My Beginner Mistakes

Mistakes – I’ve had a few! Since I decided to get serious about investing, I went through a range of strategies. I jumped in with very little experience and learned along the way. A lot of these are good strategies, but I just didn’t execute them well. Or they may just not fit my liquidity/risk/other needs. Let’s see what didn’t work so well for me.

Value Investing

This one seemed obvious. Pick stocks that appear undervalued by the market. Only one problem – I had no informational advantage over the market. Yes, there are indicators (low P/E, for example). “This is easy!” I thought.

I didn’t put enough work into evaluating these companies. I was essentially guessing the number of jelly beans in a jar at a carnival. My individual guess would surely be too many or too few jelly beans. And most likely, the average of everyone’s guess (the market) would be nearly correct. Why did I think I was smarter than the market as a whole? Lesson learned.

I now consider a stock’s value to be reflect everyone’s guess at that moment

Picking the Bottom and Timing the Market

This one seemed too easy. I’m embarrassed to say I thought this was a viable strategy at one point. Find a volatile stock and time the purchase at a low point in value. I loved 52-week lows. How could it possibly not go up?

It’s commonly referred to as “catching a falling knife.” And, my good friend described it as “running in front of a train to pick up a nickel off the train tracks.” If only I had heard these phrases earlier. There is something to be said about momentum. Another lesson learned.

Looking at historic returns for any long-term market period gives me comfort. As long as I hold a long-term view, I am perfectly comfortable adding to my positions even at all-time highs.

Real Estate

I am sure I will come back to this one often in my life. I’m still on the fence about it. I’d love to hear more arguments for and against it.

Pros:

  • Potentially high initial return on investment
  • Easy to secure leverage
  • Steady monthly income when occupied

Cons:

  • Unpredictable expenses
  • Unpredictable tenants
  • Continuously hands on
  • Can not access capital easily on short notice
  • Requires large investment for a single product
  • Lack of interesting available properties in my local area (Denver)

I still like the idea of collecting rent. I have seen it work out marvelously. But, there is something to be said about investing in stocks and collecting dividends almost entirely hands-off.

My original jump into dividend investing was funded with my savings intended for a property. I realized I could save for a few more years to have enough for a down payment, or start making returns on my money now. I still believe I could collect a higher monthly return with a rental property, but for now I am enjoying completely passive investments.

Picking Individual Stocks

It’s really fun to pick an individual stock and imagine hitting it big after 20 or 30 years. I’ve accumulated about 42 stocks I like. I have seven of my early picks marked to sell eventually and shift into my dividend growth strategy, so that will leave 35 core holdings.

Going back to the jelly bean example – I no longer try to pick the exact number of jelly beans when I buy a stock. I might buy at its all-time high, and I might pay less attention to some fundamentals as long as I believe it is a good prospect.

But, lately I’ve been listening more to people I consider patient, smart investors. Low-cost ETFs are like looking at the average of everyone’s guess at the number of jelly beans in the jar. It’s boring, but so far my individual stock picks are performing the same as my total market fund. My goal is to add to my total market fund until my taxable account is one half stock picks, and one half total market ETF.

Lessons Learned

So, I no longer think I am smarter than the overall market. I don’t pretend to know when a stock is at its bottom. Real estate is still intriguing, but is probably for another time for me. And, the easiest, most hands-off investing style at all may be to just keep adding to a total market ETF as if it was a savings account. For the first time, I feel like I’m figuring out how to do this!

 

Nine Months Into Dividend Investing – Where I’m At

I’ve always considered myself a good saver, but had fallen off the tracks a bit in the last few years. A side comment made by a friend at a party flipped a switch in my brain and my wallet, and I’ve been aggressively learning, saving, and investing since.

Starting a blog

I’m excited to share in the hopes it may help other people. I want:

  • Accountability
  • A recorded history
  • Inspiration for future me

My background

I turned 34 in 2017. I got a degree in engineering when I was 22. I spent the next six years pursuing everything except engineering. I sporadically saved a few thousand dollars in a Roth IRA during this time.

At 28, I finally succumbed and have been in a steady and lucrative engineering position since. At times, I’ve maxed out my 401k. Other times, I haven’t contributed a single dollar. At the same time, I purchased a house and managed to effectively put 20% down. I also took a five-month self-paid sabbatical. I’m excited to expand on some of these things in upcoming blog posts.

A light bulb goes on

I often thought retirement was not in my future. I had a year’s salary or so saved up in retirement accounts at the age of 33. Assuming I live until 85, I figured that meant I could retire when I turned 84. It seemed dim.

And that was when I mentioned my lackluster investment experiences to a group of friends. One of them looked at me and said, “Let’s talk.”

I never actually did talk to him. Instead, I started a $6,000 brokerage account and picked about 12 companies that I believed were undervalued based on a free stock screener.

The next six months were a learning process. I contributed more as time went on, I chased high yield, or in some cases, recently discontinued dividend companies. I was a blind mouse trying to go through a maze.

I discovered dividend growth investing

I eventually stumbled onto a blog that chronicled steady, growing dividends. The author described exchanging $1,000 to buy a low yield, fast-growing dividend stock. Every $1,000 would generate around $30 of yearly income for the rest of his life. The idea clicked with me.

I refocused on companies with a dependable, growing dividend. I also re-evaluated my earlier stock choices and made a few adjustments.

Now that I had a strategy, I began taking advantage of my available tax-sheltered accounts, and warmed up to the idea of mutual funds and ETFs in addition to individual stocks.

My current standing

A sizable percentage of my take-home pay now goes into my retirement accounts. I envision replacing my salary with dividend income. At that point, I will be able to choose whether to keep working, take another sabbatical, retire, or do whatever I want! That’s my definition of financial freedom.

For now, I reinvest all dividends. Each contribution I make speeds up my process. I’m glad I figured it out now rather than later, and I actually get enjoyment out of buying a good company. Follow along on my progress as time goes on!

I hope to hear from others, and I enjoy reading other peoples’ progress as well.

Dividend Dozer