue line) and EMB (green line) move pretty much the same way which makes sense being that they are the same asset class. However its always good to confirm it here. I use the S&P500 to represent the stock market. Here we see it has struggled to recover from its 2008 and early 2009 fall. TLT (yellow line) is a popular ETF for U.S. bonds. It rose while the others fell but it reverted back to 0% the quickest of them all.

Ok great so what does this tell us? To me at least, it says that U.S. bonds and emerging market bonds will move differently at times but then revert back to 0. Most bond investors will be focusing on the income they get and not share price appreciation. Bonds don't grow and expand like companies do.

One key thing to keep in mind... this chart only covers the past 3.5 years with 4 things. Its far from a conclusive review of how the stock and bond markets work especially in how these work over a 50 year period that I will be wanting to carry me to and through retirement. That will be another angle we can look at and will do so in the future. Its something to keep in mind and research before entering a position however that's a topic for another entry later on.

Disclaimer: The investments and trades in my videos and blog entries are not recommendations for others.
I am not a financial planner, financial advisor, accountant, or tax advisor. The financial actions I talk about are for my own portfolio and money and only suited for my own risk tolerance, strategy, and ideas. Copying another person's financial moves can lead to large losses. Each person needs to do their due diligence in researching and planning their own actions in the financial markets.

Week 6 Deposit and Shadowing

We have another deposit coming in for week 6...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

In the video I said week 5.... Yep I screwed up and now I am at work where Youtube is blocked. I'll try to edit it or replace the video in its place tonight. Either way thoug I will keep up my "slip up" out in the open. Mistakes are going to happen.

Weekly Activity
$100 deposit into Investing


Model Portfolio Totals

Trading Account: $0

Investing Account: $300
Stock: $0
REITs: $0
Bonds: $0
Manuevering: $300

Savings Account: $300
Emergency: $250
Portfolio Protection: $50
CDs: $0
Precious Metals: $0

Type of Investments: 2 - Mutual Funds, ETFs, and CEFs

In the next part of my series on the different types of things that we can invest in I talk about the various fund types...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

One more "anti" comment on mutual funds especially for dividend investors. Even though they own companies that issue dividends? They may not necessarily pass them on to the investor. To be honest I have no idea where they go. I have called several mutual fund help numbers looking for this information and never got a straight answer. The one thing I do know is that I never received any directly.

ETFs and CEFs? They pass them on to the individual investor. So seeing as this model portfolio is about sustainable income I'll be going with those.

As investors though we should be aware of how mutual funds work. I barely touched upon it here and there are other moving parts to them. Why is it important to be aware of them even if we don't plan to invest in any? They are very predominant in 401k plans. In the four company plans I have had access to the vast majority of choices were in mutual funds.

What happens when we buy stock

All too often the newcomer to the markets will take an action with their money before they know what they are doing. I'm not talking about what they are doing in the sense of picking the "right" stock. I'm talking about what happens when they turn their money over to their broker and tell them to go to the stock exchange and buy them some shares...

EDIT: At the time this blog entry was posted I had a Youtube video here. That has been removed but I want the rest of my content to be remain. Nothing hidden no past mistakes ignored. All out in the open.

In the video I say that there is risk when you initiate an order before the price moves. I touched on it with slippage and the spread a bit but I want to expand clarify that a bit. For this video and blog entry I am purposefully leaving out the words "bid" and "ask".

The spread can widen on volatility which is how fast a stock or option or whatever financial instrument's price is moving. The stock exchange knows that when something is moving fast it will attract more buyers and they want to get in on something moving fast. So they widen the spread to get more money out of those more willing to pay the higher price.

So continuing my example from the video of a stock we can buy for $10 and sell for $9.50. Let's say we have been following it and want to buy it. We place our market order. As we do it the price moves faster then we thought. Some news came out. Perhaps it's a drug company that cured cancer or is being bought out by another company or one of those "just because" fast moves. For whatever reason it's moving higher. You get filled at $10.25 because of slippage and you check the current price. The price is $10.50 to buy and the sell price only rises to $9.75. Why did the buy price go up more then the sell? The exchange knows that people are going to want to buy when stock moves up fast and buyers are more willing to pay extra for it. Sellers are less inclined to sell because maybe they can hold out a little bit longer and get a better deal so the exchange has less reason to give them more.

The stock continues to rise to $11 to buy and $10.50 to sell. The spread narrows because things are slowing down and it goes back to its normal $0.50 spread. So even though it was at $10 when you entered your order to get in and now it's valued at $11 to buy, slippage took $0.25 and the spread took an extra $0.25 then you planned on. To sell now at $10.50 when your entry point was $10.25? That $1 rise only leaves you with $0.25 actual profit.

The move ends and starts dropping, fast. Others are freaking out and selling so you decide to also. Just like before the spread widens. Though the buy price drops just $0.25 to $10.75 the reverse is happening with the spread. The stock exchange knows that people want to get out and sell. The spread widens against the seller and the price to sell your stock is $10. Slippage of $0.25 once again occurs and you sell at $9.75. The price levels off and the spread narrows back to a $0.50 range.... $10.50 to buy and $10 to sell.

So while the buy and sell price of the stock have both moved up $0.50 you ended up losing $0.50 a share! Bought at $10.25 and sold at $9.75

Oh yeah... and you also paid a commission twice, once to buy and once to sell, for the privilege of losing money even though you were right.  That's a very important thing to never forget... you can be right in guessing the move of a stock. You can be right in the timing of getting in. You can be right in the timing of getting out. With all that you can end up losing money.