Dividend Growth Investing Case Study

Time is the Friend - Buffett QuoteDividend investing seemed to get more popular after the financial crisis. Not that investors didn’t want dividends before then, but a good crisis can make investors rethink and change their strategy. In hindsight, the trend toward dividends makes sense. But why?

From my perspective there are a couple reasons. The financial crisis was harsh enough that investors turned toward “safer” investments.

Dividend stocks aren’t really safer than other stocks. They have their own unique risks. By safer, I mean less volatile, which generally is true, and less volatility was in high demand after the crash. Continue Reading…

Putting the CAPE Ratio Into Context

Ben Graham QuoteThe past few years has seen a growing discussion around how to best value the market. More recently, the argument turned toward just how overvalued is the market and what does it mean? I thought I’d try to answer those two questions.

Several market valuation tools have become more common since the crisis. I use the term loosely because none of the valuation tools are 100% accurate and some are terribly inaccurate. In reality, people want a market timing tool. Keep that in mind while reading further.

One of the more popular tools is the CAPE ratio (Cyclically Adjusted PE Ratio) or Shiller PE named after it’s creator, Robert Shiller. Shiller is a Yale professor who realized the market is hardly efficient, wanted a way to measure that inefficiency, and wrote a book about it appropriately named Irrational Exuberance. Continue Reading…

How Well Do You Know Your Index Funds?

Rip Van Winkle QuoteThe quotes of many great investors are often misused for a number of reasons. Peter Lynch is one of them. His most misused, and arguable misunderstood, quote is – Invest in what you know. Those five words are taken out of context all the time.

Lynch meant it as a starting point for the do it yourself investor. Too many people take it literally and miss out on Lynch’s real lessonKnow what you own.

To that end, I want to ask you two simple questions.

A Quick Test

Do you consider Greece to be a developed country? Does your international index fund agree? Continue Reading…

S&P 500 After Multiple Losing Years

We don't have to be smarter than the rest. We have to be more disciplined than the rest.The S&P 500 doesn’t lose often. It’s only seen 24 losing years from 1926 to 2014. Roughly one out of every four years ends in a loss. Too bad that doesn’t happen like clockwork.

The S&P has gone on a nine year stretch without a loss and its had periods of multiple losses in a row. In fact, half of the losses were involved in multi-year losing streaks.

The infrequency of losing years doesn’t make it easy on investors. It allows you to get comfortable, too comfortable sometimes, or comfortable enough to forget about what the last loss did to your psyche and your savings. Continue Reading…

The Art of Losing Money

If we avoid the losersAny chump can bet all their money on a single stock and get wiped out. But it takes a special kind of genius to invest and consistently lose money in the market. They follow one mistake with another, compounding their losses with opportunity cost. To avoid the same fate, we can steal a few lessons in how to lose money from the great investors who came before us.

Warren Buffett repeats his two simple rules often:

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.

Easy enough. I use the same rules in Vegas and I swear it never fails.

But you know better. Right?

Never losing is impossible. Anyone who tells you different is lying. The great investors know losing is part of investing. They lose money better than anyone. Continue Reading…