BennyEast.Com/Blog The official blog of Kenny West

A Close One

Ok, so I'm mere days away from closing out my monthly budget.  Technically it ends at midnight on the 20th into the 21st.  I've got about 20 bucks left for my base pay.

So that means I spent my entire paycheck on... Things.  Expenses.  Life.  Nearly 600 bucks went to vet things.  I have one cat left that needs teeth cleaning.  Then that cost will drop.  I sold my mom's jeep and so I now no longer have to carry the car insurance on her jeep.  So that will be one less cost as well.

The good news is, I didn't spend beyond my paycheck.  Which I'm pretty happy about.  It means I'm getting things back to where they should be.

I should be able to make it this month on just my paycheck, so that I don't include my additional income sources.  Next month I'll have to pay the property taxes so I won't include those in my monthly budget, but instead I'll break that down into the next few months and try to spend even less to make that money back.  It's sort of like taking an interest free loan from myself.

I also have to start budgeting again for capital expenditures... New appliances... New gizmos and gadgets... Like a new phone.  Or if one of the things I use in every day life fails and I have to replace it.  House maintenance.  Etc. Etc.

Technically I've made enough money in the last 12 months from my investments to pay the property taxes.  So that's not too bad.  I could just use that income source and say that my dividends last year covered that.  Also this year so far I'm actually trading according to my trading plan.  Last year I had 3 stocks that soured, but I was able to trade out of them and make more money in gains than I had in losses.  I had hundreds of very small trades that had a greater value than the 3 big losses... SO far this year... They are all holding steady.  But I'll be ready if one of them does sour.  I have an oil and gas fund that is limping along.  I bought it a few years ago before this whole oil price crash thing happened.  If it goes bad... I'll trade out of it from all my little tiny trades that will add up to a greater value than the one big loss... If it recovers... great.  As of right now it's still paying me a dividend on a monthly basis... So I'll just let it ride.  My first rule of trading is...

As long as a stock continues to pay a dividend... Never sell at a loss.  Ever.  Keep it until I get merged or bought out or the company goes bust.  If it stops paying a dividend and has no hope for ever returning to the original purchase price or at least recovering some of the value... Then I consider selling it only after I've made lots of little trades to zero out.

Currently my capital gains are outpacing my dividends.  Which is my trading strategy.  Only purchase dividend paying stocks and stay long.  Wait for the stock to rise in price and sell for small gains, generally between a few percent to maybe 10 to 15 percent.  Invest the profits into diversifying into something new and put the original capital back into another stock.  I'm just going to try to stay on track with that.  I just sold a stock today so I'll use that original lot of capital to get right back into a new one in the next few days.  The profits from today's sale will go with other profits until I have enough money to open up a new stock slot.  The idea is that I just keep repeating very small trades over and over again.  Everyone goes for the big money... But you're more likely to be right on very small trades than you are to be right on one big giant trade.

I just keep my capital gains above my dividends to set the pace and stay in on 40 simultaneous dividend paying stocks.  Eventually I'll probably start trading 41 stocks... And then 42 and 43... Etc. etc.  I don't really plan to cap my stock slots only the total amount will be capped.  I might end up with thousands of different stocks one day.  Just very small amounts in thousands of different stocks.  As I continue to trade and I make profits from price appreciation that will go to opening up a new stock slot.  So yea, as the number of different stocks I own goes up... The amount I put into any one stock will still stay capped.  This will force diversification and will force my stock collection to grow horizontally instead of vertically.  That way if any one stock goes bad, I can quickly recover from that loss because it just knocks me down a stock slot.  I still receive dividend income from those stocks as well, so even if I make no trades... I'll keep getting dividend income and if a stock completely goes bust... It's only a small fraction of my entire portfolio.  That will help mitigate the risk of being in stocks.

I'm also going to start adding ETFs like bond funds and things like that.

But the key to it all is not having to touch any savings.  Money can't grow if it's being spent.  So, Im going to use this month and each month going forward to learn how to shave off little bits in my budget an save more.

It's kind of been somewhat boring for me recently because I really don't go out much anymore.  I don't travel or anything.  I pretty much just do the same routine over and over again.  Yeah, it's not ideal... But it's a short term thing.  What I want to do is get my stocks setup so that the dividend income from that slowly takes over my paycheck.  As it climbs higher and higher I'll start to use that more and more to cover my costs in life...

Then... I'll just transition to that entirely.

The thing I definitely like about owning and maintaining a stock portfolio is that it's yours.  Like... You have it for the rest of your life.  Once you start an investment portfolio and you maintain it... You take it with you wherever you go.  It's digital... So you don't have to worry about if you move to a new place, it goes with you.  You don't have to worry about if you change jobs... I mean heck, even once I'm only using my stocks to maintain everything in my life, I'll still work.  Now that work might change to just writing and recording music all day and writing books in the evening.  Or maybe I might just go for some jobs that I wouldn't normally work.  Maybe I'll head back to school.

The idea is that instead of being reliant on an income from a 9 to 5 paycheck job... Using investment income can let you cover your costs and then have the freedom to do what you like without having to worry about living expenses.  Maybe I won't work for 6 months at a time.  Maybe I'll just volunteer.  Or maybe I'll just sit at the beach every day for a month straight and meditate on the ocean waves.

Who knows.  But what I do know is maintaining a strict budget no matter how much money I might have in savings... Is key to making money last.  And not just making money last... But continuing to grow money so that the pot you pull from to pay your bills just keeps getting bigger and bigger.

So that's my plan and I'm sticking to it.  A boring life now... strict budgeting and staying the course with my investment strategy.

My future investment strategy will eventually involve starting to use some of my trading profits to give money to people to manage for me.

Ideally what I want to do is get up to 5 or 10 different people managing individual portfolios for me.  Then what I'll do is apply the 10 percent rule.

The 10 percent rule works like this... Every year you fire your bottom 10 percent performing employees and hire 10 percent new people.

So... Let's say I have 10 different people managing money for me.  Every year I look at the worst performer.  He gets fired... those investments are taken from him and handed to someone new.  Then... The next year, I evaluate the worst performer and that one is let go.

It was something that I heard on a podcast about how one guy manages his company.  He basically just does like monthly evaluations on his employees and then according to those evaluations he'll let go the bottom 10 percent and hire new people.  He also rewards the top 10 percent.  So there's more than just an incentive to work hard enough not to lose your job.

It's an interesting concept... Mostly meant for sales teams and those sorts of jobs.  So it MAY not be ideal for people managing money on my behalf.  But I think it could apply to financial managers as well working on your behalf.  Basically your job is just to not be the last one in the race.  There are 10 people running this race.  The slowest one won't advance.  Just be faster than the other 9 and you're golden.  We'll see though.  That's years away.  For now I'll just keep doing it all myself.

In case you can't tell... I don't like to put too much into any one thing.  After all... We're all made up of billions of tiny individual cells.  We're not one big giant amoeba.

So the way I look at it... That's the way to go.  I mean just look around you... Everything is made up of lots of TINY things creating one big thing.

My front lawn isn't ONE big giant blade of grass.  It's LOTS of tiny blades that make up the whole.

This is why I cap my stocks and diversify outward into more and more small positions instead of just holding lots of money in one single or a handful of stocks.

My cats don't just have one piece of hair surrounding them and you don't have just one strand of hair on your head.  You have lots of hairs.  And you lose hairs every day.. they fall out.  But the reason why your hair keeps growing is because even with those lost hairs... You get growth from the remaining ones and then the ones that do fall out get replaced.

This is my exact investment strategy.  Lots of little tiny eggs in lots of little tiny baskets.