IFB14: Why Investing Metrics are More of a Guideline than a Blueprint

 
Welcome to the Investing for Beginners podcast. In today’s session we talk to Steve from England! Our little podcast is international, and we discuss some great topics. Our main focus is on investing metrics and how they are a guideline and not a blueprint for your investing success.

* How much to allocate to different investments and what size investments to make
* Setting up watchlists for different types of investments
* The best metrics to use to find the best stock ideas
* How to balance dollar cost averaging and trading fees
* What are the best stock screeners out there and should you invest in those services
* Are small caps a good investment or are they too risky

Andrew, was wondering when you split from your regular investing to adding the Dividend Aristocrats? Also how much do you invest in them, and when do you do it, and what size decisions do you make?
Andrew: I love that question, the basis of my approach is trying to let’s take somebody the average basically, a hard working citizen in any country. This show is now a global thing and let’s not exclude lower income, people who aren’t making seven figures and have umbrellas of wealth, these parachutes they can fly off if they make a mistake as a CEO. Let’s look at the average person, people who don’t have much but can scrimp and save a little bit, do that each month. And let’s see if those people can make a fortune, the working class of the world. Obviously, I am talking about more developed countries, aside from that, how that relates to my whole investing approach is the ultimate goal is for the investments to have compounding interest in the most efficient compounding machine we can get.
So we’ve talked about in previous episodes about dividend reinvestment, the drip and how that can roll down this hill of compounding and multiply the type of returns that we can see. The problem is when you’re investing smaller amounts of capital, you can’t always assume that you’re going to find a dividend aristocrat every single pick. If you have a portfolio that’s twenty positions, I like to keep it around 15 to 20. To think that I can pick a stock every single month and expect it to raise it’s dividend every year.
So every year they raise their dividend, and you know the way that Dave and I approach investing is that we are trying to buy at a discount to intrinsic value. That already limits our pool of available investments because not every stock going to be a great buy at its current price. There are plenty of stocks that are great cash machines, they have fantastic businesses, they are growing their dividend like crazy, and they have a high dividend yield, but if the stock is priced too highly and too expensive then suddenly that’s not the most optimal place to put our capital.
Knowing that in the end, it doesn’t matter whether you’re talking about low amounts of capital or high amounts of capital. That 15 to 20 reality of having that kind of a diversified portfolio is going to answer this kind of question already, especially when you have lower amounts of capital. I like to; you mention in the eLetter how I split it up between the Dividend fortress and the regular positions.
I like to accumulate several positions worth of capital and then plow that into a dividend, it doesn’t have to be a dividend aristocrat, but it should have potential to be a dividend aristocrat. If you look at any of the fund managers, they will do this too. If you are just starting out with a portfolio, and you don’t have any diversification, and you are just going to dollar cost average like we recommend that you do. It is going to take you some time to build up positi...