BennyEast.Com/Blog The official blog of Kenny West

100 Years

Today I added another dividend paying company to my baseline salary.

The company has been paying out dividends for over 100 years now, and increasing them as well for a good number of years.

Right now, I'm just in the phase where I'm easing into my baseline salary.  I'm going with about 1 purchase every couple weeks or so.

Once I've gotten my portfolio to the next tier that I want it at, I'll start to cherry pick some of my tops and then diversify that cash.  Basically this means I sell winners for capital gains and then take the money that was in 1 single stock and reinvest at lower baseline amounts into 2 stocks.  Sometimes I use that capital gains cash in combination with some other capital gains sales to balance out a big loss...

I'm waiting to see if one of my bottoms goes belly up.  It's a US shale play that I got into years ago.  It was a bad decision... And it could be even worse if it goes bankrupt.  I'd probably be wiser to sell my shares right now for the loss....

But I have one rule... I never sell at a loss.

Never.  Instead, I only sell gains... let those gains pile up, and then let my losses happen when a company goes out to lunch.  And while all of that is happening, I let my dividends come in and pile up in a second pile.

Capital gains (lots of smaller cherry picks) - capital losses (one or two giant 100 percent stock wipe outs) = preservation of capital.  Whatever is left is used to pay taxes, and then the rest gets reinvested.

Dividends = income... Use this money to pay credit card, write checks, pay bills with bill pay... Etc. etc.

It goes against basically every single money manager person's investment strategy.  They'll tell me up and down how I don't know what I'm doing and how I should be tax loss harvesting and how I should be getting out before the stock drops even more to preserve capital and put my money in a better place.

But... that's not my investment strategy.

It doesn't REALLY matter because this is my "play" portfolio anways.  The other money is being managed for me in the way that all the money manager people manage money.  So, they can do whatever they like with that account and I'll do things how I like with my play account.

I just don't sell my losses.  I keep them as reminders to me as to why they became losses.

Instead, I cherry pick my tops.  I then use that money to counter my losses.  Now, even though I said I don't sell losses... That isn't to say I don't get stocks taken private on me at a loss, or merged out, or any other number of ways that shares can be ripped out of stockholder's hands.  It does happen.

This is why my number 2 rule is, I don't put more than my yearly dividend income in any one stock.  SO, if I want to buy shares in a new company, my maximum purchase number is my last year dividend income number.

I can never buy more than that number.

So if I had 50 grand to invest... and last year I made 1500 bucks in dividends... My next stock purchase can't be more than 1500 bucks in any single stock, or REIT, or Bond ETF, or whatever.

I generally mix it up though.  I buy conservative things one purchase, and then the next purchase will be some new and interesting hot company...

And there's always a next purchase because I'm always cherry picking.  Then I get to research and get in on my next stock.  I rotate them in and out, but only on the tops.  The bottoms get rotated out when they fail.

It's interesting because big losses, are actually fairly rare.  For example... I bought this one stock in 2008... It dropped to only 10 percent of the original purchase price within two years.  I could have freaked the frack out and sold for a HUGE loss.

But I didn't.  Meanwhile, the stock started paying quarterly dividends.  It's a geothermal energy company.  Since then they've done very well.  Every quarter I've been receiving a dividend.

The stock price now is in the green.  I'm actually at a place where I could cherry pick it for a long term capital gain and then replace it with a new stock... But for now I'm keeping it.  They just pinched their dividend up by a small amount... And, they have some strong global sales.

Not all stocks recover... Some go down, and out, and never come back... some suspend their dividends....

There's always risk.  But that's why I spread myself out.

Each stock I buy, is just a small brick in a big giant brick road.  If one brick goes out 100 percent... The road still lets you walk along it.  Even if two or three go out... The road still works.

And then you have time to replace the failed bricks.

If you'd build the entire road out of one solid brick and it went bad... Well... You get the idea.

My next rule is that it has to pay dividends.  No dividend, I won't invest.

That's like collecting a toll on this brick road.  I just like little tiny deposits every couple days into my account.  I like to log in each morning and be like... There's another one.  There's another one.  There's another one.

All those little deposits add up!

AND I don't want that dividend being paid out through debt financing.  You need strong positive cashflows from sales, and the dividend is a part of those cashflows.

I've blogged about all this a million times.

Really, I'm just interested in slowly ticking up my baseline beach day salary.

Today, I added just a little more to it.  We're not talking much.  Maybe 3 or 4 bucks a month.  But, I plan to hold this company until the end of time.

Or until it gets merged out or taken private, or whatever happens.

They also have been known to increase dividends and have been doing so since 1910.  A stock split or two or three has also been on the books from time to time.

It's a boring company.  But it's something people use every day.

Those are the companies I want.  Air.  Or, water and electric.  Stuff you would find it very hard to live without.

My time horizon for investments is like 10/20/30/40 years... So the stocks I buy... They can go up and down and whatever, but I just want those quarterly or monthly dividend checks.  Just like that stock I bought in 2008 that dropped 90 percent, but continued to pay me a dividend check every 3 months and still does so today.

And hey, maybe it turns out I totally make all the wrong choices... Like I said.... This is just my play portfolio.  The real stuff is being managed by someone else for me.

It's hard to argue with 100 years of dividends though.  True, the past is no guarantee of the future... But, that's still nothing to sneeze at!

So this was my super old school conservative stock purchase.  My next one will most likely be a bit more new school and trendy.  We'll see though.  I tend to stay away from IPOs and such.  I tend to stay away from "hot stock tips" from people.  I tend to go with companies that have proven business models and have shown they can be resilient even through times of turmoil in previous years.

What is something that you use every day that you've used every day for many many years?  Thinks about your daily habits and think about how likely you are to ever give them up?

Personally?  That's the stuff I'm inclined to invest in.  Those things you do day and day out... Things we've done for generations and generations, for 100 years even.  I love that stuff.