I still remember the first year of my investing journey. I started investing at the age of 24. This was back in 2003 – one of the most perfect times to invest and make a lot of money. It was after the techno bubble, when I could barely keep up in my university classes because was too busy playing Tetrinet!, and before the catastrophic 2008 market collapse.
With a strong financial background which was acquired through my bachelor’s degree and two summers working in an office of a derivatives & futures department, I was convinced I had everything I needed in order to succeed. At the time, I was working in a department which offered credit to investing clients. We were doing mostly investment loans – a leverage technique involving the lump sum of an investment in the market taken as collateral to guarantee an interest-only loan. I decided to use this technique for my own good and withdrew $19,500 from my personal line of credit and started picking some stocks.
Back then a monkey could have done it and a smarter monkey could have built a $70,000 portfolio within three years. I was part of the smarter monkey. I sold my portfolio, paid down my line of credit and used the remaining $50,000 to purchase my first house with a solid cash down.
I had no investing strategy
Since the market was good I decided to simply chase returns from one stock to another without really having a set of metrics to follow or an investment process in place. I was buying and selling as I saw fit and as I saw my portfolio growing stronger. Honestly, I thought I was a genius… but I was just a smart monkey!
I was fortunate enough not to lose much money during the 2008 crisis as my portfolio was relatively small. However, this was a good lesson. I learned that I needed an investment process to go forward and avoid bad results in my portfolio. This is how I started my quest to a solid investing strategy.
Penny Stocks – Technical Analysis Buzz
During my “smart monkey period” I was using a little bit of penny stocks and technical analysis. I thought that by simply looking at graphs that I could predict the future. Surprisingly, there are tons of investors claiming they can but rarely do they show me what is going to happen. They are far better at explaining the reasons why something happened yesterday. After a few successes, eventually I got burnt and began to understand that this was more about shamanic luck than anything else. Sadly, I didn’t have any totem on my desk to build my strategy.
Growth – Value – Whatever
The first two approaches you read when you open books about financial theories at school are the growth and the value approaches. Honestly, I liked both but, they didn’t seem like a complete investing strategy to me. After reading many portfolio managers describing their investment process, including famous methods with “bottom up” and “bottom down”, I understood they were all pretty much selling the same “Kool-aid”. They all look for undervalued solid companies with future growth perspectives. The difference is that growths require taking additional risks while waiting for future money to come whereas values aim for sure shots that will gradually rise over time. However, some successful growth stocks become values and vice versa … some value stocks give strong growth.
Dividend Growth Investing as My Motto
As you know already, dividend growth investing has been my motto for several years now. I have built a solid investment process which guides me through my journey toward financial freedom. I favor DGI over any other strategies because it enables me to post solid and consistent return without having to trade every week. It is easier to find solid companies and keep them for years while cashing their growing dividend versus trying to find the next Apple (AAPL) and sell it at the right time.
I feel I have all the time in the world as I’m in my mid-30’s. Therefore, I can let the power of compounding interest grow my payouts for the next 50 years. Having said that, I also like to keep my mind open to other investing strategies.
Using ETFs as a Complement?
At the beginning of 2016, I also made the decision to manage my kids’ tuition money with my DGI approach. It was easy to build a portfolio as I had little over $12,000. This year, it is part of my 2017 financial goals to save additional money in this account. However, I will not be adding big lump sums but, rather, a monthly amount. For that reason, buying individual stocks might not be the perfect solution. Based on this thought I started looking into ETFs investing. One graph caught my attention while I was doing my research about what an ETF is:
As you can see, there are tons of money going out of actively managed mutual funds and moving toward index investing. The lion’s share goes to index ETFs as they are more flexible and cheaper than most mutual funds.
I could easily use one or two well diversified ETFs such as VIG (Vanguard Dividend Appreciation ETF ) and XDV.TO (iShares Dow Jns Cnd Slct Dvdnd Indx Fnd) or go even wider and purchase SPY or XIU.TO to follow the S&P 500 or the TSX. With a simple series of clicks I would be building a core portfolio with a minimal investment. After all, following the market’s performance isn’t that bad!
I’ve decided to invest in individual stocks primarily because I like it. I like reading financial statements, I like understanding business models and trying to figure out if they will succeed over time or not. Picking a bunch of ETFs and letting them work their magic doesn’t sound very attractive at first sight. However, this strategy does work very well and could be a good complement to my core strategy when I have smaller amounts of money to invest.
Which strategies do you use?
Currently, I’m still doing additional research about ETFs investing. I’m not convinced yet, but the whole concept is very tempting. I’d like to know if you use or consider other types of investment?Google+