Evolution of an Investment Strategy

When you have no money, you don’t spend a lot of time thinking about investing.  I owned a house and as a result I had no money.  As I would later learn, what most people never do, a house is a home, not an investment.  It may make you feel wealthy, but it actually depletes your wealth.  But that’s a topic for another story.  There are too many non-believers and most will never convert.

 

I simultaneously sold my house and received a big severance package for leaving a long term employer and I was suddenly in a cash surplus position, something I had never experienced before,  and as such, I was now an investor.

 

My first move was to do what most new investors do, accept an invitation from a local Investors Group mutual fund salesman to explain investing.  Convinced by his vastly superior knowledge of the investment market, I purchased a variety of Investors Group mutual funds from Charles Cummings, who had recently been laid off from his employer, a common profile for this type of “expert”.  As this was the 1990’s, the era of peace and prosperity, all investments thrived and my wealth increased and I was happy.

 

I moved away from the Investors Group, when my new employer provided a local investment firm, run by a couple of old ladies, who did investing in mutual funds for employees of the company.  My wealth continued to grow, mainly due to new savings, but at a considerably slower pace.  At this point, many of the employees of the company began complaining about the lack of service and knowledge provided by the nice, but not too swift, senior citizens who passed themselves off as investment advisors. As controller of the company, I asked for, and received from the president, permission to seek a new investment firm that could satisfy the needs of the employees of the company.  My wealth, although not vast, was growing and not being a home owner any more, I was amassing more new cash than I ever had in the past.  I wanted to put this money to work effectively and I felt that the current situation was not effective and efficient.

 

After a search of several companies, I settled on a real investment company with a properly trained investment advisor and a full range of investments, not just mutual funds that benefit the salesman.  The president of the company agreed and we began using the services of Nesbit Burns, which was the now investment arm of the Bank of Montreal.

 

Through this move, I was able to work with my new investment advisor, who became a friend, to migrate away from mutual funds, which consume a disproportionate amount of the gains by way of the MER (management expense ratio), and into direct stock investing.  I used the expertise of my broker to select a range of stocks and fixed income vehicles that met my risk profile which was somewhat aggressive, given that I was in my early forties.

 

After departing the corporate world for my own consulting business, I took more direct control of my investment portfolio.  I had migrated completely away from mutual funds and into direct stock investment.  At this time the size of my portfolio was not really sufficient to take full advantage of diversification, so I elected to move more into ETF’s (exchange traded funds).  These instruments had much of the benefits of mutual funds, such as diversification, but did not have the high fees attached to them, and they traded like stocks.  This biggest disadvantage was that you could select the type of profile the fund could have, but you could not select the exact companies. This was left up to the fund manager.

At this point I started to research the benefits of dividend paying companies and started to move into ETFs that held dividend stocks.  Now my portfolio was getting large enough that I felt I could properly diversify myself and I started migrating away from ETFs and into dividend producing stocks.  My main focus was on the current dividend yield and I didn’t pay much attention to the other important components.  I was looking for companies that had high dividends and were large, well-known companies. 

 

It was then that I discovered the “Dogs of the Dow” and started to use this method to help pick my stocks, although I didn’t follow it religiously, I used it as a guideline but purchased many stocks that were not on the Dow.  I even used the method to purchase European companies that were traded on the New York Stock Exchange.  By 2007, several of these companies had performed much better than I ever expected and instead of letting them ride, I decided to take my profits and re-examine my strategy.  As a result I ended up with over fifty percent of my portfolio in cash while I contemplated my next moves, looking for good buying opportunities.  The market started to slide, which made me feel there would be some good buys coming up.  Then the slide turned into a rout and we had the big financial crisis on our hands, and I was flush with cash – more luck than brains.

 

I sat out the crash with my portfolio never falling more than fifteen percent from its peak and when it appeared to be over, and I felt it was safe to go back into the water, I started buying again.  But now I was using a much stricter and disciplined approach.

I purchased only strong companies as defined by Value-Line and only those that had a dividend of greater than 2.5% and a long history of increasing their dividends.  Research has shown these types of stocks to outperform the market in the long run.

My objective is to build a portfolio that produces enough dividends for me to live off in retirement.  Hopefully the stocks will also grow, but I don’t want to have to rely in the growth for my income.  Although in the short run other strategies may produce better overall returns, I am finding that in the long run, this approach continues to outperform the market and outperform other strategies touted by various gurus, who come and go more often than boy-bands.

 

My portfolio consists of stock that I have purchased starting as early as 2004, but because of my purchase and subsequent sales during the 2005 to 2008 time period has resulted in the bulk of my current portfolio being acquired from January 2010 onwards.

Other than a couple of bad acquisitions that I didn’t get rid of early enough (eg General Electric, Great West Life), my older purchases have had outstanding performance and my 2010 purchases are doing great.  Any stocks that I have held for less than a year, especially those acquired over this past summer have not had enough time to provide measurable returns.  But they all produce dividends and the current yield on my overall portfolio is almost 4%, before any capital appreciation.

 

I am now well on my way to having enough dividends to provide a comfortable retirement, before accessing my capital gains, or depleting my capital.

 

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About borgford

Feel free to contact me with questions: brianborgford@hotmail.com
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2 Responses to Evolution of an Investment Strategy

  1. Cape says:

    It’s a great story. Some luck. Mainly judgement. Evolution of a strategy and sticking with it.

    • borgford says:

      Thanks for the comment. The results speak for themselves. From 2004 to the end of October, 2016, I have an average annual return of 10%. I will stick with the strategy.

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