In discussing investments with others I am asked what is my investment strategy? I am going to try to outline my strategy here but you must remember that the strategy is a bit broad and in special cases I will make exceptions to certain criteria.
I only invest in: 1. Long standing, existing businesses. I tend to avoid emerging/startup companies and IPO’s. 2. Companies that pay dividends. This is the rule that is pretty much set in stone. No dividend then no investment from me. 3. Companies that have a dividend yield of between 2.5 to 5%. 4. Companies that have at least a 5 year history of dividend payouts. 5. Companies that show a positive dividend growth. 6. Companies that are rated at Average or below in risk and Average and above in returns. 7. Companies whose stock price allows me to maximize the quantity of share that I own.
The above points are all relative. Such as the dividend yield. If a company is paying out a dividend of $6/share and it’s stock price is $200, this gives me a yield of 3%. This passes my criteria.for dividend yields but does not pass my ability to maximize the number of shares that I own because I am limited by my investment budget. If I have only $200 to invest each month, buying the one stock for $200 only gets me that 1 share. But if I can buy another stock that sells for $50/share and pays 3% dividend yield I can get 4 shares. The dividends I can get will be the same for both at $6 but when I re-invest the $6 I can only get 0.03 shares of the $200/share stock but 0.12 shares of the $50/share stock. I try to maximize shares owned and maximize dividends earned.
I am focusing on the growth of my stock investments based on share growth in addition to any increase in stock price value. Share growth is more critical to me than share price growth. I will increase my position with a specific stock if the share price drops or increases no more than 10%. If the share price increases more than 10% I will just hold and wait for the next DRIP.
I’ll be detailing my different strategy points in later postings.
So, yesterday was the first day for the IPO for Snowflake Inc. ($SNOW). I always wanted to try to get in on the ground floor for companies that go public. I figure that they start out small and as they prove their ability to perform and generate revenue their stock price tends to go up. When I heard about Snowflake Inc going public I started following in hope of being able to get in on the ground floor.
The first time I heard about the tentative stock price was when they were talking about it being around $23/share. Seems reasonable. I could afford that. That wasn’t an overly large amount of money and I could come up with a few dollars to buy some shares to try my hand at investing in a company just starting out trading shares. I couldn’t screw up too badly at $23/share.
But the day before the IPO and the day of the share price was scheduled to open at $120/share! What happened? Then when the market opened and I checked how it was doing I found that the stock price had climbed to over $230/share. What?!?!? What did I miss? I can’t understand how the price could have jumped that high. What was the new price based on? Were that many people buying the stock? I read all of the reports and articles about the company but I wasn’t able to determine which factor was the key to driving the price.
So, how does it work? The share prices are based on the company fundamentals up to a certain point and then it becomes like a religious thing and faith takes over? Or is it one of those deals where the big players get in on it early, wait for the share price to peak and then when it starts dropping in price start selling off their shares to insure profits? Is it all big money investors or are there any small investors? If so, are they able to keep up with the trade activity in order to not lose everything?
I’m still new at this investing game so I try to learn whateveer I can so I can better understand the way things work.
For some reason General Dynamics caught my eye. I looked at it through my criteria filter to see if it would fit within my investment strategy. The first thing I noticed that $GD was paying a very nice dividend payout of $4.40/share. How did this compare to the share price? The dividend yield is 3.03%, which is better than the industry average. So far so good. I wasn’t too happy with the share price of $144.62/share at the time I am writing this. Ten shares would cost me $1446.20 and yield me $44.00. This would give me another 0.30 shares of stock, if the share price remained the same for a year.
I also noticed that the stock was trading at around the mid-point of its 52 week range and the trend looks to be heading down. This stock may go down a bit more. Earnings look strong. As a matter of fact, the fundamentals for the company look very good. The stock looks like it would be a good one to invest in. But for me I’ll take a wait and see approach. I’ll wait to see if the stock price continues its downward journey and wait for a buying opportunity.
Since the beginning of the week I took notice of Intel Corp ($INTC) stock price. Seeing as my investment funds are limited, I was hesitant in putting this stock on my watchlist. Upon careful review I think that this would be a prime candidate for my dividend portfolio.
What am I seeing? I’m seeing a stock trading at the low end of its 52 week range while at the same time paying out a very decent dividend of 2.67%. That’s something that I look for. Higher dividend payout relative to its share price. Its revenue growth is above the industry average, and there’s room to grow the dividends because it is below the industry average.
So, I’ll add this company’s stock price to my watchlist and see what happens. If the share price drops further than the dividend yield goes higher and makes this stock more desirable for me. I prefer a dividend yield that is high relative to its price. To me it is more important to have a high, sustainable payout per share than just high share price. Dividends are paid on a per share price so I’m interested in picking up as many shares as I can.
I also have certain criteria for choosing specific dividend stocks. As I mentioned before, a high dividend yield. I like my yields around 5% or higher but based on the company, its dividend history and growth, I can tolerate around 2% or higher. If the company pays out a decent dividend payout but the yield is below 2% then I’ll wait for the share price to drop. There are a few companies out there that pay a very decent dividend but their share price is too high for what I would get in dividends, as noted by a low (under 2%) dividend yield. To me that would be like paying a premium price.
I am fairly pleased with my current portfolio since I developed my own investment strategy. My investment activity is still not as accelerated as I’d want it to be but slow and steady is good. I got rid of all but one of the first stocks I bought before I really knew what I was doing and have been focusing my effort on investing in dividend stocks.
I have been investing at least $200/month. I wish it could be more but reality is a bitch. Reality is what we normal people have to deal with regardless of what the so-called “investment experts” on the internet say.
But so far, my portfolio as increased 13.51%. My holdings:
I’m also looking to diversify my portfolio a bit more by buying some bond EFT’s (i.e. either $VTIP or $VTEB). Also, with the current pandemic it might be good to invest in a pharma company. But which one? I might look to buy some $VHT, an ETF that invests in pharma companies within the Healthcare sector.
I haven’t been investing for that long of a time. I’ve acquired a few company stocks and ETF’s. But my sales have been few. Right now I’m looking for sell all of my Obalon (OBLN) stock because it is one of the first ones that I bought when I was first starting out. At that time I really didn’t have a clear idea of what I wanted to do. I didn’t have a strategy. I bought Obalon and and a couple of others because they were companies that were in the healthcare industry. That was it. None of them paid any dividends and there wasn’t any real growth with them.
After developing my own investment strategy I decided that the money I had invested in those companies could be better used with other investments. I sold the others at a bit of a profit but held Obalon because it was trading under what I paid for it. I decided to wait to see if the price would come back.
When I first started investing I opened an investment account with Robinhood. When I did that I received a free stock for Lyft. I decided to hold that one for a little while. When I was given that share of stock the price was around $42/share. It also wasn’t paying any dividends. I held that stock for a little while and the price dropped down to the low $30’s per share. The stock fluctuated in that neighborhood for a while. I finally decided to sell my share and put the money to better use.
Now I have developed my own investment strategy and I feel confident that I know more than I did when I first started. I now invest in dividend stocks. If a company doesn’t pay dividends then I don’t have a real interest in investing my money with them. Am I missing out on windfall returns? Maybe. But I’m also missing out on catastrophic losses. I’m at an age when I can ill afford to lose money because I don’t have as much time to recover from major losses. Also, if I am going to be investing in a company for the long term then I want to get paid for my time that I am waiting for the stock to grow, thus the dividend payout. The dividend payout is the company’s payment to me for being patient and sticking it out with them.
So, based on all of the above when do I sell my stock? I will only consider selling my stock when either of the two conditions below are met:
1. The company drastically cuts their dividend payout 2 times or more in a row.
2. The stock price increases 200%+.
So far I’ve been lucky in that none of my investments have had their dividend payouts cut. But I will tolerate 1 such payout cut but if they go to 2 in a row, they’re history.
If you’re a new investor trying to learn about stock investing you have probably joined some investment forums/groups and starting following so called “experts” on Twitter. You need to exercise extreme caution when you encounter these “experts” on Twitter. Many of these investors are there to sell you a product, their ebook. Now, I’m not saying that they don’t know about investing because I don’t know enough about them to make that judgement. And there lies the problem. Their expertise can’t be brought into question because they hide behind their Twitter username/handle. The issue I have isn’t with their knowledge or lack of but with their methodology. They’re not transparent. I have no idea who they are. No real name for me to vet and determine if they are someone I want to listen to, spend my money with, or even to invest based on what they say. Why would I want to buy their ebook about investing? I have no idea who they are or what their track record is other than what they tell me with their limited Twitter bio or web page. For all I know they don’t even have $1 invested in the stock market. Anyone can say anything as long as they’re anonymous.
Now there are other authors that I can vet such as Phil Town or Peter Lynch, just to mention two. You can get more reliable ebooks on Amazon for a lot less than what the Twitter “experts” are selling their ebooks for. Don’t be so eager to throw your money away to every Tom, Dick, and Harry on the Internet just because they “SAY” that they’re successful. If you have someone’s real name you can then Google their name to see what shows up. Are they a scammer? Are they a financial professional? We are talking about your money. You want to make sure that you are spending it in the most effective manner.
The same goes for the ones in the Internet that sound like professional financial advisors or lifestyle coaches. They will post tweets either selling their ebooks and/or giving investment advise. They may even post stock recommendations without explaining the reason behind their recommendation. Many state on their Twitter bios that they ARE NOT financial advisors. Believe them. Generally, before I take any investment advice from anyone that wants me to believe that they are a financial professional, be it on the Internet or not, I vet them through BrokerCheck.
So, if you’re just starting out with stock investing you should learn whatever you can before you move into the stock market world. Get yourself a mentor (someone that you know personally and trust who has been involved in investing for a few years) and read and learn from the verifiable experts who impart their knowledge. And there’s nothing wrong with sharing ideas and experiences with others, as long as you’re cautious in doing so.