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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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I look forward to seeing you develop your process.
Best Wishes,
D4L
Looking forward to it as well!
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.
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?
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
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.
Minor typo: I want to list whart I am calling
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!
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
Love #7. But the question is, what is the best way to know the real value of a company, in simple way?