Peter Lynch once said that the most important decision that someone makes when constructing a portfolio is deciding what percentage of the portfolio should be put in stocks, and what percentage of the portfolio should be in bonds.
For those of you who have spent some time studying Peter Lynch’s life, it’s no surprise that he is much more of a stock guy than a bond guy. As he writes on page 49 of his book “Beating The Street”:
“The reason that stocks do better than bonds is not hard to fathom. As companies grow larger and more profitable, their stockholders share in the increased profits. The dividends are raised. The dividend is such an important factor in the success of many stocks that you could hardly go wrong by making an entire portfolio of companies that have raised their dividends for 10 or 20 years in a row.”
What … Read the rest of this article!
The most common question that I have received through the contact form of this site is from beginning investors that suddenly find themselves in the position of receiving a sum of money that creates a need to learn how to invest. Sometimes, this comes in the form of stock investments inherited from a parent, grandparent, or some other benevolent actor.
A lot of times, this creates a situation that has an emotional component that complicates the otherwise straight-forward decision-making process of traditional asset allocation decisions.
Sometimes, if the stock in question has been successful for many years, you might start to believe that it has magical wealth-making powers (if the stock has declined 50% over the past fifteen years, it’s doubtful that you’d be wrestling with the question of whether to sell it now). You might have no idea what the heck United Technologies does, but if you see that … Read the rest of this article!
If you are serious about creating substantial wealth over the course of your lifetime, one of the most important things that should be the first priority in your life is getting the rich infrastructure in place. The key is to have a cash-generating asset that is regularly generating money for you to shovel away into blue-chip stocks so that you can have a permanent source of your life that is giving you the money to be a capital allocator, so that you cannot help but get rich.
There are countless ways to put yourself in a position to get over $1,000 per month that is set aside for the sole purpose of giving you regular intervals of cash to invest. You can own a rental home that generates $1,000 in rent in excess of taxes, maintenance, debt, and other costs. Or, if being a landowner and dealing with the inevitable … Read the rest of this article!
Regarding dividends, the famous professor and investor Phil Fisher once said:
“This brings us to what is probably the most important but least discussed aspect of dividends. This is regularity or dependability. The wise investor will plan his affairs. He will look ahea to what he can or cannot do with his income. He may not care about immediately increasing income, but he will want assurance against the decreased income and unexpected disruption of his plans that this can cause.”
When it comes to dividend suspensions, cuts, and erratic policies, there is no sector that is quite as flighty over the long-term as bank stocks (with the possible accompaniment of tech stocks). If you review the recent financial crisis, you will see a litany of cuts from the big names in banking: Bank of America and Citigroup slashed their dividends to a penny, and the dividend payouts still have not … Read the rest of this article!
I was re-reading Phil Fisher’s Conservative Investors Sleep Well and was going through the “What About Dividends?” chapter (which is also included in his book Common Stocks and Uncommon Profits as well) when I came across a Fisher quote on cash-rich companies that I did not remember encountering the first time through:
“When do stockholders get no benefit from retained earnings? One way is when managements pile up cash and liquid assets far beyond any present or prospective needs of the business. The management might have no nefarious motive in doing this. Some executives get a sense of confidence and security from steadily piling up unneeded liquid reserves. They don’t seem to realize that they are buttressing their own feelings of security by not turning over to the stockholder wealth that he should be entitled to use in his own way and as he sees fit. Today there are tax
… Read the rest of this article!