# Just Another Investment Journey



## valuepack (31 March 2015)

Hello all,

My first post, please be gentle. I would like to start documenting my investment journey along with others who have started doing it on this forum. Historically I have dabbled with stocks, CFDs (forex, commodities, indices, foreign stocks), hedge funds, mutual funds, index funds and ETFs. I have found that I suck when using leverage and perform better when I don’t have to worry about any margin calls. I also haven't performed too well in other financial assets and have decided to just stick with stocks for the time being.

My strategy is centralized around large capital high dividend stocks which shows the power of dividends along with a moderate buy and hold strategy, details below:

• ASX 20 stocks universe.
• Must have increased dividend each year for the past 3 years and also forecast consecutive dividend increases each year for the next 2-3 years.
• Sort by highest dividend yielding stocks (taking into account franking credits).
• Pick the stocks whose dividend yields provide a ratio of approximately 1.75 or greater versus that of the nearest cash deposit rate (currently UBank @ 3.77%).
• Average dividend growth rate should be greater than CPI.

Note that these are just guides that I follow personally which may change depending on economic conditions, interest rates, etc. 

My current portfolio: 



The P/L does not include dividend returns (as I do not participate in DRPs).

Basically this is a modified version of the Dogs of the Dow strategy that takes into account dividend growth and a risk premium vs current interest rates.

My personal philosophy behind this strategy:
• Only large cap stocks because prices of these stocks are supported by index funds and ETFs that have to follow certain guidelines and rules.
• I prefer dividends as my main source of return on investment versus share buybacks or retained earnings (reinvestment back into the company) because I feel that there is a certain element of market timing (which I also suck at) in order to realize profits with the latter.
• If you look at Forbes billionaires list, the top 10 are always filled with people who own companies/stocks (except George Soros). Not with people who got rich through property, trading commodities, forex, bonds, etc.

Stocks were bought during 01/14 – 03/14 while VAF was bought ~1 month ago.

If current economic conditions stays the same, will re-organize my portfolio next financial year (due to tax incentives) into CBA, NAB, ANZ, WES, BHP & RIO.

Will see how far ahead (or behind) I will get vs the ASX Accumulation Index using this strategy...

Cheers.


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## tech/a (31 March 2015)

Excellent result

Any exit strategy?


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## pinkboy (31 March 2015)

Looks very similar to my screen and almost identical strategy.  Im in mostly ASX top 50 (BEN/BOQ just outside) and one LIC.

I hold:

ANZ
ASX
BEN
BHP
BOQ
CBA
IAG
NAB
SUN
TLS
WAM
WBC
WES

On PP, Im currently yielding 6.5% (this years expected dividends and progressive) plus Franking (all are 100% franked) and currently up circa 15%.  I also have only been in the game 13mths.  I take all dividends in cash (except WAM with its 2.5% discounted DRP), and reinvest it back into these shares when I see a suitable dip.  Because all are positive at the moment, I have just been buying more WAM, which has the higher yield at the moment.

I will continue to do this until I start living off the dividends next year.


pinkboy


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## VSntchr (31 March 2015)

valuepack said:


> Will see how far ahead (or behind) I will get vs the ASX Accumulation Index using this strategy...




Nice of you to put your strategy out there for everyone to see.

A couple of points I considered when having a look:


You are *very heavily* weighted to the banking sector. No matter what you prescribe as your intended strategy - the bottom line is, you are likely to outperform the indices if the search for yield continues. Any disruption in this market theme increases the odds of the end of profitability of your strategy. 
You are using forecasts for dividend growth. These forecasts are positive now because brokers are currently basing forecasts on the current (and recent past) environment. Any number of factors could change which could have the forecasted (and actual) dividend changed. Brokers are known for extrapolating the recent history.


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## valuepack (31 March 2015)

tech/a said:


> Excellent result
> 
> Any exit strategy?




Haven’t really thought of one yet.

As long as the central banks around the world keep a low interest rate environment and I am getting a risk premium on the dividend yields of those stocks vs the current highest online savings rate (seems to be always higher than the Aus Gov 10 year bond yield???), I will stick to this strategy. I will stop using this strategy if:
·         Ratio of dividend yield to savings yield is nearing 1.
·         Cannot find any stocks that fulfil the dividend growth filter above.

When that happens, I reckon I will rethink this strategy and perhaps increase my asset allocation into bonds.


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## valuepack (31 March 2015)

pinkboy said:


> Looks very similar to my screen and almost identical strategy.  Im in mostly ASX top 50 (BEN/BOQ just outside) and one LIC.
> 
> I hold:
> 
> ...




Nice to see like minded strategies. That is also my intention as well, to live off dividends but I dont think current levels are sufficient for me. What is your current portfolio allocation to bonds (if any)?

Some of the stocks like IAG and SUN had forecasted reducing dividends in future years thats why I excluded them from my list.

I am still hesitant to include any small caps because of greater volatility and susceptibility to price manipulation.


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## pinkboy (31 March 2015)

valuepack said:


> Nice to see like minded strategies. That is also my intention as well, to live off dividends but I dont think current levels are sufficient for me. What is your current portfolio allocation to bonds (if any)?
> 
> Some of the stocks like IAG and SUN had forecasted reducing dividends in future years thats why I excluded them from my list.
> 
> I am still hesitant to include any small caps because of greater volatility and susceptibility to price manipulation.




You would be around 6% with those PP. $60k pa so far, plus franking.

I have no bonds, nor know how they work.  I will however be living off dividends, rental income and several streams of business income.

I purchased IAG and SUN as they did have progressive forcast yield last year, but have since been revised. I'll still continue to hold anyway and topped up some IAG as recently as before ex dividend at well under 6 pesos.

My WAM holding is my mid/small cap exposure.  It is close approaching $1bil market cap, so becoming a decent player size wise in the game.

My strategy might not be bullet proof, but at 31 I have plenty of time to work or go again if things turn to custard.  

pinkboy


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## valuepack (1 April 2015)

VSntchr said:


> Nice of you to put your strategy out there for everyone to see.
> 
> A couple of points I considered when having a look:
> 
> ...




Yeah I agree on the skewed weighting but it was one of the risk I was willing to take.

It also just so happen that those were the only stocks during that period (01/14 - 03/14) that fit my stock filters. BHP, RIO & WES were all yielding around 4 - 5.5% (inclusive of franking) during that period while the online savings rate was around 4.25%, but they are now all currently at 6.25 - 6.75% which makes them much more attractive to me.

Hopefully their current metrics continue this way so that my new portfolio come next financial year will be more diversified, although it would still have a ~50% weighting to the financial sector.

What do you think would be the main disruption to this theme (other than FED raising rates and OZ housing bubble)?

Interesting to note though that Berkshire Hathaway (Q4 2014 fillings with SEC) had a ~45% weighting to financials, will be interested to see what their weighting is for the upcoming quarter.

Im also aware on the "accuracy" of broker's forecasts which can sometimes be a just little better than flipping a coin. I guess my investment philosophy is not to solely rely on historical data  like some ETFs and Indices do but a combination of both future/forecast and past data.


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## qldfrog (1 April 2015)

valuepack said:


> Interesting to note though that Berkshire Hathaway (Q4 2014 fillings with SEC) had a ~45% weighting to financials, will be interested to see what their weighting is for the upcoming quarter.
> .



my own view would be:
45% in US bank consolidated and exposed positively to a rate rise in the US and to a whole economic growth is VERY differnt from a 45% exposure to aus finantials which is a 45% exposure to non consolated highly leverage house bubble;
my 2c only but I would not sleep well with your portfolio; Still wish you well and except for the banks choice which reflects the ASX imbalance, a reasonable approach.


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## The Falcon (1 April 2015)

Bear in mind only 20% of BRK is the listed equities you see in the 13F, with 80% being the wholly owned businesses. Those Financials you see BRK holding (WFC and AXP mostly from memory) have been held for a long time. You wont be seeing any material shift in these large holdings in the next quarter / year. You can find historical buy/sell's in the 13Fs and you wont see much action, aside from mid/small caps being bought and sold by BRK's investment managers, Messrs. Combs and Weschler.


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## valuepack (2 April 2015)

The Falcon said:


> Bear in mind only 20% of BRK is the listed equities you see in the 13F, with 80% being the wholly owned businesses. Those Financials you see BRK holding (WFC and AXP mostly from memory) have been held for a long time. You wont be seeing any material shift in these large holdings in the next quarter / year. You can find historical buy/sell's in the 13Fs and you wont see much action, aside from mid/small caps being bought and sold by BRK's investment managers, Messrs. Combs and Weschler.




Thanks for that info, I didn't take the other subsidiaries into account when looking at that weighting. How did you come up to that 20% figure?

BRK total listed equities holdings is ~$100B therefore other unlisted subsidiaries worth ~$400B?


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## The Falcon (2 April 2015)

valuepack said:


> Thanks for that info, I didn't take the other subsidiaries into account when looking at that weighting. How did you come up to that 20% figure?
> 
> BRK total listed equities holdings is ~$100B therefore other unlisted subsidiaries worth ~$400B?




Market cap $360B, listed equities $110B. So call it 70/30 at the moment...but the real value is in that 70% the operating businesses. This is the value you cannot clone by following 13Fs


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