Today I watched our President’s press conference with an expectation that he will say something about our economy. I was expecting some journalist will grill him on projected 6% shrink in US GDP. Alas! That was not the case. There were few responses and contextual mention about few elements like auto industry and banks. However, I am not here to critic the press conference (who am I and how can I?).
One particular question that caught my attention was when one journalist asked about troubling, surprised, enchanted, and humbled. All through when The President was responding, I was thinking about how would l respond to those questions in the context of investing?
Troubling: It is troubling to see that free money caused the problem. And we are continuing to try to solve it with free money. We are trying to solve it with the very same tool that created it in first place. We have filled the lake with water, for it nowhere to go. This standing water is now getting polluted. We are continuing to pump in more water in a hope that it will start flowing. Flowing where? Won’t it burst out of the embankment? Burst will result in spreading of polluted water. Let it dry off, or get vaporized, or drain it slowly, only then it will get cleaned. continue reading rest of the article….
My dividend portfolio consists of stocks, exchange traded funds, and closed-end funds. Since all of them are dividend focused and provide cash flow, I look at this together (and not standalone).
In general, companies are showing reduced earning, paring down growth plans and expenditure, and slashing and suspending dividends. Not only that many companies are not able to look forward and predict their own earning expectations. To me, not able to put an expectation is a sign that management is either not able to plan (clueless?) or not sharing the true state of their business. This recession wind is clearly separating chaff from wheat. Against all the sky is falling scenarios, I am continuing to invest in some really good companies at bargain prices.
Year 2009 Quartely Update
The status or update is as follows:
- Dividend cash flow was $1380 per year.
- Yield on my original investments (YOC) is 5.07%.
- Year-to-Date the portfolio lost 1.6% of the value (relative to loss of -4.90% in SPY); and
- At present, I hold 22 stocks. continue reading rest of the article….
Any prudent portfolio management process must include the principles of asset allocation and diversification. These are two tools available to us for our portfolio risk management. This has been said many times, presented many times, and we individual investors make mistakes. On a personal front I have been guilty of it. Asset allocation and diversification are two different aspects which have different objectives.
In true sense, asset allocation is different types of assets which are either non-correlated or at least have low correlation. The notion here is that if these assets have low correlation, the volatility in returns will smooth out. Table 1 shows the average correlation factors in 18×18 matrix for different asset class such as real estate, international stocks, emerging markets, high-yield bonds, U.S. bonds, long-short, and investing styles. Table 2 provides the standard deviation of these correlations.
Between these two tables, we can observe that there is low correlation between stocks, bonds, real estate, and natural resources. In addition, the emerging markets and international markets have relatively higher correlation of up to 0.6. Investment strategy that includes asset allocation in true sense will have these lowly correlated assets included in the portfolio. It is hugely unlikely that at a beginning, we may not have all assets. However, based on individuals risk profile, it surely can be build over time. Asset allocation is designed to smooth out volatility and average out growth of the portfolio. continue reading rest of the article….
In my last post, I discussed about how I dealt with my existing position in some of the dividend cutters. I received a question that “can your post be interpreted as a recommendation to buy BAC and WFC because they are cheap”, and “what about GE, doesn’t it have wide moat, you ignored GE and did not mention anything about it”.
To begin with, this blog is not about recommending any stock or advising what do with individual’s investment. I have mentioned this in my disclaimer. This blog is a chronicle of my quest to build an income portfolio. I do not recommended or advise buying any stock on this blog. The premise of the post was how I dealt with the dividend cutters in my portfolio. It was about risk management process for my own dividend growth portfolio. It demonstrates my thought process with reference to my principle of objective based investing approach. I added to my original position based on my personal risk profile. I did not initiate a new position. continue reading rest of the article….
Two of my fellow bloggers (D4L and DGI) on The DIV-Net have presented their perspective on how to deal with a given company stocks when it decides to cut of freeze the common shareholder dividends. You can read their viewpoints at these links (D4L at Article1, DGI at Article1, Article2, and Article3). Both the bloggers have presented very compelling arguments supported by relevant data set. It would be hard to argue with their observations and conclusions. Here I am discussing my approach on how I dealt with dividend cuts and freeze in my portfolio.
Since year 2005 in my dividend growth portfolio, I had owned BAC, WFC, C, WL, and GE. I will not use GE in this discussion because I am focusing on financial sector. By early 2007 I had reached my limit (10% maximum) of asset allocation in terms of my actual capital allocated. Prior to peak during Oct 2007, my financial sector allocation became in excess of 14%. This was due to the increase in value. Even though I became over allocated in financial sector, I did not take any action. And that was a mistake. I should have used re-balancing (or stopped automatic dividend re-investment in same stock).
My primary reason for investing in these stocks was dividend growth (and secondary being value). Now year 2008 brought dividend cuts in all four financial stocks viz. BAC, WFC, C, and WL. The value of the share price started to plunge and I started to incur paper loses. I had to taken action of reducing my risk and cut my losses. continue reading rest of the article….