Welcome to the second Dividend Investor Interview featuring two dividend investors of different ages, investing backgrounds and from different parts of the world.
With New Year’s resolutions on the minds of many investors December is a month of bringing new perspectives to readers to see how others approach dividends, risk and the current market environment.
Dividend Investor Interview II:
John (aka: jonnyrotten)
First let’s explore your current investor profile with some back ground information if you don’t mind.
Can you give readers some demographics?
I am 46 years old, married, with 4 kids. I teach at a university in Japan. I consider my risk tolerance to be high.
When did you first begin investing?
I began buying GICs as a young teenager, and mutual funds by the age of 25. I bought my first stock when I was about 27. During my university days, I would receive interest-free loans and bursaries and simply deposit them. I paid my school expenses from earnings from summer jobs and other part-time work. When I graduated, I paid back the loans in full and pocketed the interest. I suppose this was possible in my day when tuitions were not that high.
Some might think this unethical, but I don’t feel that way: I took advantage of what was available to me and made the most of it in an entirely legal way. Like buying with a credit card, paying the bill in full with no interest when it is due, and receiving cash back at the end of the year.
How did you start investing? What style?
I began with mutual funds. I bought a wide variety of them with no particular understanding of asset allocation or specific goals.
I merely hoped to invest and make money. I was attracted to the stunning returns of the Altamira Equity Fund in its early days under Frank Mersch, and this was one of my first funds.
What were your previous investing objectives?
To make money. I did not have a long-term target or goal in mind until I married and began thinking about retirement.
What has helped to influence you over the years you’ve invested?
(Media, mentors, family, experience, etc)
My father, first of all. He has invested all his life, and we share a love of stock and economic talk. He used to manage investments for his mother, and even as a small child, I always heard about my grandmother’s stock, how it had risen or split or paid dividends. I grew up thinking it natural and lucrative to invest in the stock market, and only in encounters with friends and other relatives did I realize that many regard the stock market as a form of gambling that they avoid. Many people I know are very, very conservative and only invest in term deposits or managed funds.
How long did you invest in actively managed mutual funds?
About 15 years.
What was it about dividends that immediately caught your interest?
During the dot-com meltdown, I watched my spectacular paper gains evaporate, leaving me with nothing to show for my time and trouble. While I was willing to wait for some of the funds to recover, I began thinking about the fees I was paying to hold these funds. When my portfolio had grown to $100,000, I realized it was costing me about $1500 to $2000 a year for management alone!
But where was the management when all the profits vanished? The only winners were the managers!
I recalled how the funds had been marketed, with their amazing one-year returns… I was also noticing that as a non-resident of Canada living in Japan, significant taxes were being withheld from any distributions I received. My performance was seriously lagging the market, and most of the gains I made were being taken away by fees and taxes.
I started to look for a better way. Through some reading, I came across the style of dividend growth investing.
Here was a tax-efficient and relatively conservative style that appeared to be a winner, both in bull and bear markets. The math was simple, and the long-term outcome predictable to quite a high degree of certainty, unlike the stock market in the short or medium term. I decided to move some money from mutual funds into dividend-paying stocks.
When the first few dividend raises arrived, I was instantly addicted. I began moving quite aggressively to unload funds and acquire dividend-paying stocks.
Do you have regrets? If so, what are they?
I sometimes regret that I am not more patient to wait for prices to come down, especially now which might well be a once-in-a-lifetime opportunity to buy. I managed to sell funds for significant gains in 2007, but I bought several stocks at prices that I now see were too high.
I also regret that I didn’t sell out of funds in 2000 when I was looking at double and even triple digit gains in some cases. I got carried away by greed and should have realized that anything that returns 50~100% in less than a year should be sold and moved into other sectors or investments.
What has been your biggest mistake?
As mentioned above.
What has been your biggest success?
Well, I doubled my money in the Altamira e-business fund in about 6 months. At least this was a good move. Having learned from past experience, however, I sold without hesitation BMO China, Resource, Precious Metals and Special Equity when I saw short term gains of over 30%. Hindsight shows that I did the right thing, especially with the sector funds.
They’re a bird in the hand. Cash money right in the bank. But “dividends” should be qualified with “dividend growth reinvestment,” for I think the style only works by focusing on the stocks with a history of dividend growth, and by reinvesting all dividends back into new shares. This way, you win when the markets drop, because you can buy shares more cheaply, and you win when they rise, because you have capital gains to see.
Where do you see yourself in 10-15 years from now?
Hard to say. Life always surprises. Ideally, we will move back and forth between Japan and Canada, taking advantage of all that both great countries have to offer. Unlike some others, I don’t aim at early retirement but rather at part-time employment. By 55~60 I should be able to accept courses that I want to teach, and say no to those that I’d rather not. I don’t mind working 2 or 3 half-days each week for a few months, followed by a few months off to enjoy my own pursuits, hiking, swimming, gardening, reading, and just puttering around the house fixing things up.
What advice would you give to an investor struggling with how to invest?
Unlike me, don’t be IMPATIENT! Realize that becoming financially independent is probably going to take 20 years or more. Establish a plan and stick with it. Read all you can, but be wary of the day-to-day media babble, and be especially cautious with the opinions of “gurus.” When they pronounce that oil is going to $200 or gold to $2000 or the TSX to 16,000, realize that they are long on these bets, but will be almost certainly be short before the general public who follow them. They are in there for themselves, not for you. Don’t get carried away with excitement during bull markets, and don’t succumb to panic and fear when markets correct. Buy solid companies with good management and cash flow and hold them. Invest regularly.
Finally, be diversified: don’t bet the farm on the oil sands or the banks or even a solid blue chip like Johnson & Johnson (JNJ); a little of everything. Diversify also in other ways: invest in your home, your health, your marriage, your career. Encourage your partner in life to invest differently than you do. My wife is 100% in cash, and she’s beating the snot out of me! For now.
How are you coping with the present market meltdown?
Has your investing philosophy changed?
What are you doing?
The short answer: nothing. I hold solid companies that I believe will emerge big winners from the present crisis. Such companies as Royal Bank (RY) and the Bank of Nova Scotia (BNS) have been making strategic acquisitions and building their wealth management positions.
Manulife (MFC) has been heavily oversold, but I suspect funds that are desperately trying to raise cash are selling off their winners, first and foremost. It is a rare opportunity to pick up stocks like these at 30~40% discounts and more.
Still, I am sitting tight, reinvesting dividends, and looking to add to positions that are currently under 3% of the portfolio. In the coming months. I may add to positions in TD Bank (TD), Husky Energy (HSE), Rogers Communications (RCI.B), Fortis (FTS) and Thomson-Reuters (TRI). I would like to start positions in Enbridge (ENB) and TransCanada (TRP), but only if and when the price is right, say roughly, $32 and $30 respectively. If the Canadian dollar recovers to at least 0.95, I may add to positions in Vodafone (VOD), British Telecom (BT), AT&T (T) and Johnson & Johnson (JNJ). JNJ is the one stock I hold that I may go well overweight on, up to 10%. Not only is it the safest stock I own, but the dividend growth record is unrivalled. While I don’t expect much in the way of dividend growth from the banks over the next year or two, I feel confident that JNJ will raise by 8~10% next year.
In short, it’s business as usual. Regular investing and constant reinvesting of all dividends. Remarkably, and perhaps this is the best evidence. I have that dividend growth investing is a winning strategy; my cash flow has been steadily rising, even as the market value of my portfolio drops. A steadily rising cash flow: what more could an investor ask for?
Many thanks to John for sitting down to share his thoughts on investing, dividends and investor fundamentals. If you found this interview helpful please share your appreciation and comments below.
– Dividend Investor I