Choosing an investment strategy is never an easy task for an investor. It involves a significant amount of consideration, turmoil over conflicting advice & opinions and most importantly asking yourself if you have the discipline to carry out your plan for the time frame you’ve allotted.
On May 4th, 2007, after nearly a year of preparation, I embarked on what I believe will be one of the most important decisions I make in my young life. I bought 75 shares of what I consider to be the premier dividend stock among all public Canadian corporations: Manulife Financial (MFC). During the rest of that month I made purchases of Sunlife (SLF), Empire (EMP.A) and Saputo (SAP) followed in June by purchases of Royal Bank (RY), Shoppers Drug Mart (SC) and Thomson-Reuters (TRI). Fast forward seventeen months through one of the toughest markets in recent memory caused by a credit crisis felt round the world and I’ve nearly completed acquiring the full list of Canadian stocks I set out to initially buy.
What I’m talking about is my decision to design, research and create my Dividend Growth Portfolio, known in my posts as DivG. I call this portfolio my Dividend Dream because in twenty five years the end outcome might become just that; my dream. When I look to this portfolio and I consider how fortunate I’ve been to buy so many of these stocks at historically cheap valuations the full value of my actions is difficult to measure. Despite being down in value I’ve protected my capital well relative to the broader market and increased my income from dividends substantially. When I began my initial accumulation phase of the portfolio I had anticipated a timeline of 2-3 years to secure positions in my targeted stocks, but after cannibalizing my Value Portfolio after some serious though I’ve accomplished nearly all my objectives in half the time.
Early in my investing progression I decided that one of my goals would be to let money and debt work for me instead of working against it. In the future I want money to provide me with flexibility to do the things I want, give me the ability to make decisions independent of finances and allow time to create that wealth for myself and my family. I don’t have grand visions of an early retirement with millions in assets, but instead an adaptation of my lifestyle to reflect what’s important to me and those around me. My Dividend Dream will help me get to that point in life.
My RSP and DivG portfolios are now nearly mirror images of each other based on the fundamental lessons taught to me of Enduring Value. My interpretation of Enduring Value comes from an important friendship and in its most basic form is what guided the investment activities of a mentor for a number of decades. My interpretation and application is a hybrid of the pure form taken from these lessons and blended with my own individually created Value Rules. The resulting hybrid has its foundation in the classic value teachings of Graham, but focuses on companies that always make money, have highly competent management, dominant brands & operations, pursue or maintain a sustainable competitive advantage in their area of strength, know their customers inside & out and create an emotional response that drives eternal consumption. I want to invest in businesses that have predictable operations, earnings and growth.
As I’ve talked about before one of Charles’ priorities before ever sharing his stock picking process was for me to understand intimately both the successes and the failures of many successful investors. It has been his long held belief that far too often an investor becomes concerned with the valuation of a company based on quantitative data rather than looking at a valuation based on its qualitative fundamentals. If you were to ask any seasoned value investor what their number one regret might be Charles would expect them to honestly share that they neglected stocks with a reasonable valuation and dominant fundamentals in favour of buying companies with heavily discounted valuations and less dominant fundamentals.
There’s no replacement for an ability to identify and buy great businesses at great valuations with the intention of holding them forever, but Enduring Value hinges on the ability of an investor to focus on the qualitative factors of a business over the long-term instead of sticking to an absolute price and over-analyzing a valuation based on quantitative values.
Enduring Value has made Charles a very wise investor, but what’s more surprising is that he did all this without any formal business training, reproduction/adaptation of investing styles or the quick access to information many of us take for granted today. The business models and brands that rarely changed over the decades are the hallmark of his portfolio. He made mistakes over the years as any investor does, but his commitment to quality always protected him from significant losses. If he didn’t understand the business he never bought a share, if he didn’t trust the people working for the company he never bought a share and if he wasn’t a customer of the company he never bought a share. He didn’t hoard cash waiting to time the market, but instead added to positions when they were low or he had the money.
In my post next week I’ll take readers inside my Dividend Dream portfolio for an up close look at my decision criteria, portfolio construction decisions and what names compose the entirety of the portfolio to date.