Friday, June 21, 2019

May 2019 Portfolio Summary

May 2019 summary update.

I wanted to start off my post to give some background for new readers, what this site is for and what I am trying to do here. My investing started back in 2009. Back then my investing experience was not great and that time was also a quite dark period. During that time I also worked for very little and had to pay my bills, so it got me to appreciate the value of a dollar. Lack of money was a challenge when I was a kid and young adult, back then I did not have control of finances as I was not the income earner. I promised my future self to find a way to not have this problem when I get older. Over the years, especially when I graduated and became working full time in a real job, my investing style and philosophy began to mold into a certain style. I ended up investing to generate more income and the growth of income. I own businesses not to sell them in the future, my goal is to own high quality businesses that output cash forever. I think only when one invests hard earned cash and sees certain strategies fail and others work, one will eventually develop their own "flavor" or style of investing. The investing style on this site is one I have tailored over 10 years (from a teenager to a young adult) to fit my risk tolerance, personal style, and investing beliefs.

My youth investing and lifestyle was heavily influenced by Buffett (his middle to late age style) and his partner Munger. Buffet, his logical nature, his thought process, and culture, is someone I looked up to and helped shape my early life. Munger's early struggles as a young adult and his ability to overcome them also helped encourage me to move forward. Buffett's early days were more of a buy very low and flip companies style, or buy below book value and liquidate inventory and layoff people and sell for profit. However I prefer his approach after his fund size became too large to buy and flip as it is less manual and more long term, I prefer buying in high quality and holding for life. I like to buy high quality companies that are cashflow rich and use those excess cash to invest in more high quality businesses. It is hard in today's information technology internet age to find undervalued companies below book value, and since I have a very busy full time job I cannot participate actively and micromanage my investments so I need a more passive long term approach.

I also have a goal to make a million dollars by the time I am around 30. Buffet similarly declared in the year 1941, at the age of 11, that he would be a millionaire by the age of 35. He eventually crushed this goal ahead of schedule and easily became a millionaire at age 30, although those dollars back then are valued more today than in the past, the 7 figure "double comma club" goal has always been a dream target when I was a kid. I always wanted to be a millionaire. Now, it looks that goal is getting closer and closer.

My primary purpose to invest is independence and freedom. I do not want more money to buy more things. I actually do not have much material desire in life, no desire for a nice car, fun vacations, nice houses, clothes, toys or things. I like making money to make more money, which to many probably looks like a pointless cycle, but I enjoy building and continuously building things, and in this case I like building and maintaining a system that outputs cash. I like seeing my work produce results and improve over time, I like seeing progress and improvement over time. Having more money is like having a bigger shovel, eventually more work and output can be produced. In the beginning I have to start with a small spoon, but over time I can purchase a shovel, and then a pickup truck, and then an 18-wheeler, and then a Caterpillar 797 powertrain hauler, etc.

The one thing I value most of money is the opportunities and enablement money provides. Money allows me to be able to do what I want when I want, it allows me to manage my own schedule, it allows me to say no on something I do not believe in, it allows me to execute on what I believe in without pressure. Money allows me to care for the people I care for, it provides opportunities for people other than myself to better their lives. Without money, one often has to do things one does not want just to survive and that is not how I want to live.


My investing strategy is built upon increasing my income to large levels, large enough that it can cover all of my living expenses with ease. I classify independence into 5 major levels:
  • CLASS 1: Enough to pay for one's survival basics and have basic dignity in life. These include items like food and water, basic clothing, toiletry and hygiene needs.
  • CLASS 2: Enough to pay for one's housing and #1.
  • CLASS 3: Enough to pay for one's entertainment and leisure, in addition to #1 and #2.
  • CLASS 4: Enough to pay for one's family such as spouse and kids, in addition to #1 #2 #3
  • CLASS 5: Enough to invest in one's enterprise or business endeavors, in addition to #1 #2 #3 #4
For many, one focuses on getting a better job, getting a higher salary, to increase one's income and better one's condition. However, this is only linear growth and my goal is to reach exponential growth. Additionally, a job can easily be terminated by a layoff, relying and optimizing just one income source is a sub-optimal situation. As a result, I look to invest in assets that generate incomes that can grow on their own, this is independent to my own vocational income. And I also want these companies that produce these incomes to have executives and management that grow these businesses year after year by their own, without my intervention. With these two compounding affects, plus my continuous contribution from my occupation (which I try to grow myself as well), i.e. in total 3 compounding effects, will leverage my total income growth to new heights. As the income of my asset pool grows and grows, the total asset value will also rise in response to the rise in income. Income is always the main focus, the total value of the portfolio will follow shortly if the income continues to rise and is safe.

My portfolio is based around dividend paying stocks in the US. I primarily trust the USA markets, I have little trust in other markets. I like the American entrepreneurial spirit, business culture, and style the best. It is the most optimal for brewing new business ideas, innovating, and is an overall great environment for capitalists to develop their strategies. I also prefer having all my money in US Dollars, the most reliable currency. Although I do find interest in several companies in Europe, I still know the market in the USA the best, and like the qualified dividends and quarterly dividend structure I receive, and also I prefer to have my dividends to be paid in US Dollars.

The companies I invest in usually have over 20 years of increasing dividends, this includes many periods of recessions. If a company is strong enough to pay MORE to their shareholders even during a recession, that tells me a lot about how strong and recession resistant a company is. I prefer more stable businesses that do not require "severe innovation". These types include consumer staples or utility type companies with very consistent cash flows. This stable cash flow is necessary in order to insure the safety of the dividend payout, as dividends must be paid out in cash. Due to the conservative nature of my portfolio, the alpha will not be as high during market growth, but it will also not dip as hard during recessions. This is because a lot of the businesses I hold are defensive in nature, and the payout ratios are safe as they are more predictable. Cyclical businesses I do hold but in lower proportions.

As of 6/20/2019 my portfolio stands at $721K
Name Ticker Sector       Value   Weight        Divies      Yield S&P Fin VL Fin VL Safety
Visa Inc V Financial $41,419.44 5.74% $238.40 0.5756% A+ A++ 1
Johnson & Johnson JNJ Health $37,713.62 5.23% $1,007.75 2.6721% AAA A++ 1
Altria Group Inc MO Staples $31,881.17 4.42% $2,029.84 6.3669% BBB B++ 2
Home Depot Inc HD Discret $30,150.45 4.18% $776.42 2.5751% A A++ 1
Philip Morris International Inc PM Staples $29,941.63 4.15% $1,769.03 5.9083% A B++ 2
PepsiCo PEP Staples $29,390.98 4.08% $836.86 2.8473% A A++ 1
NextEra Energy Inc NEE Utilities $29,334.98 4.07% $710.70 2.4227% A- A+ 2
Mastercard Inc MA Financial $25,192.98 3.49% $124.65 0.4948% A A++ 1
Becton Dickinson and Co BDX Health $24,677.60 3.42% $310.08 1.2565% BBB A++ 1
Realty Income Corp O REIT $23,078.45 3.20% $857.77 3.7167% A- A 2
Air Products & Chemicals, Inc APD Materials $22,589.88 3.13% $472.04 2.0896% A A+ 1
Clorox Co CLX Staples $21,757.97 3.02% $596.80 2.7429% A- B++ 2
Ross Stores Inc ROST Discret $21,309.93 2.96% $207.86 0.9754% A- A 2
Xcel Energy Inc XEL Utilities $20,363.96 2.82% $538.08 2.6423% A- A+ 1
McCormick & Company MKC Staples $19,900.07 2.76% $290.90 1.4618% BBB A+ 1
WEC Energy Group, Inc. WEC Utilities $18,891.91 2.62% $522.13 2.7638% A- A+ 1
Procter & Gamble Co PG Staples $18,760.41 2.60% $500.99 2.6705% AA- A++ 1
Kimberly-Clark KMB Staples $17,993.40 2.50% $543.85 3.0225% A A++ 1
Automatic Data Proc, Inc ADP Tech $17,527.60 2.43% $326.56 1.8631% AA A++ 1
Illinois Tool Works Inc. ITW Industrial $16,858.21 2.34% $443.11 2.6285% A+ A++ 1
3M Co MMM Industrial $16,491.76 2.29% $546.12 3.3115% AA- A++ 1
AT&T Inc T Telecom $15,787.26 2.19% $989.74 6.2692% BBB A++ 1
The Coca-Cola Co KO Staples $15,248.27 2.11% $472.27 3.0972% AA- A++ 1
Church & Dwight CHD Staples $14,860.61 2.06% $177.49 1.1943% BBB+ A+ 1
Colgate-Palmolive Co CL Staples $13,791.57 1.91% $322.30 2.3370% AA- A+ 1
Stryker Corporation SYK Health $13,746.02 1.91% $140.65 1.0232% A A++ 1
Starbucks Corporation SBUX Discret $13,491.26 1.87% $229.39 1.7003% A A++ 1
Microsoft Corporation MSFT Tech $13,366.95 1.85% $179.59 1.3436% AAA A++ 1
Dominion Energy, Inc. D Utilities $11,525.48 1.60% $546.72 4.7436% BBB+ B++ 2
TJX Companies Inc TJX Discret $10,992.48 1.52% $187.87 1.7091% A+ A++ 1
Abbott Laboratories ABT Health $9,809.15 1.36% $147.82 1.5069% BBB A++ 1
McDonald's Corporation MCD Discret $9,783.47 1.36% $221.31 2.2621% BBB+ A++ 1
General Mills, Inc. GIS Staples $9,171.50 1.27% $332.77 3.6283% BBB A 1
Honeywell International Inc. HON Industrial $8,399.48 1.16% $156.28 1.8606% A A++ 1
Boeing Co BA Industrial $8,295.19 1.15% $181.89 2.1927% A A++ 1
General Dynamics Corporation GD Industrial $8,153.34 1.13% $186.93 2.2927% A+ A++ 1
Medtronic plc MDT Health $7,378.17 1.02% $148.66 2.0149% A A++ 1
Misc Type ……….. Partial Totals Weight Yr Dividends  Avg Yield …..832 …..9 …..82
Equity Stocks $699,026.60 96.94% $18,271.63 2.6139%
Investable US Dollars $16,112.70 2.23%
Miscellaneous Assets $5,952.50 0.83%
. .. Equity + Misc Weight …..2 ….. …..222 …22 …..223
Total $721,091.79 100.00%



If the market performs well, and I continue to invest heavily in 2019, I think I can get really close to $800,000 by year end. I save a majority of my take home income and invest it all in the income producing assets. I work in the technology industry and am able to avoid most of the living costs in the California area due to my work assignment, so this has helped increase my high savings and investing rate. I also reinvest all cash received by dividends, and each of these dividends increase by a total of 12-13% (with dividends reinvested) on their own every year, so this 12-13% is starting to compound quite powerfully as the income now from the portfolio sits at $18,000 a year. Over the last 5-6 years, this consistent approach has allowed my total assets to rise quickly and I am close to hitting the $1M mark. It has been many years and in the beginning it was like watching paint dry, but if one is patient and keeps at it, the results are well worth the wait. The freedom and peace of mind is well worth the wait and early struggle. Over time, if one follows this type of investing process, one's lifestyle is molded to follow in this style, and over time one's life operates like a business where quarter by quarter expenses are monitored and income is tabulated and total operating income and margins are calculated and compared quarter by quarter (which is what I do on this blog month to month).

The market in the USA has been very good for me lately, as share prices have continuously been rising. However, this puts a large challenge for me when I have to procure more shares. For a young person like myself, depressed share prices are actually better as I am in the accumulation stage of my life. Since my income constantly flows in, and my savings rate is high, I continuously have to invest every month. I am not a person to wait, as my goal is to buy more shares whenever possible to increase my total share count. Each share count produces more income, and it is this income which is what I am investing constantly to increase.

I understand most have been taught to time the market and only invest when stocks are low and sell when they are high. However, I just buy whenever I have cash available and hold the shares forever, I basically never sell. I feel more comfortable and safe if I own more shares. The more shares I have, the more income I have, the more freedom and independence and ability to control my destiny I have. Share price fluctuations do not bother me, the threat of a company's dividend is what worries me, and I think that is the fundamental difference between most investors and my approach. Once a share is bought, that cash is put "out of commission" and the only part I can utilize is the income it produces, the only time I will liquidate that share is if it breaks and can no longer generate income.

My last sell was KHC when they cut their dividend this year. Since my income from my vocation constantly flows in, I just focus on buying whatever is the best deal I see at the time, and hold the income producing asset forever and reinvest the cash it outputs. If the stock falls and I get a better deal in a few more weeks, it does not really matter as my vocational income will just flow in and I will buy more of the stock that I wanted to buy previously, but now at an even better price.


Below is the plot of the annual income the portfolio can generate on its own. Notice how the graph above (total asset value) is volatile during market ups and downs. However, the dividend output graph below is relatively predictable and consistently increasing. Price is up to the whims of the market, it is not easily predictable. However earnings, and cash flow, and ultimately dividends are something I can better predict.

The dividend is so predictable because much research and homework went into picking the right stocks that are dependable (safe payout ratios) and offer increasing dividends year after year. Past histories are abundant for each of these dividend type paying companies, and work can be done reading the 10-K financials to see how safe the dividend really is, or if there is something fishy going on. My dividend steadiness is the result of selecting dividend aristocrats, or those that have many decades of consecutive dividend increases even during multiple recessionary periods. This indicates brand power, moat, financial strength, and diversification.

Additionally, the income I generate from the dividends and my job income are reinvested back into the portfolio consistently, which propels it upward all the time, even a short dip from a company cutting (i.e. KHC this year cutting) is immaterial in the grand scheme of things. Even if during a recession, 5% of my portfolio cut their dividends, the overall portfolio graph will likely barely see a dip since I am constantly reinvesting in more shares and shares are constantly increasing their dividends year after year. My portfolio is also highly diversified across various industries, so dividend cuts to any particular company will not have a large material impact. And statistically speaking, the portfolio will likely not experience sizable income loss even during recessionary periods due to the diversity put in. And lastly, since I avoid very cyclical industries such as mining, oil and gas, heavy machinery, etc, my portfolio is less exposed to earnings or free cash flow collapse which protects against dividend cuts.



Stay Tuned for next month's update
Patience, stubbornness to follow a set regimen, and due diligence will produce results in the long term.
-YD

7 comments:

  1. Awesome stuff YD! And I love getting to read some of your thought process behind why and what you you invest in. You've been absolutely crushing it and now that your forward dividends are over $18k that's almost a full 401k contribution each year without having to forego any spending. That's truly incredible!

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  2. Congratulations.

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  3. Excellent portfolio. thanks for sharing.

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  4. Thanks for this, it's a great summary post. Do you have any thoughts on your post-$1m endgame? Live in leisure off the dividends? Set up your own business? Or continue compounding beyond?

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    1. I think after $1M I will go for the next $2M, and each million should be easier to obtain. But I will not be as crazy in my % take home income contribution as my early life. I realize there's need to live life in addition to working and investing. After a million the money in the portfolio starts to work a lot on its own.

      I do not think I will ever be in leisure, so setting up a business to invest for others, or advancing in my vocational career are my side activities besides investing my portfolio.

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  5. Thank you for taking the time to write this awesome post! Very motivational material. Your numbers are mind boggling, but it's really nice to see your results of your consistent contributions and style of investing. Well earned!

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  6. Like your portfolio and I own several of your stocks in my portfolio as well (although I prefer owning both growth non-dividend paying) as well as DGI names. Your close to 10% allocation to big tobacco seems risky IMO. Also a lot of the consumer staples names are struggling with growth (KO, CLX, GIS, CL) so what worked in the past may not work in the future.

    BTW, have you looked into these names - WM, ECL, TMO, SPGI, BRO, APH. Their yields may be low, but their FCF generation (due to high ROIC) along with low dividend payout ratios make them excellent long-term buys for guys like you who are still in the accumulation phase.

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