2017 was a great year for me. As you can read from my latest dividend income report, my YTY dividend Income grew by about 230%. While that´s nothing more than awesome, I got some valuable lessons this year that I wanted to share with you guys.
Buying a so-called “starter position” or “watch post” doesn´t work for me. I´ve done it several times before, and the only thing that can happen is the following:
- The stock goes up, I think it´s more expensive, and I don´t add. It moves upwards even more, and I still don´t add, and after a year I have 70% gain. But, the amount is so small, so my gain is only around $100 to $200. That sucks when you were able to hit the bottom (I´ve done this with more than 10 stocks this year…).
- Or the stock drops, but this doesn´t do me any good or bad. Since the amount is so small, I neglect this and focus on the fundamentals. While this is much better than the point above, it just makes me feel “the amount is so small, so I don´t really care”.
Overall, doing starter positions isn´t something for me. I know many investors use 30% 30% 40% buying strategy, but I think I´ll rather just buy the stock when I think it´s fairly priced, and just add more in the future when the price is fair again. Easy and simple.
Losing money does not make me feel ill or sad. When my portfolio was down 30%, I said “fuck this” and I went to the gym. Then I´m done with my small mental outbreak. Easy and simple. Some story: So, I´ve owned a norwegian software company called Opera for many years (more than 5 years). I bought it at 80 NOK and it went from 120 NOK to 22 NOK.
Why? Several reasons, but currency problems was one thing, late delivery was another. In each report, they said stuff like “We experienced slow growth bla bla bla in this sector, but maintain high conviction that this will get better in 20XX”. Bullshit.
Overall, I held the stock way too long, and now the company isn´t one company anymore, but 4 companies in different segments. I lost more than $6000 on this stock, but I´m very thankful for that. It has made me the investor I am today, and given me a different mentality. Thanks Opera!
Stock prices are a function of earnings and revenue and one should never look at the % when trying to get a grasp of the business. As you can read in my Introduction to Accounting, share price goes up when the company does better. So why on earth would you use the argument that it´s time to sell now because of the simple reason that the company you own makes more money?! Does not make sence at all. Okey, a few times fundamentals shows that the stock is overvalued, but again, most of the time, never focus on the % gain. Never. It´s noise and doesn´t give you anything.
Another point that I want to make, which you can read more about in this post, is that I don´t like growth companies were the fundamentals are ignored. Say NVIDIA and Amazon. I bought Activision Blizzard at around $36 and sold at $53. Once the P/E was around 42 I could not hold it anymore. It was just to expensive. However, how can one say how much Amazon should be worth? I don´t know, so I´ve choosen to stay away from such companies, let the tech funds take care of those posts, and just focus on boring companies.
Tracking your dividend income and transactions (both buy and sells) is a wonderful way to focus on the long-term perspective of our strategy.
To find the best stocks in the world, most of the time, you just need to look at the products you use. Go look at the toothpaste, pizza, yoghurt, computer, wi-fi, bed… You will see that companies like Orkla, J&J, P&G and more of what most dividend investor calls “timely holdings” dominate your product-basket. That´s where you start to look for great companies. Once that is done, just buy regularly when things look fairly priced (I´ll write how I do that in 2018) and you are set to go. It´s pretty easy actually. Just make it simple.
I´m experiencing such a surreal, but at the same time, such a wonderful feeling right now seeing most of my stock dive 3 – 5 % down the drain. This sensation tells me so much, and I want to share it with you:
First of all, it gives me confermation that I have reached a point as an investor where my longterm companies actually are long term (HCN, OHI, SBUX, CCP, ATVI, VER, PEP and HCP). I now own (!) these stocks. I can identify what stocks I have a business – mindset to, and those I don´t (mostly the ones I didn´t include on the list). It tells me that whatever happens in the market, I´ll be ready for it. However, of course 5% is not that great, and you might say that wait until they fall 30 % or even 50 %. Then you, mr smartypants, will get to test yourself for real.
But here´s the thing: I´ll very likely feel the same way, I´ll say this is so great, so many endless possibilities, now I can finally boost my portefolio while everyone is pessimistic, scared, panicing or having doubt. I can buy great, wonderful and big companies at more than a fair value, and that is all I dream about as a stockholder. I can promise you this: When we reach a crash, I´ll be one of the first to celebrate!
Second, todays sensation gives me a hint that I have actually finally done enough work to trust my decisions. I haven´t just bought something because of a hype or something like that. I also have the tools now to be able to separate the rotten apples from the fresh, tasty, delicious ones. Seriously, do your homework and get to know your company. Talk to people, read about it, and gain knowledge, and then gain more knowledge. It´s very satisfying.
And finally, I now know that I actually don´t care that much about short-term ups and down. My longterm plan wins over the short-term impulses, and it gives me a lot of joy knowing that my “heart” or whatever you want to call it, now actually agrees with the mind.
As a relative newbie in the market, I am not very disappointed with the profit for the year.
The account was created in June and OSEBX is down -8.24% in 6 months, while I’m -11.91%. The autumn has been quite demanding.
First a general market correction, then drop in oil prices and a big “bummer” from my side. The improvement points are many, but quite clear.
The use of stop-loss has been a recurring problem.
- I set a limit right below purchase price. But, it might be triggered due to fluctuations in the market and then I sell a position I dont really want to sell. I aim to hold the stocks but this forced sell might cause me to buy back the asset at an even more expensive than the previous purchase price. That’s why I don’t like stop losses.
- How much loss can be tolerated in relation to fluctuations in the market. Should you lose 5k, 10k, 15k? And if you are minus 5k, how long should you wait until the price goes up again? 6 months or 1 year? Such “dead capital” is boring and challenging to relate to.
The second factor which has resulted in underperformence is that the portfolio is way too linked to OSBEX (the norwegian index). The Norwegian economy is complex due to linkage with oil prices.
In order to achieve a positive return in 2015, I want to diversify the portfolio. USA is in a positive trend, and there are several smaller funds that have low management fees. The largest part of the capital must therefore be set here.
To help me with the development in the Nordic region, I think the Superfondet Sweden / Denmark should fit quite nicely. Savy investors usually have 10-25% in a mutual fund. This must be emphasized in my portfolio as well. Litterature (The book called Share Purchase and Daytrading) shows that 5-6 companies in portfolios significantly reduces the chance of bankruptc (in this case, permanent loss of capital)
The following article originally appeared on https://divgro.blogspot.no/2017/07/investing-lesson-why-buying-netflix-in.html on 2017-07-9.
It’s hard to imagine that it has been five years since I started investing and bought my first stock, Netflix (NFLX). When I look back and think about the mistakes, lessons, and experiences over these years, I am quite humbled.
Investing is something special and, somehow, it makes life a bit more profound and enjoyable.
There are things I wish I would have learned earlier. Back in 2012, NFLX was a growing company and I quickly realized a gain of about 70%. I thought I was the king and that making money in the stock market was so easy!
Because of my success with NFLX, I wanted to find other stocks to earn money with.
Before buying another stock, though, I decided to learn more about investing so that I could become even better. I googled around and everyone seemed to recommend The Intelligent Investor by Benjamin Graham.
So, I picked up the book at the library and started reading. I suppose I read about 20-50 pages before returning the book to the library. If you asked me at the time for a three-word review of the book, I probably would have said something like: Alienated! Utterly Boring.
One would think that reading such a highly recommended book would have a positive impact on a 19-year-old. Instead, I spend several years speculating on the stock market, foolishly chasing binary bets with little or no margin of safety.
The problem was that I started with a book that was too advanced for me at the time. It made me dislike fundamental analysis for about 3 years and I went straight into the world of technical analysis and doing speculative bets.
I think most beginners start like this, as the following quote so aptly suggests:
“The value of hindsight lies in the fact that lessons learned in the past by others can enable subsequent generations to avoid having to learn them anew. And yet, it seems investors must learn those lessons over and over – and often the hard way.”
Thinking about this, it makes sense. If you don’t have any experience and little understanding of a company’s earnings, how on earth could you comprehend something as profound as fundamental analysis? No, it’s much easier to speculate and look for something that seems to be close to the bottom or almost touching the ceiling.
Can I blame my NFLX trade for influencing my earlier approach to the stock market? And did I have bad judgment when I sold this stock for a 70% gain, while I could have had a 650% gain?
The answer is no! The fact is that I had no clue what NFLX was worth, both when I bought the stock and when I sold it!
This leads me to two different investment strategies that I think everyone should know about:
- Value Investing: With value investing, an investor considers the long-term fundamentals of a company, including its financial performance, current cash flows, and projections, to determine an intrinsic value of the stock. If the stock trades for less than intrinsic value, it is considered a good investment opportunity.
- Growth Investing: With growth investing, the focus is on the potential of a company to deliver above-average earnings growth. Even if the stock price seems expensive based on metrics such as price-to-book or price-to-earnings ratios, a stock with great growth prospects is considered a good investment opportunity.
The problem with my NFLX trade was that I failed to recognize that NFLX was a growth stock. When I saw the stock price go higher and higher, setting one record after another, I got scared. I thought that selling for a 70% gain would be considered good timing and that taking the profit before the stock price fell would be a wise move.
Unfortunately, the stock price did not fall but just continued to go higher and higher, and I “missed” out on making a fortune.
How could I have done this differently?
If I knew then what I know now, I would have labeled NFLX as a growth stock. I would have held on to my shares until the company’s growth prospects deteriorated. That’s what you do with growth stocks – you keep them so that they can grow!
Here’s the takeaway message: figure out if you’re a value investor or growth investor. If you choose to combine these strategies, make sure that you know beforehand why you’re investing in a specific stock. Is your reason value or growth-driven?
These days I’m a dividend growth investor and NFLX wouldn’t have made it into my portfolio because the company is not a dividend-payer.
However, even dividend growth investors can learn from this lesson. Dividend-paying stocks are mature stocks with limited growth prospects. One should apply value investing principles when considering such stocks. On the other hand, some younger dividend-paying stocks have above-average growth prospects. One should favor growth investing principles for such stocks. You don’t want to sell a great dividend paying stock just because it is growing fast and offers you lots of unrealized returns!