The stock market is a very interesting place, because for every transaction you have a buyer and a seller who both think are smarter than the other person. Unfortunately, only one of them ends up making money. As a dividend investor, I am exposed to opinions all the time.
I usually choose to ignore other’s opinions. I suggest you also implement a filter on who to listen to. I will explain why in this article.
My strategy is based on purchasing shares in undervalued dividend stocks, that have a history of growing distributions. I make these purchases after analyzing these companies one at a time, and find a catalyst that would help each company to potentially earn more in the future. This could include the ability to increase prices ahead of costs, cut costs through increasing efficiencies, expand in new markets etc.
The rising profits at the company level could then fuel future dividend growth. I spend my free time reading about companies I own, and reading about companies I want to own, while waiting for prices to get down to a reasonable level before I invest. I also spend time thinking about my investments, monitoring them, and asking myself if the companies will still be relevant 20 years from now.
My financial well-being in retirement is based on my own efforts to do the work and choose stocks wisely. This is why I am more prone to be overly conservative, because I would rather be safe than sorry. However, this provides me the incentive to not only avoid losing principal at all costs, but also avoid getting into dogs that use my capital but fail to shower me with a growing pile of cash every year. I have confidence in my work as a result of the process I have, following the stocks I follow and monitoring my investments. I know that I won’t win every single time, and I know I would probably do many stupid things along the way. That is ok, as long as I learn from them and on the aggregate I am ahead.
I view others opinions as merely obstacles that prevent me from executing my own strategy. There are many negatives associated with taking someone’s opinions to heart:
- If you get conflicting arguments against a stock you strongly believe in, you might get hesitant and fail to pull the trigger. Any time I buy a stock there is always a reason not to buy it and someone to point that reason in my face. As an investor however, my goal is not to be right but to make money. Very often these “reasons” not to invest are merely useless pieces of random information that won’t affect the profits of the company you are investing in.
For example, tobacco has been known for its harmful effects on health, yet companies like Altria (MO) have delivered some of the best returns to investors over the past 20 – 30 – 50 years. The thing that mattered is that hiking cigarette prices and cutting costs outweighed decreasing number of smokers.
Actually some of the best times to buy a security is when everyone hates investing in it. Back in 2008 – 2009 everyone was expecting the world as we know it to end, and for a while it did seem that way. Yet in hindsight, this was the time to put every dollar you could get your hands on quality dividend growth stocks selling at ridiculously cheap valuations. I did buy a lot of stocks back in 2008 – 2009, but in hindsight I should have bought more.
- The person who is criticizing you might not know what they are talking about. Very frequently I get in touch with someone who is biased based on limited amount of homework they have done. Quite often, these individuals might have overheard something, and might have decided for themselves that it is the truth, and would not hesitate to present their opinion. For example, since 2009, people have been scared of hyperinflation because the Fed had pumped billions of dollars into the economy. As I had explained earlier, the government simply stepped into the economy, to substitute the private sector that was afraid to do much. Yet, a reader told me that they won’t read my site anymore, because I was wrong. I wish them well, but I can’t let what my readers might or might not think influence my investing strategy.
- The person who is giving you their opinion might be out there to sell you something. Any time I talk about dividend investing, someone always tells me that it is a bad strategy because they think so. One financial adviser routinely bashes dividend investing (link to my rebuttal), but I assume he does that because he feels threatened that self-directed investors would not need someone to hold their hands in exchange for a percentage of their assets every year.
- The person who is criticizing you might be focusing on minutiae (missing the forest for the trees). For example, I often hear things that illustrate that the person I discuss investments with is focused on recent events that they might have heard on the radio, TV, newspapers etc. These items might be great for selling newspapers, but that might not make them relevant to an investor.
Back in early 2008, everyone was convinced that Oil was going to $200/barrel, that the US dollar was toast and therefore companies should have international exposure. After Lehman failed, the rest of the world was not doing well relative to the US dollar, and therefore international exposure was bad.
For any serious long-term investor, currency fluctuations in the global operations of multinationals like Phillip Morris (PM) are mostly a wash. Do not let them influence your decision to buy or sell a stock. In addition, companies that fail to meet or exceed Wall Street estimates by a penny and sell-off, provide another example of minutiae or irrelevant facts that you should mostly ignore in your decision making. If you hold Coca-Cola (KO) for the next 20 years, would it matter if it had one bad quarter in 2014 where it missed Wall Street consensus by 1 penny?
- There are always two sides to an argument – For example, some investors want to concentrate their portfolios in less than 10 stocks, others want to hold as many stocks as possible, while a third group might fall somewhere in the middle. For example, I fall closer to the group that espouses owning as many companies that are of good quality, if they are purchased at fair prices and offer the possibility for long term dividend wealth creation. I am totally fine with the fact that investors would disagree with me on holding positions in 50 – 60 securities. This is because what I do is meant to accomplish my goals, and not what Joe thinks of my strategy.
As an investor, you should do what you are comfortable with, as long as you have a good reason and have done the homework on the topic. If you built your portfolio of 40 stocks over the past decade, but none of them are buys today, it might make perfect sense to purchase 10 – 20 additional quality companies that are available at reasonable prices. Otherwise, you might find yourself with too much cash on hand, which could cause pressure that you are missing out, especially if prices start rising.