Evolving Context: Focused Investing Update for October 2024
Any investment author worth their salt stresses that individual context is an essential element of portfolio construction and investment decisions. My own personal context has changed this year.
It makes sense to do some focused thinking about that change, which is why this is the topic for the present update. One takeaway for you is that when your financial context has changed, it is time to re-examine your approach.
Overall, though, my perspective on being a retired investor has not changed. In summary:
You cannot trust total return to sustain your ability to draw income, because in some decades market earnings multiples drop substantially.
Beware of financial engineering, because in some periods the Fed will be unwilling or unable to bail you out.
Focus on companies paying sustainable dividends with robust business models, able to grow those dividends at least with inflation.
Within that constraint and within your circle of competence, buy where Mr. Market offers you higher yields.
One can seek to grow income by taking advantage of those opportunities that Mr. Market presents. This can be done with income positions and with positions selected for upside. I do both.
It took me time to reach this perspective. The past five years have seen a lot of evolution for me:
Five years ago I felt forced to retire for health reasons.
Financially my resources fell short of what I had planned, leading me into investing, with a first goal of achieving that plan.
Starting in late 2018 I developed deep expertise in REITs and a working knowledge of oil & gas. The reasons are that both match well with my background and both are niche markets where it can be easier to find mispricing of stocks.
My portfolio approach also evolved as it moved from holding many companies only somewhat understood to holding a lot fewer understood pretty well.
I transitioned three years ago to my present approach — a portfolio dominantly focused on reasonably secure dividends likely to grow modestly.
The outcome was huge gains in 2021, survival in 2022, and a slow upward grind since then. My portfolio holdings have set new highs several times this year. The sum of holdings plus funds distributed for spending, a good indicator of success, is up about 80% since the start of 2020:
Beyond all that, I made some decisions over the past year that reduced my future spending needs. This included establishing some annuities at the peak in interest rates, buying a new car with cash, paying off a mortgage, and topping off my donor advised charitable fund.
Before those actions, I had been drawing at intervals from my dividend income. Today:
My projected 2025 income, including dividends, substantially exceeds projected spending.
If my “outside” earnings disappeared, I would still need less than half my current dividends to support such spending.
In short, my personal context has changed because my financial goals are met. That leads to a question: What the hell do I do now?
What is the Goal?
It seems to me that there is a time to re-consider one’s goals, and a moment of achievement is one of them. I apologize if what follows seems to be excessive navel-gazing.
That said, verbalizing these things about myself really does help me set directions. Maybe you should try it too.
Several issues matter.
Constraints: While I would love to return to spending a lot of time teaching Alpine Skiing and going on ski trips, that is not in the cards. More generally, my focus has to be something I can achieve on the computer and online.
Purpose: The question here is what sort of impacts I want to have going forward. There are lots of options.
I could seek to grow much more wealth, taking more investment risk for higher gains.
I could seek to broaden my life experiences and invest more safely in order to put more attention elsewhere.
I could seek the reward of helping others. I’ve been doing a lot of that with my investment research, writing, and chatting. Or I could do something very different such as active online fundraising for causes I value.
Enjoyment: Whatever I do, it matters to find a direction such that I enjoy the process and not only the endpoints. This pretty much steers me to some kind of analysis, seeking to figure out complex systems.
Intangible Value to Me: There are some people who are happy as a clam if they just pursue a process they enjoy every day. I rather envy them, but that is not me.
Others find tangible achievements, such as having more money, sufficient motivation. That too is not me.
At my 70th birthday celebration last weekend, I overheard a woman who has known me professionally for decades tell someone “everybody loves Paul.” Of course that is not true and being loved like that was never my goal. But the overarching context was that my actions have positively impacted many people and this does matter to me.
Having a long-term, positive impact on those around me has long been something I value a lot. And looking back on my years of investment writing, the most intense moments of joy have occurred when a reader told me that my writing had made an important difference for them.
So the goal(s) that make sense to me are these:
Invest wisely, with eyes on sustaining my required dividend support and on growing my legacy.
Share my thoughts and the results of my research, to help others achieve their own success. That is what I will continue to do here.
All the above is not written to provide a template but rather an example. Knowing yourself and finding your direction is your problem. Don’t just ignore it.