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Updated January 26, 2009 In early December of 2007, I wrote a post about how I would invest if I were just starting out. In that post I provided my thoughts on how any beginner investor should start building a portolfio of stocks. I then realized that although I talk about my approach to investing on this blog, I have never have provided a linear and complete view of my overall process. Thus, I am kicking that off today. Today begins a series of posts that will build into complete insight into The Dividend Guy Investment Process.

By the end of the series, you should have a very clear picture of how I manage my investment portfolio. This is not to suggest that this is the right way to build a portfolio, but rather so you can provide me with your feedback and to let me know if there is anything you do differently. I do not pretend to know everything about investing by any means, and part of my purpose for running this blog is to continually learn.

To get things going, I want to list whart I am calling The Dividend Guy Investing Code. This is a code of conduct, or prinicples so to speak, that I use to guide my overall potfolio decisions. It is useful because they are based off of researched and proven investing best practices. Any time I am making a decision for my portfolio I consider these and make sure that decision is in line. Here they are:

Overall principle: To conserve investment capital through the selection of a sound and diversified portfolio.

To achieve this I will:

1. Pick an appropriate and well diversified asset allocation and stick with it through thick and thin
2. Invest in a passive investing manner – use index funds as the primary building blocks for my portfolio (except in Employee Pension Plan where not all asset classes have index funds as an option)
3. Supplement, using a small percentage of my overall portfolio, with only the best and strongest dividend growth stocks
4. Generate a reliable and growing stream of income from dividend stocks
5. Maximize my employer contributions to both my pension plan and my employee savings plan
6. Only invest in companies I understand
7. Buy only companies that are selling at a discount
8. Only invest in companies that are dominant in their industry
9. Only invest in companies that have strong fundamentals (EPS, Revenue, ROE, etc.)
10. No individual stock holding to make up more than 10% of overall portfolio
11. If a company cuts its dividend, then immediately sell that stock and move money to another dividend growth stock (according to asset allocation)

In Part 2, I am going to talk about My Risk Profile.

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28 Comments   |  

28 Comments

January 12, 2008, 9:28 am

I look forward to seeing you develop your process.

Best Wishes,
D4L

moneygardener
January 12, 2008, 10:39 am

Looking forward to it as well!

Jimbo
January 14, 2008, 3:00 pm

What do you think of having your dividends paid to the cash portion of your brokerage account instead of reinvesting in the individual stocks. That way you always have a cash supply to buy other companies or reinvest in some of your holdings on the cheap as they drop in price for temporary reasons from time to time. with trading fees so low in on line accounts you can cherry pick the stocks you want to reinvest in instead of just reinvesting small amounts in each stock.

January 24, 2008, 12:47 pm

[...] Check out The Dividend Guy’s Investment Process, Part 1. [...]

January 25, 2008, 8:57 am

[...] The Carnival of Personal Finance included one of the posts in my series of posts that describes my investing process. [...]

January 31, 2008, 8:40 am

[...] stocks for people to simply buy with no further analysis. If I were to use it, I would assure that dividends have gone up for at least 10 years. It does however seem to provide investors with a list of stocks that can then be further evaluated [...]

February 4, 2008, 9:06 am

[...] issues. I am very confident in the future prospects of my company but need to adhere to the portfolio principles (see #10) I have set out. The second is that I am heavy on my Canadian asset allocation and need to divert [...]

February 25, 2008, 7:52 am

[...] that is out of whack. Notice I did not mention the sell word as one of my investment codes is to never sell. I am not looking to sell [...]

May 2, 2008, 5:32 am

[...] Having a core investment philosophy is the cornerstone to successful portfolio performance. Think of it this way – the core investment philosophy is the “rules” or the “laws” that an investor will use to successfully manage their portfolio. Obviously it is important that these laws be based on certain investing best practices, but they also must be tailored to each individual investor given such things as time, knowledge, and desire. I have put a great deal of work into this over the years, and have provided what that looks like in a series of posts that you can see in the sidebar (to the right) under the heading The Dividend Guy’s Investment Process. [...]

May 30, 2008, 6:54 am

[...] goals were to ensure that I kept on track with my investment contributions and that I followed my investment process. Without goals I find that I can become scattered in my approach and make decisions that are on the [...]

June 25, 2008, 7:00 am

[...] and true dividend investors sell these companies immediately. One of my investment principles is to never sell, so I have been holding. That being said, I have come up with 3 possible actions that an investor [...]

MBL
June 27, 2008, 7:23 pm

Is this code of yours the same as a plan?

At the moment, I am figuring out what my goal is for dividend investing and I believe once I figure it out, I will be able to come up with a plan. How did you come up with “at least 15 stocks” for a number?

July 14, 2008, 12:31 am

[...] worst tact we can take is to sell everything and start over. The better strategy is to stick to our investment plans and continue to think long term. If your strategy is well researched and your asset allocation is [...]

December 20, 2008, 1:09 pm

[...] you are just starting out, or want to familiarize yourself with my investment process, please read The Dividend Guy’s Investment Process. All post in this series are included in the sidebar on the right under the heading of the same [...]

January 3, 2009, 5:01 am

[...] The Dividend Guy Investment Process Part 1: Introduction and The Dividend Guy Code [...]

January 28, 2009, 5:00 am

[...] to my dividend investing code, I have sold Pfizer after their recently announced 50% dividend cut to offset the purchase of [...]

February 11, 2009, 5:01 am

[...] a reminder before I begin, here is my overall objective identified in Part 1 of this [...]

March 16, 2009, 5:01 am

[...] have stated this many times, and it is part of my investing code. For the core portion of my portfolio I use low cost index funds. That means that I am not using [...]

April 11, 2009, 12:11 pm

Dividend Guy,

That’s a great beginning and a great list of guidelines for a dividend investor to stick to. I was wondering however, if you ever violate any of your rules?

Best Regards

August 19, 2009, 5:01 am

[...] to other allocations (i.e. fixed income) rather than selling anything else. I only like to sell on dividend cuts and since I add money regularly to my portfolio I feel that I can reduce this exposure over [...]

November 11, 2009, 5:02 am

[...] 0 Comments As a dividend investor the individual companies I tend to hold are those big well established companies that have been around long enough to afford them the possibility and ability to raise their dividend each and every year. However, good portfolio performance dictates that these stocks do not make up the only part of my portfolio. As you know, I also use various index funds to create the core or foundation of my portfolio. [...]

November 12, 2009, 9:08 pm

I want to see percentages :-)!

What % dividend paying stocks and what % small caps would you suggest? I would probably play, knowing I could lose it all, with $1,000-$20,000 in riskier investments.

December 6, 2009, 1:47 am

[...] week in my portfolio, and it was all in the name of asset allocation. I think the best part of my strategy is that it lets me float at times when the market is acting crazy. This week was no exception as [...]

Mark
February 13, 2010, 1:59 am

Minor typo: I want to list whart I am calling

June 16, 2010, 5:01 am

[...] of market timing but as an individual stock investor that is the name of the game (remember – the basis of my portfolio is built with index funds). Through the constant analysis of my stock holdings and looking for more stocks using D4L’s [...]

December 1, 2010, 7:27 pm

I especially love item #6. I’m not a huge dividend investing guy, but that is one of Buffett’s favorite maxims when it comes to picking companies as well. It helps in avoiding bubbles because often the companies rising rapidly are those which are new, growth stocks that people don’t fully understand. I just checked out your blog, but I’m looking forward to following it from now on!

January 3, 2011, 1:37 pm

I like your approach and especially the diversification approach. I follow dividend stocks, but rather than “buy and hold”, I try to cycle through them to capture the dividends as the ex-dividend dates approach. That said, I do not sell the underlying stock until it exceeds my purchase price, so some of the purchases require time before the cash that is tied up to be used again. Check out my blog, which I recently started and let me know what you think: http://www.dividendharvestinvesting.blogspot.com

January 17, 2012, 11:14 pm

Love #7. But the question is, what is the best way to know the real value of a company, in simple way?

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