Saturday, June 17, 2017

May 2017 Portfolio Summary

I will post my May 2017 summary using data from mid June since I did not get a chance to make this post earlier. The stock market has been very generous to long investors. Stock prices have continued to head higher. Industrials and Technology companies have been leading the rise. However, nearly all sectors have seen rising prices. As of the 14th of June, the Fed has raised the interest rates by a small 1/4 percent. Crude oil has been continuing its drop downward below the $50 mark. I do not own many companies that are impacted by crude oil production directly. I no longer own shares in oil & gas or pipelines so the tough times in oil is not of much concern to me. The US dollar has been weakening compared to the start of the year. This bodes well for many of the international companies like KO, PM, and JNJ who do sales internationally. A weakening dollar means rising earnings from money made overseas when converted back to US Dollars.

I'm probably sounding like a broken record by now... The purpose of my investments is to become an income source for my personal use in the future. I do not buy low to sell high. In fact I do not very much mind buying high as long as what I buy can provide me with income. Every share I buy I treat it like an ATM machine. As long as the company I buy can keep spitting cash out to me every quarter life is good. If the ATM machine starts to break because of deteriorating fundamentals, I will sell it since I want the ATM machine to keep spitting out cash.

My investing philosophy is much different than the popular media's view on stocks. I invest for income. Every share I purchase will pay me every quarter. Every quarter, that company will (literally) send a check to my mailbox which I can cash in to pay for my groceries, transportation, entertainment, and housing. I do not plan to ever sell shares in businesses that I own unless I believe there is something direly wrong with the company's fundamentals. In essence, I hold stock like I hold rental properties. Stocks provide me income every month of the year. I could care less what the market values the business as long as the business pays me every quarter.

In addition to providing income every month, I want my investments to increase their dividend checks every year by themselves. Companies grow either organically or through M&A. Inflation happens, causing company earnings to grow as well. The whole purpose of the CEO is to ensure that the company makes money and grows. His job is to do everything in his power to make that happen. In essence, the CEO is working for us, the shareholders. If management is not doing a good job, then the shareholders will vote to elect new members in. In the end, I want to benefit from the growth in the enterprise and that benefit is through dividend checks.

Since income is so important to me, I want to make sure that the businesses that I own are capable of paying me dividends every quarter without issue. I also want to make sure the business can increase that dividend every year no problem. As a result, I tend to rely on businesses with non-cyclical personalities. During economic recessions, the last thing I want to see is for a company to cancel its dividend due to "hard times". Most of the companies I own are in the consumer staples business. These companies sell products like food, drinks, toilet paper, cleaning supplies, shampoo, toothpaste, etc. They are boring companies but they provide very consistent growth and a very stable cashflow even during economic recessions.

My largest holdings right now are Altria and Philip Morris (tobacco makers), Johnson & Johnson (a healthcare conglomerate), Home Depot (home improvement store), and Becton Dickinson (a medical device and instrument company).

As of June 17, my portfolio is sitting a bit over the $375,000 mark. I am a little ahead of schedule for my goal of $1MM. Spikes in the net worth are due to unexpected payouts in my career. I believe eventually I will be able to hit the $400,000 mark. My "margins" are very high at the moment since my living costs are very low compared to my take home income. Nearly all of my income is invested back into shares of businesses which pay income.

I decided to take a step back and plot what I think my portfolio can become years after I reach my goal if $1,000,000. This graph includes contributions I put into my account every month. In the latter years, I find that the portfolio grows by itself much more than what I contribute into the portfolio. 

I used data from the past with the acknowledgement that past performance doesn't predict future performance. In the backtest I chose investments that were similar to the companies I invested in today, namely dividend aristocrats which increase their dividends every year. The graph is an interesting display of what compounding can do to one's wealth. If an investor starts early, the early years are rough as the portfolio appears to grow only from one's personal contributions. However, as the portfolio matures into the 10th year, 20th year, and 30th year, the results are staggering.

I can't predict the results of the next 20 or 30 years. However, the past 100 years of the US Stock Market has been consistently impressive. I'm willing to bet that such American economic ingenuity and the "secret sauce" that the US has to innovate will continue propelling businesses forward decades into the future.

After $1MM, the second million becomes progressively easier (nearly half the time). The third million becomes even easier (1/4 of the time). And the fourth 1/8 of the time, and etc. This shows how capital can make capital by itself. Eventually, there is no need to save one's paycheck and contribute directly into the portfolio since the portfolio by itself has reached escape velocity.

Although $1MM is my short term goal for my early 30s it is only a very small drop in the overall bucket. My extremely long term target for old age is in the Decamillion category (8 figures). I believe the investment strategies laid out in this blog can one day make that possible for me, and I will log my progress on this website every month.

Happy Investing

Friday, June 16, 2017

Recent buy: MKC

MKC fell  a bit more than 3% today. What a joy to see what a high quality company going more on sale! I purchased $3,000 in MKC today on the open market today. My strategy is to add more if it falls 5-10 more %.

Happy investing

Thursday, June 15, 2017

Recent buy: GIS, T, PG

I bought the following companies on 6/15:

GIS - General Mills - $351
PG - Procter & Gamble - $1329
T - AT&T - $464

May 2017 Dividends Received

A little late to post, but here are the dividends I received in May 2017. I got $330 this month. Not bad. 2/5/8/11 months are lighter paying months for me since most of the companies I hold pay in other months.

Note that I now no longer hold any Verizon. I am considering adding more to AT&T to cover that high yield telecom space.

Ticker      Total    Taxable    Roth IRA         401k
GIS $79.29 $48.85 $30.44
O $41.60 $34.21 $7.39
T $36.41 $36.41
PG $28.83 $18.49 $10.34
APD $26.94 $26.94
VZ $25.68 $25.68
HRL $17.55 $17.55
ABT $15.95 $15.95
CL $14.26 $14.26
MA $12.55 $2.17 $10.38
CLX $11.54 $11.54
Interest $9.73 $9.60 $0.02 $0.11
SBUX $8.25 $8.25
BCR $1.88 $1.88
$330.46 $203.64 $59.91 $66.91

Friday, June 2, 2017

Recent buys ......

I purchased a lot of shares in the last week. I haven't posted the update yet. Here is a list of what has been added to my portfolio recently.

Since I have 100 free trades a month I took the liberty to spray my purchases across several companies.

BDX   $945
SYK    $427
APD    $1008
GIS    $568
HRL    $504
T          $964
PM       $1080
ITW    $1414
KO       $910
MA       $1105
WEC    $1004
PG       $881
PEP    $1172
V          $952

ADP    $1513
MA       $1376

After calculating the dividends, this set of investment will increase my annual dividend by $400 a year. My portfolio is now around $8713 in annual dividends.

Monday, May 22, 2017

Account changes and additional buys

I am closing my Roth IRA and converting all the funds into my taxable account.
My contribution base is around $13,000 and my capital gains is $1500 so I will pay a bit of tax on the $1500. The $13000 I will withdraw without any problem because the Roth IRA allows you to withdraw your contributions.

The Roth IRA is a great way to accumulate wealth without tax penalty given one is old enough to enjoy the money. However a big problem with the Roth IRA is the limit on how much you can contribute each year. My contribution limit to the Roth IRA is $5500 a year at the moment. This is a very small amount compared to the contributions I make to my 401k and my taxable account. There is a management overhead for me to keep track of all the accounts and statement records and tax documents used for filing taxes. Another big problem is that my income is higher than the Roth IRA limit, so I have to do the backdoor Roth which is even a bigger hassle.

Adding $5500 in a tax sheltered account that I have to jumps hoops to contribute to, and which I cannot use until I have white hair just is not worth it to me. I plan to retire in my 30s or 40s and I want to use my money how I want without any withdrawal rules. For others it may be worth it if $5500 a year is around the scale one is contributing to one's investments. But since I am contributing many multiples more than $5500 a year, I will pass.

My Roth IRA held the following this morning. As of now it's all cashed out:

Ticker Market Value Shares Share price
O $8,786.36 162.11 $54.20
VZ $2,044.81 45.02 $45.42
MO $3,462.76 48.84 $70.90

I sold all the shares so that I can liquidate and transfer all the cash into my taxable account. Since "O" is not a tax friendly investment since its dividends are taxed as ordinary income due to its REIT status, I bought around $9500 worth of O in my 401k, increasing my total position in O by around $750. My 401k already held O so the position got a lot larger in that account. 

To fund this large "O" purchase in my 401k I had to sell my large stake of around $8800 in Home Depot (HD) in my 401k and buy that Home Depot position back in my taxable account .... I know complicated. I ended up adding $9350 of Home Depot in my taxable account so I increased my total position in HD by around $550.

I also bought $3800 of MO in my taxable account, so I increased my total position in MO by around $400.

Finally I sold VZ and bought AT&T in my taxable account. I bought roughly the same dollar amount of AT&T as I sold Verizon. I am more favored towards AT&T's business model than Verizon and am not a fan of Verizon's acquisition spree and debt.

At the moment I still have around $30k in investable cash. I keep $11k in a savings account for a rainy day or for my future mortgage deposit (that is if I ever decide to settle down). A lot of money is swashing around between accounts as I close one account to open another. I closed my Capital One Investing taxable account in favor of my Merrill Edge which combined my Bank of America account with my brokerage account. Merrill gives me 100 free trades a month since my account size is large enough to qualify for the offer, so I took the leap to basically free trades ... For a dividend investor 100 trades a month is way more than enough.    And soon , I will be closing my Fidelity Roth IRA account and moving all the funds to the Merrill taxable account where I will be able to enjoy using my cash in commission free trades. Everything then will all be combined into one account which will make managing and paperwork much simpler.

If my account size becomes super large to the point that it may be risky having all of my money invested under one account, I may consider opening several taxable accounts just in case one of the brokerage firms go under. Merrill Edge which is Bank of America is quite reputable, so I am quite happy with the broker and the security features and customer service so far.

Thursday, May 18, 2017

April 2017 Portfolio Summary

I'll post data for the end of April by using data from May 12, since I was busy on a trip around the beginning of May.

A lot of things happened in April. As shown in the previous post, the dividends I received was a record high totaling $844 in April. The portfolio dollar growth has been steady for a while now but the annual dividends amount continues to climb ever higher.

The purpose of this portfolio is income accumulation. The portfolio on its own is outputting around 2.7% yield. So every $100 invested gives me $2.7 per year in cash. I use this money to either live off of or buy more investments.

Below is a treemap chart of my portfolio. I have placed very large bets on tobacco, Home Depot, JNJ, Realty Income, Becton Dickinson, Visa, and Pepsi. As you can see, most of my investments are in the Purple or Consumer Staples sector as they all pay very generous dividends and are one of the most predictable businesses around.

I have reduced my cash position for my housing down payment and allocated more funds to buy shares. I still do have around $40k or so in cash that I can buy if I need to, but I like to keep a decent cash position for emergency or opportunities.

I hold 40 stocks in my portfolio. This is a bit more than I like but all have passed my screening criterias and I will not hesitate to add more if any of their prices drop. I have been adding predominantly to positions I already hold, and have not added new positions. The latest new position was ITW which is a dividend aristocrat industrial.

Positions listed below with Green highlighting are my core positions. Yellow are supporting and red are speculative. Core positions are the ones I am most comfortable on holding. Companies with their names bolded indicate core positions that have the highest quality metrics determined by S&P and Value Line. Only a feel positions are bolded and also highlighted by me in Green as Core positions. I will likely hold these types of positions for life and add on every dip possible.

My favorite sector is the consumer staples. I tend to hold as many companies I can in sectors that have predictable cash flow. Companies that are boom bust like oil and raw materials are not my style. Nor are companies that constantly have to spend billions to innovate like Technology. I primarily hold boring companies people don't like to talk about as they are not "sexy". These include products like toothpaste, cereal, bottled water, shampoo, toilet paper, cigarettes, ketchup, soda, or electric utilities.

In terms of my progress, my goal to achieve $1,000,000 is on track. My net worth is now exceeding $350,000. 

The periods going forward will need to rely more on the portfolio supporting its own growth in order for me to meet my goal in the schedule shown below. In the early days, my portfolio growth was primarily due to my periodic contributions. However, I hope in the future my portfolio can grow faster on its own without my help.

Since price of shares is not predictable and prices are often at the whims of the irrational market, I prefer to look at how much passive income my assets are generating for me every year. Below is my plot of my forward annual income from my investments. The graph has climbed quite a bit upward in the last month as I have invested heavily in new shares. Each share I buy will pay me dividends. My portfolio is only composed of dividend paying stocks as I want to be paid in cash for every company I own.

Dividends are steady and predictable as long as the business fundamentals are intact. When share prices declined in 2008-2009, nearly all of the businesses I hold today either held or increased their dividends despite the economic recession. This is because these companies continued to make profits despite the recessionary environment. These are the types of companies I like to hold since I want my dividend to always be increased or at least be held flat year after year. I tend to value more on a company's ability to pay and maintain the dividend instead of focusing so much on the share price. I welcome a share price decline of 50% but will not tolerate a decline in the dividend.