I have observed people with concentrated portfolios, and I have been able to classify them in two categories. The first category is those who are using “play money”. At the end of the day, I would never take an “expert” dividend investor seriously, if they do not have substantially most of their investable portfolio in dividend stocks. An investor who purchases some dividend stocks, while having the majority his/her investable assets in other vehicles, all the while claiming to be an expert is probably teaching you the wrong skills. After all, how can someone who does not actually plan to rely on dividend income for retirement teach you about dividend investing for retirement?
The second category consists of people who want to outperform the market, and believe that this is the easiest way to do so. These are the gamblers, who know that concentrating their portfolios in a few risky investments could pay off big time. Their goal is to generate some impressive track record in a short period of time, in order to sell investors their managed fund services. After all, if you find one company that would go up 100% in a period where the market is up only 10%, this looks pretty impressive. However, your portfolio results would be much better if you have 9 other stocks versus 29 other stocks in an equally weighted portfolio.
As a dividend investor, my goal is not to outperform the market but to generate a stable income stream that will proving a growing amount of income every year. That is why I invest most of my money in dividend growth stocks. I would not receive a pension, and I also plan on retiring much earlier than 55. As a result, safety of principle and income is as important to me as growing it over time.
It would be stupid to risk my nest egg in an ego boosting exercise to prove that I can outperform the market. While I know that even the best researched top dividend stock can ultimately cut dividends in the future, my goal is to minimize this risk, while maximizing the potential of my income portfolio to grow distributions above the rate of inflation, all the while principal is safely growing as well.
Full Disclosure: Long RDS.B, CVX, COP, JNJ, MTB