Every Dividend Investor Should Have A Checklist

This is a random fact about my blog writing—I keep Elmore Leonard’s “Ten Tricks For Good Writing” handy with me whenever I work my way through a post I want to add to my website. Leonard, the author of Get Shorty and Rum Punch, gives these ten pieces of advice for writing a book:

1. Never open a book with weather.

2. Avoid prologues.

3. Never use a verb other than ‘said’ to carry dialogue.

4. Never use an adverb to modify the verb ‘said’, I admonish you gravely.

5. Keep your exclamation points under control. You are allowed no more than two or three per 100,000 words of prose.

6. Never use the words ‘suddenly’ or ‘all hell broke loose.’

7. Use regional dialect, patois, sparingly.

8. Avoid detailed descriptions of characters.

9. Don’t go into great detail describing places and things.

10. Try to leave out the part that readers tend to skip.

My most important rule is one that sums up the ten: if it sounds like writing, I rewrite it.

I have almost reached the point where I have memorized Leonard’s ten commandments, but I’m not quite there yet. Of course, not all of Leonard’s pointers are directly related to the blog—you’re probably not going to see me start too many posts with it ‘twas a dark and stormy night—but the spirit of what Leonard is getting at is something I try to keep in mind.

Similarly, it can be useful to have a checklist of how you intend to execute your investment strategy. If you have a piece of paper somewhere in ready sight that clearly outlines your strategy, you’ll increase your chances of staying the course dramatically.

Mine looks something like this:

(1) Find a way to generate surplus capital.

(2) Find an excellent that is likely to be around and profitable in 25+ years. We have about fifty or so such companies to choose from. They range from health care companies like Johnson & Johnson that have over two dozen individual brands that generate $1 billion in sales to household conglomerates like Procter & Gamble that currently have a product of some sort in 398 out of 400 homes, to Coca-Cola which currently owns over 500 brands and generates profits in over 200 countries (off the top of my head, it’s either 207 or 217, I can’t remember the exact figure). The point is that these are the kinds of companies you want to gradually acquire over the course of your lifetime, because they don’t require a whole lot of monitoring and attention. You just let the profits roll in to your bank account every 90 days.

(3) Then, you repeat the process. While you devote your energy to coming up with new sources of capital to invest, the assets like Coca-Cola and Johnson & Johnson that you have already acquired will be giving you cash checks every ninety days, and you can combine that with the surplus income from your labor to add another high-quality asset to your portfolio. Ever seen the show Hoarders where crazy people are drowning in crap they refuse to sell? Well, if you apply that attitude to stocks, you’ll find yourself drowning in cash income. But the process is clear: generate a surplus, find a gilt-edged blue chip stock to buy, let the dividends compound, and then go about generating new funds so you can repeat the process, and the joy is that each iteration of the process allows you to have more and varied ownership units under your belt depositing cold, hard cash into your account every ninety days.

I do not write to try and convince you to adopt my approach. I write this so that you may have clarity with yours. Determine your end-game. Draw it a step-by-step guide that will allow you to get there. And then stick to it. Having it all written out ahead of time sounds kinda silly, but it can damn near eliminate the likelihood of you drifting from your investment strategy over time.