I agree with WXYZ and Tom's sentiment. I'm a 36 year old so I probably fall somewhere near the beginning of the millennial era. I did have difficulty in the job market during the 'great recession' but I persevered and landed in my field eventually. I've paid off student loans, began contributing to deferred comp the day I landed my job, and opened a private brokerage account in 2010. I feel the tough times after college helped prepare me for setting a budget. There has been an abundant amount of overtime available at my job over the last four years and I've grabbed up as much as I can while still allowing for family time. There are younger employees who have no interest in overtime. Over this past four years, I've continued to bump my contribution percentage and the overtime allows for an even better number. I continue to use my five year old Samsung Galaxy S5 cell phone and drive my 2002 Toyota Solara while pushing all extra funds into retirement, brokerage accounts (TD Ameritrade and M1 Finance) and extra mortgage principal payments. My strategy is long term investing as I have another 25 years in the work force and do not have the time/skill to beat the market. Indeed it can be a rewarding journey for anyone motivated enough to get ahead.
It's great to see you around, weight333. We are starting to develop a nice little long term investing community. When I read WXYZ's commentary, I find that I share his view almost all of the time. He has a great portfolio. Our views differ in a couple of ways but I suspect this is due to differences in our life needs. So, while I occasionally share a different point of view, I do this because it would be monotonous to chime in with agreement after every post. Long term investors have a pretty simple mission: Buy some good businesses, hold them for a long time, build a lot of wealth.
Situation update We continue to have most of our DRIPs turned off. Our cash and equivalents is now at 18%. The plan for the cash is to continue purchasing corporate bonds but I have a low limit of how much I'm prepared to hold. I'd like to have about half of what we need to live held in bonds and maturing each year. This is a loose idea. Bonds a hedge against dividend cessation and roll-backs during a prolonged recession and it's a very small ratio of our money. The thrust of our approach continues being to hold good businesses for a long time. I will not buy bonds which mature at the proper time, if they are a bad investment. Bonds are debt so I am extremely careful of the bonds I buy. I treat them identically to how we approached underwriting mortgages. We also picked up a tiny amount of a junior oil venture stock (CWV.V). The amount of money involved is minuscule. I tried to acquire quadruple the amount of stock we have but so few shares trade on this one that it is difficult to get a limit order fill. The original order would still have been a tiny amount of money. Assuming great deals on stock do not come up between now and April, we will turn the drips back on. The difference being, at that point we will have considerable cash reserves to survive a couple of years into a recession, even if the market forces us to hang onto our real estate. We have a maximum threshold on our cash buffer. It's an arbitrary number but it's as good a limit as any. Performance In the last two weeks, our portfolio has surged ahead more than it has in any single month in the last five years. It's unreal. If we had left our DRIPs in place, we would have done a tiny bit better. If we had sold some of our best performing stocks, we would have done a lot worse. I consider the strategy successful, because the goal was to expand our cash without reducing our market exposure and that was achieved. If a recession hits, we will have some weapons with which to take the fight to the market. I view this as two discrete ideas: 1) We are long term investors. We do not sell our companies to brace for a recession. 2) We have significant cash flow. We do hold back re-investment but that is allocation of cash flow, not divestment of corporate assets.
When I made the last post, our cash was just barely under 18%. Our cash buffer is now at 18.15%. That has little to do with gaining additional cash and a lot to do with a couple of down days on the market. I believe we are seeing early signs of a recession. How deep, long, or relevant it might be is entirely unknown to me. In fact, it isn't certain we are even beginning to head down that road but a few indicators suggest we are.
Corollary: Business works Businesses perform poorly for these reasons. - bad strategy - inefficient operations - management is extracting too much money If a business is doing poorly, in a market that is OK, that is a red flag that one of these factors could be the case. On the other side, a business can do well, even in a bad market, if it is scoring well in these three categories. Because these companies tend to use little leverage, they are not going to double in value in any reasonable time. They are simply going to plod along and bring in decent returns. These are the companies I want at the core of our portfolio. With well run companies at the core of our portfolio, we can live a life of confidence knowing we will do the best we can do under any macro circumstances without need to live in fear of selling before a big market drop. We will simply weather any market conditions. Once again, I monitor the Buffett Indicator to control how we allocate our cashflow. Right now, we are not re-investing. I do have a couple of long term, deep discount, limit orders in place but I have no expectation of them filling. For now, we are letting our cash build while we remain committed to our portfolio.
Dark pools Anyone who has read Michael Lewis' book, "Flash Boys", probably has a negative view of dark pools. Indeed, dark pools work against the idea of an open market and we would probably be better off without them. I've noticed our long term, deep discount, limit orders occasionally fill below the published price window. In other words, my trade was not recorded by the standard market telemetry mechanisms. I will bet the folks who sold the stock below the published range suspect something fishy is going on. They might be correct. For people who only place limit orders, like myself, it doesn't matter if a trade takes place on a monitored exchange or a dark pool. We just want to buy or sell a stock at a given price and are happy when the trade closes.
One of our core holdings is now under offer of acquisition. The buy-out comes at an 18% premium but that seems a bit light, to me. The company was performing beyond expectations for the last several years. I hope the corporate performance was pumped up to make the company look good for the sale because I'd rather still own the company. It's been a Cinderella story for us. When I look at the acquisition cost of my first tranche in 2011, it makes me extremely happy to be a long term investor. Now we are going to have a massive hole in our portfolio and we will be holding more cash than we've ever held. Needless to say, in the near future, I will be buying anything that isn't bolted down.
A friend of mine moved from LA to Phoenix in 2000. I think he was in Irvine. He endlessly talked of the housing bubble and unsustainable real estate prices. He was right, sort of. When the market crashed in 2008, he was insufferable. He waxed on about how obvious it was and the clarity of his vision into market. The thing is, he left so early that he sold his house at a lower price than it would have gone for during the bottom of the crisis. The cure was worse than the disease. This is why I don't sell when I see the onset of a recession. My gut is a liar. I don't trust it. The most I will do is stock pile cash when the Buffett Indicator climbs beyond a certain point. Right now, I'm doing the most difficult thing a long term investor can do: Nothing. Our stocks are soaring. We've hit record after record. My grumpy old man stocks (REITs, utilities, energy, health care) are rocking. My manufacturing stocks are holding their own but these are our smallest holdings. I don't see many values in this market, either. We were spoiled for values, earlier this year.
Some late night posting RomB16? A good time to do some thinking about investing.....when it is dark and quiet in the house. Doing nothing.........one of the hardest moves for an investor to pull off and one of the most lucrative. Also the basis for success for long term investors.
TomB16's recipe for success. Saving. - You're going to have to save. It is going to be difficult. There is no other way. - Take money out of your income and put it straight into your nest egg. Give until it hurts. Do not reduce the nest egg contribution when times are tight. Each year, give a little more. - Save early in your life and save hard. - When the transmission of your car breaks, do not take money out of your nest egg to fix it. Find a way to survive without lowering your net worth. - Money should only come out of your nest egg if your life depends on it in an absolute sense. - Saving should start high and go down over time. When your net worth passes $1M, you can start backing off. Investing. - You do not have a God gifted ability to outperform everyone else. The only people who do are the front runners who co-locate at the exchanges. It is God's will. - Don't "just try it". Get into investing in earnest. Make it your business to learn. You will be scored on your open mindedness and criticality and your life will be rewarded accordingly. - Favor distributing companies to growth companies. - Take advantage of dividend reinvestment plans (DRIP), where it makes sense. - Don't start buying and selling stock, to see if you can match S&P 500 performance. That's ridiculous. Put your money into an index and then paper trade. Don't put money into stock until you have outperformed the index consistently for 12 months. - Do not walk past nickels, looking for dollars. To make a dollar, you have to bend over 20 times to pick up 20 nickels. - When you have cash in your account, put it into a high interest savings account (HISA... mutual fund that pays interest like a savings account). - If another institution or HISA offers a higher rate, don't blow it off as being "no big deal". Don't walk away from easy money, even when the numbers are small. - Understand that long term exposure to investment is leverage so the extra bit of interest you make today will compound over time, making it more significant than it appears. The same goes for saving... the more you can save early, the better. - Ignore all claims of high rates of return. I know; it's hard. Most of them aren't real and none of them are sustainable. Aim for an average of 10% annual return. - If you get less than 8% annual return, move your money into an index. Return to paper trading to try other ideas or just buy an index and try out some new intimate positions with your wife. - There are no "hot hands" with investing. There is luck, hard work, and business. As a long term investor, you want your money to come from the latter two, not the first one. - Saving money can be addictive. Become addicted. - Make sure you can live with whatever investment program you adopt. If you can't deal with a big net worth hit, do not engage in high risk investing. - Consider the folks who have been making huge returns for years. Ask yourself, why are they still working? Think about how likely the bragging is to have merit. - Try to adopt a pragmatic disposition and enjoy the knowledge that you will succeed over time.
This is the approach I am trying to live by. I love the 'pick up nickels' adage. I need to remember that one. According to my 459 account, I am contributing 7% more than the average employee at my work. Due to a productive 2019, I plan to increase my contribution by another 5% in early 2020. We almost always have an abundance of overtime at my work so I sign up for two overtime shifts weekly. My emergency egg is sitting in my checking account. Any overflow above that amount moves into one of my two taxable brokerage accounts (TD Ameritrade/M1 Finance). We also contribute an extra 15% principal to our mortgage monthly. I will not increase this percentage due to our low interest rate. I will continue to drive my 2002 Toyota until it dies. In 2010, at age 27 I opened my first brokerage account with Scottrade (now TD Ameritrade). I made plenty of stupid beginner mistakes but also bought a few big name, dividend stocks. It was a great time to buy as the market was just starting to recover. I vividly remember buying BAC for $5 a share. About 6 months ago I opened an account with M1 Finance. I have an automated monthly deposit set up. M1 Finance allows me to buy fractional shares of expensive shares like AMZN, GOOGL, etc. I've shifted my focus over the last few years to dividend producing stocks. I'm putting a larger % into NOBL, SPY, QQQ index funds rather than more speculative, higher risk stocks. I do not plan to touch either of these brokerage accounts until retirement. I like the statement about becoming addicted to saving. I continually play mind tricks with myself to work overtime and resist impulsive purchases. I am able to retire from my career and collect my pension at 55. My goal is to be in the best financial shape possible by then. After that, maybe I can work a more low key, less stress part time job to supplement my income.
"I like the statement about becoming addicted to saving. I continually play mind tricks with myself to work overtime and resist impulsive purchases. I am able to retire from my career and collect my pension at 55. My goal is to be in the best financial shape possible by then. After that, maybe I can work a more low key, less stress part time job to supplement my income." BRAVO Weight You WILL achieve your goals and a lot more than you think. Your posts exhibit ALL the necessary thinking and acting to achieve financial freedom and success. You obviously have, whether you know it or not, the ability to use visualization techniques. You have the ability to do long term thinking and planing. Those traits are rare. Those traits along with your investing will make you very successful if you continue on the path that you are on right now and do so for the rest of your work life. The key is exactly what you are doing......squeezing every penny you can out of income to invest, selecting high quality stocks and funds that WILL produce returns, and letting the power of time and compounding do the rest.
AND.......Weight......doing what you are doing does NOT mean that you have to live a one dimensional life. You can do what you are doing while still living well and having a good life, especially as the investment gains start to pile up over the years.
I have read everything WXYZ has posted and I can see that we think in a very similar way. I suspect Weight333 is on the same page, as well. The minor variance in approach is not significant. I chose to put a lot of effort into optimization of a few things while WXYZ focuses on maintaining market exposure. I'll bet it appears we approach this from different points of view but we do not. The attitude of building wealth is far more important than the fine details of investments held. Everyone has to figure out what they know and find a way to succeed within that knowledge domain. The common thread is the approach of relentless wealth accumulation. To summarize: Attitude of wealth accumulation through long term investment -> likely to succeed Copy the portfolio of someone who has money -> unlikely to succeed We are all on our own to find our way. Wealth is a personal journey and it can be very rewarding both emotionally and financially. There were a few times in my career, when people were doing things they shouldn't, that I was able to proceed with confidence and without fear because I knew I would be OK no matter what the outcome. That confidence allowed me to succeed where others did not and it served me very, very well.
Thanks for the kind words Tom and WXYZ. Long term investing suits me as I don't need the money now and the hands off approach is perfect for my lifestyle. It's definitely a nice feeling knowing you're creating passive income especially at the quarter end when the dividend payout arrives. I spend time weekly perusing Zacks. I agree that saving and investing doesn't have to cramp your social life. As far as overtime goes, I only volunteer Mon-Thurs. I'd have to be pretty hard up to give up my weekends!
I've mentioned this before but I'm old so I feel entitled to repeat myself..... When you are a long term investor with stable, distributing, companies, they don't respond the way the rest of the market does. My REITs went up nicely for the first half of this year but they did not soar like many other sectors. When other sectors took hits, we mostly did not see hits. It's a slow, steady, boring, form of investing. The only time long term stocks go up is when people are scared of a recession/crash. Our REITs have gone through the roof in the last few months. One of them went up 20%. Unreal. Suffice to say, this is very rare and that's just how I like it. Our stock holdings are not synchronized with the big indexes. It takes some emotional discipline to be OK with that.
