08-21-2014, 10:02 AM
(This post was last modified: 08-23-2014, 08:33 AM by Robandcindy2.)
Alex,
Your well written thoughts are so important it had my gears turning and I had to sleep on a reply. Indeed what are our performance goals?
I have walked the same path (although still far behind you!). And like you grow weary of the details of my spreadsheet and data tracking.
Every year I update a list of lifetime results of benchmark indexes and funds that I average to create a minimum threshold for our DGI efforts. These are:
Dow 8.8%
Total Mkt 9.4%
S&P 500 11.01%
NASDAQ 8.95%
Total Stock 9.45%
Total Bond 6.41%
Wellington 8.31%
Wellsely Income 10.15%
Balanced 8.29%
Average 8.97% (I need to update these, 6 months old)
So at a minimum I need to beat 8.29%. Having been raised a Boglehead I am by nature a "Lazy Portfolioist". So I also crosscheck my results against the various Lazy Portfolios at Dr. Paul Farrell's page at Marketwatch. Could I do better in the accumulation phase with a simple, lazy, portfolio of low cost index funds at Vanguard?
As we are in the accumulation phase I am not as concerned with the income received as long as it safely exceeds the 10 Year Treasury (currently 2.41%). Safely by limiting high yield high risk. Safely by limiting as much as possible our choices to dividend Champs, Contenders, Achievers, Aristocrats.
Individual investments are another matter. A well diversified asset allocation is all of the classes you mentioned but also cash, bonds and dare I add, a little growth to spice things up? Then there is diversification across the "Caps". And being a follower of your posts I know I'm preaching to the choir here.
Can there truly be a "single rule" with which to evaluate our holdings? 'Chowder' seems to think so. His(?) system works. Bob Wells over at SA has a well thought out "Business Plan" that he and his wife closely adhere to. Works for them. Same with David Van Knapp.
Not helping? Ya, I know....bear with me....
So what about Moi'? I treat each investment on it's own merits which may be many while avoiding the "paralysis of analysis" if at all possible.
Macro View
I hold to the belief that risk is reduced (and I sleep better at night) by holding a lot (maybe too many) but a lot of stocks. If one tanks while I'm out of touch the "hit" is minimal.
I then religiously stay within my Equity/Fixed ratios. Currently 85/15 but ideally in a non-QE world 60/40.
This is further broken down into Domestic/Foreign/Emerging- both stocks and bonds....(No wonder I never get anything done around the house!)
I also stick to my Morningstar Sector diversification ratios (and diversified in those sectors) and to a slightly lessor degree my Large, Mid and Small Cap ratios (60/20/20).
Micro View
So filtering down from the above factors some things I look at company specific:
Can I wrap my head around the business? What do they do, does the world need them?
How do they look on FastGraphs? This is my first stop. Only buy them if they are undervalued. If I own them and they have dropped in value, why? What are they forecasting? How do they look under Morningstar's analysis? (Often FG and M* disagree)
Do they have a reasonable yield (above the 10 year Treasury Bond)?
If not, what is their 5 year dividend growth rate? Historic, sure but you have to start somewhere... Will they be above the bond when I retire? Is it worth the risk now?
If it is below the 10 year Bond, how desirable is the company? Would it compliment my portfolio? Would it fill a niche AND provide reasonable income AND reasonable growth? Where might they be when I retire in 4-7 years?
Egads there is that word GROWTH! Darn it we are an income forum, watch your tongue!
Yes I have some growth stocks. But I also want and insist that our DGI stocks grow at a rate that will exceed inflation. Currently SBUX, a favorite business I frequent has a 5 year growth of 7.6%(FastGraphs), well that barely is the inflation rate (5x1.5) last time I looked. And since it only yields 1.33% I'm not thrilled.
I've far exceed my bandwidth here and I apologize for rambling but you bring up an internal discussion we all have as "our own advisors".
So to sum up:
*I strive to meet my ratios in a macro way
*I want to buy fair to undervalued companies
*I want a reasonable yield that is worth the traditional risk in Treasuries (QE events not withstanding). Currently, I find bonds risky.
*I want corporate growth, estimated returns, to exceed inflation
*I want dividend growth to exceed inflation
*If a stock is losing money it better have a good reason (the market, cyclical, some hedge fund manager spouting off manipulating the stock, etc)
Deciding between two similar stocks I will pick the company that:
*Reasonably yields more
*Reasonably returns more
*Has the better 5 year growth forecast
*Has the better dividend growth
*Has the better Credit Rating (BBB+ minimum)
*Has the lower debt ratio
*Whose product, services, purpose I understand the clearest
But a Chowder Like formula....I think there are too many other factors for that to be the be all-end all. (Full disclosure-I do use the Chowder formula when I do my "Holdings Review" because if he wouldn't own that stock I need to be rethinking why I do).
Hope others will chime in. Thank you for sharing your thoughts.
Cheers,
Rob
Your well written thoughts are so important it had my gears turning and I had to sleep on a reply. Indeed what are our performance goals?
I have walked the same path (although still far behind you!). And like you grow weary of the details of my spreadsheet and data tracking.
Every year I update a list of lifetime results of benchmark indexes and funds that I average to create a minimum threshold for our DGI efforts. These are:
Dow 8.8%
Total Mkt 9.4%
S&P 500 11.01%
NASDAQ 8.95%
Total Stock 9.45%
Total Bond 6.41%
Wellington 8.31%
Wellsely Income 10.15%
Balanced 8.29%
Average 8.97% (I need to update these, 6 months old)
So at a minimum I need to beat 8.29%. Having been raised a Boglehead I am by nature a "Lazy Portfolioist". So I also crosscheck my results against the various Lazy Portfolios at Dr. Paul Farrell's page at Marketwatch. Could I do better in the accumulation phase with a simple, lazy, portfolio of low cost index funds at Vanguard?
As we are in the accumulation phase I am not as concerned with the income received as long as it safely exceeds the 10 Year Treasury (currently 2.41%). Safely by limiting high yield high risk. Safely by limiting as much as possible our choices to dividend Champs, Contenders, Achievers, Aristocrats.
Individual investments are another matter. A well diversified asset allocation is all of the classes you mentioned but also cash, bonds and dare I add, a little growth to spice things up? Then there is diversification across the "Caps". And being a follower of your posts I know I'm preaching to the choir here.
Can there truly be a "single rule" with which to evaluate our holdings? 'Chowder' seems to think so. His(?) system works. Bob Wells over at SA has a well thought out "Business Plan" that he and his wife closely adhere to. Works for them. Same with David Van Knapp.
Not helping? Ya, I know....bear with me....
So what about Moi'? I treat each investment on it's own merits which may be many while avoiding the "paralysis of analysis" if at all possible.
Macro View
I hold to the belief that risk is reduced (and I sleep better at night) by holding a lot (maybe too many) but a lot of stocks. If one tanks while I'm out of touch the "hit" is minimal.
I then religiously stay within my Equity/Fixed ratios. Currently 85/15 but ideally in a non-QE world 60/40.
This is further broken down into Domestic/Foreign/Emerging- both stocks and bonds....(No wonder I never get anything done around the house!)
I also stick to my Morningstar Sector diversification ratios (and diversified in those sectors) and to a slightly lessor degree my Large, Mid and Small Cap ratios (60/20/20).
Micro View
So filtering down from the above factors some things I look at company specific:
Can I wrap my head around the business? What do they do, does the world need them?
How do they look on FastGraphs? This is my first stop. Only buy them if they are undervalued. If I own them and they have dropped in value, why? What are they forecasting? How do they look under Morningstar's analysis? (Often FG and M* disagree)
Do they have a reasonable yield (above the 10 year Treasury Bond)?
If not, what is their 5 year dividend growth rate? Historic, sure but you have to start somewhere... Will they be above the bond when I retire? Is it worth the risk now?
If it is below the 10 year Bond, how desirable is the company? Would it compliment my portfolio? Would it fill a niche AND provide reasonable income AND reasonable growth? Where might they be when I retire in 4-7 years?
Egads there is that word GROWTH! Darn it we are an income forum, watch your tongue!
Yes I have some growth stocks. But I also want and insist that our DGI stocks grow at a rate that will exceed inflation. Currently SBUX, a favorite business I frequent has a 5 year growth of 7.6%(FastGraphs), well that barely is the inflation rate (5x1.5) last time I looked. And since it only yields 1.33% I'm not thrilled.
I've far exceed my bandwidth here and I apologize for rambling but you bring up an internal discussion we all have as "our own advisors".
So to sum up:
*I strive to meet my ratios in a macro way
*I want to buy fair to undervalued companies
*I want a reasonable yield that is worth the traditional risk in Treasuries (QE events not withstanding). Currently, I find bonds risky.
*I want corporate growth, estimated returns, to exceed inflation
*I want dividend growth to exceed inflation
*If a stock is losing money it better have a good reason (the market, cyclical, some hedge fund manager spouting off manipulating the stock, etc)
Deciding between two similar stocks I will pick the company that:
*Reasonably yields more
*Reasonably returns more
*Has the better 5 year growth forecast
*Has the better dividend growth
*Has the better Credit Rating (BBB+ minimum)
*Has the lower debt ratio
*Whose product, services, purpose I understand the clearest
But a Chowder Like formula....I think there are too many other factors for that to be the be all-end all. (Full disclosure-I do use the Chowder formula when I do my "Holdings Review" because if he wouldn't own that stock I need to be rethinking why I do).
Hope others will chime in. Thank you for sharing your thoughts.
Cheers,
Rob
There are people who use up their entire lives making money so they can enjoy the lives they have entirely used up
Frederick Buechner
Frederick Buechner