The following is a contribution from an avid My Own Advisor reader – Cannew. You can read other articles from Cannew including this one, about an average retirement plan to wealth here. Cannew followed the investing path in that article to help him earn close to $100,000 per year in retirement income. Here are some of his favourite investing quotes his lives by.
“The novice investor looking for an income stock often starts and ends the search by seeking out the highest yielding stock. Wrong! Heed the hoary advice: If it looks too good to be true, it probably is.” – Joseph Tigue, dividend-investing author
“If history repeats itself yet again, the current bear market trend is a signal to investors that they may be in for a fairly long stretch of disappointing returns, especially from price appreciation.” – Gary E. Stroik, Vice-President, Chief Investment Officer at WBI Investments Inc.
“If you are a saver and a buyer of shares–as most investors are and will continue to be for many years–your real long-term interest is, curiously, to have stock prices go down quite a lot and stay there so you can accumulate more shares at lower prices and therefore receive more dividends with the savings you invest.” – Charles Ellis, indexing guru; author
“To grow your wealth to a secure and comfortable retirement, you should invest in individual stocks in companies that dominate their industries and have a long history of high dividend growth.” – Roxann Klugman, dividend-investing author and advocate
“What makes rising income that comes from a growing dividend so attractive in a yield stock? You not only receive greater income as the years go by, you also get a rising stock price – because the instrument producing the income (the stock) is worth more as the income it produces increases.” – Lowell Miller, dividend-investing author and advocate
“Historical research shows that investors can achieve higher long-term returns without taking on increased risk by focusing on the factors relating to the size and valuation of companies. Dividend yield has been one such factor and the price-to-earnings ratio has been another. Over time, portfolios of stocks with higher dividend yields and lower P-E ratios have outperformed the market more than would be predicted by the efficient markets hypothesis or the capital asset pricing model. Nevertheless, investors should be aware that there is no strategy that will outperform the market all the time. Small stocks exhibit periodic surges that have enabled their long-term performance to beat that of large stocks, but most of the time their performance has fallen behind large stocks. Furthermore, value stocks have tended to do very well in bear markets, but often underperform growth stocks in the latter stages of bull markets. This means that investors must exercise patience if they decide to pursue these return-enhancing strategies.” – Jeremy Siegel, Professor of Finance, Wharton School; author
“The index, as Katsenelson says, might be the same after a few years, but as a dividend growth investor, my portfolio will have produced a growing income over the period. In all probability it will not be back where it started. Why? Dividend growth begets capital growth…eventually.” – Tom Connolly, notable Canadian dividend investor; author of The Connolly Report and owner of dividendgrowth.ca
“If you want the recipe for getting rich in the stock market, here it is: Find stocks with above – average appreciation potential and safe and growing dividends, and buy them at attractive prices.” – Charles B. Carlson, Chief Executive Officer of Horizon Investment Services; author and editor of DRIPInvestor newsletter
“The selection of common stocks for the portfolio of the defensive investor should be a relatively simple matter. Here we would suggest four rules to be followed:
- There should be adequate thought not excessive diversification. This might mean a minimum of ten different issues and a maximum of about thirty.
- Each company should have a long record of continuous dividend payments…
- Each company selected should be large, prominent, and conservatively financed…
- The investor should impose some limit on the price he will pay for an issue in relation to its average earnings over, say the past seven years.” – Benjamin Graham, considered the father of value investing; most well-known disciple of his teaching: Warren Buffett
“You may have heard that the basic idea of the stock market is to buy low and sell high. Pardon me for saying so, but that sounds like a lot of work. An investment represents money that is supposed to work for me, right? Having earned my money once already, why should I have to work for it all over again?” – Josh Peters, equity strategist and editor of Morningstar DividendInvestor
“Looking at an index, it is clear that some industries are very mature and will never bring more than below-average returns, while others will do better. Historically, raw material or commodity prices have not kept up with inflation; whereas other sectors, such as health care or finance, have exceeded it. Apart from that, an index inevitably includes a few companies that are badly managed, as well as some smaller doubtful enterprises that have a perennially low rate of return – or are outright money losers. In this manner you might eliminate a minimum of 60% of an index.” – Stephen A. Jarislowsky, billionaire business magnate, investor, author, philanthropist; CEO of Jarislowsky Fraser Limited
Any particular investing quotes you live by?
Mark, while true that bond yields are very low, with a total return approach you just collect dividends from both bonds and stocks, and if (usually) you need more cash flow you sell of the asset most off target on the upside (usually stocks) to bring your asset allocation back to target.
Nothing wrong with being conservative.
For sure Grant. No bonds in our portfolio though, as in none. That may change as I get older though!
Yes, I am a conservative guy when it comes to investing. It’s either dividend stocks or indexed-low-cost ETFs like VTI and VXUS.
A simple lesson is that I am no smarter than the professionals.
Buying big company dividend shares like the banks and telecomms is one thing, but picking a mining or alternate energy stock is going to be a roll of the dice.
Totally agree Richard. On the former, happy to see RY pay more dividends to me.
“you can’t take it with you”
It’s only money right?!
“you can’t take it with you”
But it’s nice to have when and if one needs it.
But you can give it to others!
I’m more likely to set up a trust fund with a local community foundation. They manage it and pay out the earnings in perpetuity. One can specify in which general area they would like the funds to go, specify a specific organisation or just let it go into a general community pot.
That’s a very nice legacy for sure Lloyd.
Just do it
“If you want the recipe for getting rich in the stock market, here it is: Find stocks with above – average appreciation potential and safe and growing dividends, and buy them at attractive prices.” – Charles B. Carlson
Reminds me of the Steve Martin joke: ” ‘Steve, how can I be a millionaire?’ First…get a million dollars.”
Isn’t there enough data now which shows stock pickers don’t beat the index over the long run?
“Historically, raw material or commodity prices have not kept up with inflation; whereas other sectors, such as health care or finance, have exceeded it.” – Stephen A. Jarislowsky
That’s simply because raw materials and commodities are economic inputs so it’s actually very good that they are not outrunning inflation; if they were we’d be seeing very, very high prices. Health care and finance are kind of red herrings in terms of beating inflation, especially in North America. In the US, health care is an illegal racketeering monopoly, and in Canada there’s lots of government money floating things, so it’s not like it’s a stand-alone industry. Of course we all know by now the reasons the finance sector exceeds inflation.
“In this manner you might eliminate a minimum of 60% of an index.” – Stephen A. Jarislowsky
Agree. Pay close attention to the word “minimum”. Basically the 80/20 Rule, with a minority of stocks producing the majority of gains within an index. It’s a bit tricky, though, because an index is not evenly weighted, so Netfilx will have much greater returns than Google, but the index only sees a fraction of that return (0.7% vs 4.7% weight). Thus, the stocks providing the bulk of the gains are not necessarily the stocks with the best returns.
Those are great ones. I like the Steve Martin one 🙂
I would agree with Jarislowsky – this is basically my approach to holding blue-chippers and companies that have great dividend histories.
Like RY today. Another dividend hike. Fairly predictable.
Netflix rise? Good capital gains. How was that predictable though?
Netflix et al gains are not predictable; I used them for an example on a different comment re index weighting and stock elimination. However, Netflix’s gains probably were very predictable, in that you could have predicted large gains, simply because they were the largest/first innovator in that sector.
The “recipe for getting rich in the stock market” quote is hilarious only because it gives zero quantifications to what “above – average appreciation potential” or “attractive prices” are. It’s basically a nonsense sentence.
I’d wouldn’t put all my eggs in the “predictable” basket. As another olde tyme market saying goes, “It works until it doesn’t.”
I find that’s the thing with life and work and money – putting all your eggs in one basket is rarely a good idea.
SST: All these quotes were taken from their books (except for Connolly) which discuss in detail their views. I liked these passages and in some cases did not like the entire book.
I did mention to Mark that one tends to read or appreciate views which support their own views or investment style. I’m sure there are quotes which support Index investing, I just didn’t have any.
“I’m sure there are quotes which support Index investing, I just didn’t have any.”
There are many but that made me laugh since I know your investing approach 🙂
“I’m sure there are quotes which support Index investing…”
There are not just quotes but reams of data and analysis which support indexing over stock picking. For a average retail investor to try to figure out which stocks have “above-average appreciation potential” vs buying index funds…you don’t have to be a rocket scientist to conclude which route will serve them best (i.e. if the vast majority of professional money managers, with all their expensive resources and fancy educations, can’t beat the market over the long haul by picking stocks, the average Main Street investor isn’t going to fare any better).
Here’s an unattributed list along the same lines:
SST: “if the vast majority of professional money managers, with all their expensive resources and fancy educations, can’t beat the market over the long haul by picking stocks, the average Main Street investor isn’t going to fare any better).”
Investing for Income, though achieved with stock picking, has a different objective than meeting market returns. One has met their goal if their income for the year is higher than last year, and the next and the next, regardless it they match the market or not. For example, during 2008\2009 my income rose during those years even if my return did not beat the market.
Cannew, what matters in retirement is cash flow, not the income of your investments.To get the most efficient accumulation of capital to produce cash flow you need to get the best returns. If you plan to live off the income only of your investments you will need to save more money in the accumulation phase, than if you plan to use your capital to generate cash flow in retirement.
With bonds yields next to nothing though Grant, I prefer to rely on dividends so I can choose when to sell my capital.
I’m overly conservative maybe!
Grant: I’m well past the accumulation phase and I am living off just a portion of the dividends my portfolio generates. The rest gets reinvested. I don’t need to worry about capital as it keeps growing all by it self regardless if the market is up, down or sideways.
Better hope earnings/sales/profits never slow down (and/or interest rates never rise).