First Quarter 2017

(with thoughts added on June 5th) “Indexing works great. Until it doesn't”. These sentences are from an ad by Cumberland Wealth Management in The Economist. The bull market is long in the tooth. What do you do if your own an index ETF or fund? Ride it down as you rode it up? Remember that the S&P 500 was essentially flat between 1999 and 2009…for a decade. Dividend growth investors have a plan. That's what I write about inside this site. We concentrate on building an increasing income stream for our retirement. The income stream supports our price. Yield alone does not move the needle. My wife's income rose 7.1% last year. Mine was up 6.3%. We own only dividend growth stocks. No bonds. Metro is one example: in 2000 MRU's dividend was 5¢; now the dividend is 65¢. “We know that the dividend growth rate is also the rate at which the stock price grows.” Fundamentals of Corporate Finance, page 217 by Ross, Westfield, Jordan and Roberts. Our capital grows too. We conflate yield and growth.

• Volatility is not risk. You must learn not to fret about price fluctuations. In Enough, Jack Bogle said “the stock market is a giant distraction from the business of investing”. Dividend growth investors invest. We invest in individual companies…quality firms. What the market does is of little concern to us. The market is not our benchmark. Rather, we compute how much our income rises every year. And we know that as the dividend goes up, our dividend-growing stock prices rise also (C-35 Security Analysis by Ben Graham).

• “If you have $50,000 and can pull out 4% a year without drawing down principal – which is hard to do – you’ll get something like $160 a month.” John Maulden. ♣ TC: If, on the other hand, you have $50,000 in quality dividend growth stocks, in not too many years, you'll be receiving a lot more than $160 a month and your principal would be growing.

• ETFs No! - I'm adding to my “ETFs no” list (from James Montier's big book on Behavioural Investing, $132) this idea: professionals favour expensive stocks, a lot of 'buys, popular stocks. Professionals tend to herd (to keep their jobs they do not want to ver much from their benchmark). As a result, robo-programmes and advisors are not, generally, worth listening to.

• Bonds are not as safe as you have been lead to believe. For instance, in an ETF bonds lose their guarantee of your money back at maturity.

I do not buy ETFs. Some do not pass along dividend increases.