One of the main reasons why the stock market has rebounded from 2008 so quickly (the S&P500 is +111% from Jan 1^st 2009 to Jan 1^st 2014) is because the FED was quick to relieve the pressure on US consumers. The Gov’t helped massively many companies in the auto and financial industries. They didn’t want to see the system collapse and rescued its heart so it can continue to pump blood (money) through the system.

But buyouts weren’t enough to comfort the Street. Since 71% of the US GDP is driven by the American consumer, the FED had to dive into a series of quantitative easing methods (read more about it here) to maintain rates on the floor artificially. Since it doesn’t cost anything to borrow money (considering inflation), it was the right time for both companies and consumers to A) clean up their balance sheets and B) start over with increased spending.

We really saw this phenomenon in two phases. From 2009 to 2012, consumers were paying off their debts and increasing their savings while companies were doing exactly the same thing. In 2013, everybody found themselves sitting on piles of cash and started to spend. This is a simplistic explanation of the economic environment for the past four years, but I’m not too far from the truth either.

But Now the Party is Over and QE is Dead

At the beginning of the year, it has become an obvious truth that the FED will stop injecting money into the system (currently QE3) since the economy is showing signs of constant progress. For some time, they have discussed the possibility of raising rates in 2015 once the unemployment rate hits 6.5%. Now that the latest data shows an unemployment rate of 6.3%, everything is pointing towards the same conclusion: Quantitative Easing is Dead and Rates are Going up.

Analysts always want the perfect condition to continue trading: lots of liquidity and low rates to borrow. This is why the market might stagnate for a few months upon the rumors of rising interest rates. But it doesn’t mean you should leave the dance floor, not right now anyways.

I actually think it’s a good thing to see rates head upward. I’m a little bit conventional with my investments and don’t like when things aren’t the way they are supposed to be. The Gov’t buying bonds to maintain rates artificially low is against the laws of nature and I don’t want to know what is going to happen if we keep doing that. After all, the money used for Quantitative Easing programs will have to be reimbursed one day, so we better stop while we can.

This might lead to a couple of rough months on the market and it will be the perfect time to buy more of these amazing companies. Because the other part of the equation is still there: companies are still sitting on piles of cash and this means more dividends for you! Well, that’s what I think anyway, what do you think?

Do you manage your portfolio the same way when it’s $5,000, $50,000 or $500,000?

The world of investing is so interesting mainly because its strategies are widely spread from conservative to aggressive and everybody has their own thinking. Today, I’m asking a simple question that comes with a complex answer: does your portfolio size matter when establishing your investing strategy?

In other words: do you manage a large portfolio differently from a small portfolio?

“yes and no” would be my answer.

What I Would do with a Small Portfolio (~$5,000)

You don’t need much to start investing. In my humble opinion, you need $1,000 to open a brokerage account and start your investing journey. However, I’m not sure I would start off by buying stocks with $1,000, especially if you setup a monthly investment amount.

I did that for my kids’ RESP (education fund account): I identified 4 funds and I invest $200 per month. Once I reach $10,000, I’ll start managing this account like my retirement account: with stocks.

The reason why I do this is simple: the amount is very small and doesn’t allow for much diversification. I wanted to go with small caps + both US and Canadian stocks in this account. It was impossible to do it with individual stocks. This is why I’m paying an average of 1.50% in MERs in this account. But 1.50% of $6,000 is worth $90… I can live with this expense for now.

The other way to manage a small portfolio if you want 100% dividend stocks is to aim for big blue chips selling many products around the world. Companies such as Kimberly-Clark (KMB), Coca-Cola (KO), McDonald’s (MCD) and Wal-Mart (WMT) are part of our Starter portfolio at Dividend Stocks Rock for this reason. The idea was to pick companies that will not budge too much in a case of a bear market and that will continue to pay a steady dividend. With $1,000, I would buy 1 company and keep putting money aside to buy the next one until I have 4 positions. Then, I would grow them until my portfolio is over $5,000 and add more stocks.

What’s the Difference between 25K and 100K?

When I bought this blog in 2010, I only had $9,263 invested. I didn’t have a strong investment approach as I have today. I was basically jumping from one potential stock to another and making money with my trades quickly or losing it on a bad pick.

Less than four years later, my portfolio is knocking on the door of the $50,000 mark. How did I manage my portfolio going from $10K to $50K? By adding one position at a time.

I was lucky to evolve in such bullish market. This has helped me without adding more money to my current positions as the value was growing as fast as my savings. Ideally, I want to have not more than 10% of my portfolio invested in one stock. I currently have two stocks breaking this rule: Telus (TSE:T) and Coca-Cola (KO). They both represent about 12 to 15% of my portfolio each. Since they are part of my core holdings, it’s not a big issue.

On the other hand, my next investment will be put towards another stock until I reach 20-25. Then, I will just add more money to each of them or rebalance my portfolio if a company fails to meet my investing requirements in the future. This is how I will grow my portfolio to 100K.

Dividend payouts and additional liquidity are invested in an index fund that is traded without fees. This enables me to stay 100% invested in stocks at all times and benefit from liquid cash quickly to make a purchase. I rarely hold more than $1,000 in this account as I usually want to use my money to buy the next stock on my watch list ASAP.

How I’ve Divided Portfolios at Dividend Stocks Rock

In order to help investors, I’ve created a set of 6 different portfolios for both American and Canadian investors. This makes 12 portfolios in total. Here’s the breakdown:

Starter portfolio (<$25,000):

Regardless if you are starting with $1,000 or $10,000, I believe your investing strategy should be the same: invest in big blue chips paying steady dividends. In other words; start by building your future core portfolio before taking additional risks. By using our dividend stocks list or stocks in the 25K portfolio, members can improve their starter portfolio and add more positions to their holdings.

25K+ Conservative & Growth:

Starting at 25K, I believe an investor has a decent size portfolio and should start thinking about their risk tolerance. This is why I’ve split the 25K+ portfolio into two categories: conservative and growth. The conservative portfolio will include more blue chips and consumer stocks while the growth portfolio will take a few more risks for better or worse. This is the whole point of using your risk tolerance; taking risk or not!

100K+ Conservative & Growth:

Then, we add more stocks to a larger portfolio. With 100K invested in the market, you want to become more diversified. This is why we go to 20 stocks in these portfolios. Each position is equally owned representing 5% each. 20 stocks is enough to be well diversified while not having to spend entire weekends analyzing each stock every quarters.

500K+:

For our wealthiest clients, we recently went with a 500K portfolio. This portfolio is built with 30 stocks and the choice of three ETFs paying either interest or dividends. The goal is to provide additional diversification along with a better core with ETFs to manage risk tolerance. The more you invest in ETFs, the safer your portfolio becomes. This is usually what wealthy investors want: to protect their profits and keep up with inflation.

You can get a sneak peak of our portfolios at Dividend Stocks Rock. Since we only launched the 500K portfolio in May, we don’t have much data. However, the other 10 portfolios started on October 1^st 2013 and 8 out of 10 portfolios beat their benchmark.

What about you, how do you manage your portfolio? Do you mind the size of it when you establish your strategy?

Disclaimer: I hold shares of KO, MCD & WMT, T

I’m always very interested to follow earnings season since it’s the perfect time to make sure that each stock I own is doing well. Quarterly results help me to keep up with all stocks and the management teams’ comments, often published by the CEO, give additional information on what happened and where the company is going. It’s not only a matter of numbers, it’s also a matter of strategy; business models.

Now that I run 12 virtual portfolios for Dividend Stocks Rock, I simultaneously follow 45 to 50 companies. Let’s just say that the month of April was quite busy for me and I’m currently finishing the review of all the results. The fact I’m covering so many stocks at the same time allowed me to identify several trends. An interesting trend amongst others was to realize how analysts’ expectations drive the market.

The Stock Goes Where the Analysts Call The Shot

As a dividend investor, I focus on companies generating cash flow today and that will generate cash flow in the future. It is a simplistic vision of investing but it doesn’t have to be complicated to be efficient. I will follow trends in revenues (sales) and earnings (EPS) over the past three and five years. I will also combine these metrics with the company’s dividend payout management. This is why I follow the dividend growth and dividend payout. The combination of these metrics will tell me if a company is on the right track to make good business and generate enough cash flow. Then, I look at what the company is doing with its cash flow. I’m more interested in a company sharing its profit with investors through dividend payouts or stock buybacks than spending in mergers & acquisitions, R&D or marketing. These last three types of expenses do matter for the long term success of the company, but I want to make sure that the dividend payout is not left out of the equation.

I’m well aware that I don’t see stocks as analysts do. This is why the market goes up and down faster than we can stand. If the company doesn’t deliver what analysts expect, regardless if it’s positive results or not, the stock will get hurt.

The best example I can see is Helmerich & Payne (HP) which published EPS up by 14% compared to last year and revenues up by 6.5%. This was an all time record figure for revenues. The CEO also announced HP was doing well and continued to experience strong demand. In the same call, he also announced that HP entered in an agreement with 5 more exploration and production companies. My understanding: HP will continue to pay and increase its dividend.

The result on the market?

A 6% drop within one market session. Analysts expected more, they weren’t happy; they got rid of the stock like a rock stuck in your shoe. Does it mean you shouldn’t buy the stock or you even sell it? I hold on to my position.

Why? You have to understand why analysts are not managing your portfolio but theirs. There is hype around HP as the stock is +73% over the past 12 months. An analyst who bought it a year ago could pretty much want to cash out some of his profit or simply liquidate his position. This is a very interesting return for an investor; you might want to jump onto another train that goes faster instead of staying on this one. But because the portfolio manager will sell millions of dollars of HP while you only hold a few thousand, he has an influence on the stock price, you don’t.

Don’t forget portfolio managers also have their jobs to save from time to time. I know for a fact that some traders became a lot more insecure about their jobs! This changes their perspective of investing and influences their decisions. After all, they are humans before being traders!

I’m interested to see what the company shows compared to analysts’ expectations to understand where the company is going and where the analyst thought it should go. However, missing expectations with positive results is definitely not the end of the world. IMO, what happened to HP just created a buy opportunity for small investors like me!

Do you follow analyst expectations and recommendations?

Disclosure: I hold shares of HP.