My Holdings

A couple of posts ago, I told you about the way I pick the stock I buy, and I decided that today I should give you a list of the actual holdings that I have. I've listed them below in terms of their current value and their value when I bought them (including purchase fees).

All in all, including the purchase fees, I've spent $6375.13 and have a portfolio worth $6475.63. It's an increase of roughly 1.5% since I started purchasing stock during early October. Now; I won't be able to put as much money into the market every month as I did during October and November, but I'm hoping to be able to add at least another $1000 monthly.

As you can see, I'm also down on Intel, Union Pacific Corporation and Walt Disney Corp, but all three of them have a very positive trend that I'm hoping will resume later in the year or early next year. I'm not too concerned about their long-term value continuing downwards.

There are still a number of stock I want to own in addition to these, but I'll cover them in a future post.

Conflict

Had I been the kid I was thirty years ago, but being raised today, I would probably have been diagnosed with ADHD. I had enormous problems sitting still, could never concentrate and was extremely bad at doing just one thing at a time. During middle school, I almost always failed (or just barely passed) my tests but aced my take-home essays, because I was able to write them while listening to music, watching TV, talking to friends and taking regular breaks for something else.

Now, in my adult years, my physical symptoms have all but disappeared, but the mental aspect of it all is still there. Instead of my body and brain being crazy, it's been relegated to just being my brain now. I'm served fully formed ideas without being aware of having thought of them. I'm reminded by friends and family that I'm zoning out when talking to them, only to snap back into reality and realize that I've been miles away thinking about something else. My brain takes me on excursions that I can't control and I'm never happy unless I'm able to occupy it with a dozen things at once.

That's why I hate conflict. If I have an argument or a disagreement with a friend or family member, and we leave each other on unhappy terms, my mind literally blows up. OK, not literally, but you catch my drift. Somewhere in the back of my head, millions of combinations of results are spawned, some dreadful, some neutral and some hopeful. It's paralyzing, and I sometimes find myself just staring off into space realizing that I've lost half an hour because my body shut down to allow my brain to do its thing. I find I have no appetite, am extremely tired and completely worn out, all because my brain has been stealing all of my energy just to get me to run through the options.

If it's a family member or a girlfriend that I've fought with, it's even worse; because I invest such a large portion of my own identity in those relationships. It's not just something I have, it's somebody I am. Suddenly having part of that torn away from me - even if it's just in my imagination - is one of the worst things that I can go through and leaves me shattered, unable to properly take in any other experiences. When E and I broke up a year and a half ago, I spent the better part of many nights just trying to get my brain to slow down. After a relationship of six years, there were so many things my brain wanted to run through, analyze, dissect, pick apart and jumble together for me to be able to do anything other than just wait for it to be done.

It's an annoying aspect of my personality, and one that I have learned to dislike several times over through my life, but it wouldn't be there if it weren't for all the great things this mindset has offered me as well. It's a rotted strawberry inside an otherwise delicious fruit salad.

The Stock I Buy

In a previous post, I talked about how I think about growth stock and dividend stock. It's an important distinction to make, and you need to understand the difference between the two and decide which kind - if not both - you want in your portfolio.

The second question to ask, of course, is: Which stock should I buy? It's a tricky question, and one that requires you to make a number of very specific decisions and choices in order to get a clear answer to. It took me a while, but I have a couple of criteria which have served me well so far, and I'd like to share them with you here:

Legacy 

First of all, I don't buy stock in a start-up or a company that just went IPO. There's just too much inherent risk even if the potential wins are massive. For every startup that makes it big, there are dozens that are belly-up within just three years. For every IPO that has consistent and regular growth, there's another that flops and behaves erratically on the market for several months.

That's why I want to see a company that has been in operation for at least five years since becoming tradeable, preferably even more. Facebook (NASDAQ:FB) and the like are off the table entirely, but companies like Pfizer (NYSE:PFE), Wells Fargo (NYSE:WFC) and Monsanto (NYSE:MON) all qualify. 

Breadth 

Even though they might be good growers, I rarely invest in companies with a very narrow niche market unless they have a de facto monopoly that will be extremely hard to shake. For example, I didn't for a second consider buying GoPro (NASDAQ:GPRO) stock because I know that all that needs to happen is for another company to release a competing device of superior quality or at a significantly lower price. Since GoPro really only compete in one extremely small market, it's going to be hard for them to keep a steady growth for many years to come; there will be competitors who turn them down a peg. Sure; the money might be good until then, but it's not very reliable.

Instead, I invest in companies that exist in many markets. My favorite example, as so often before, is Disney (NYSE:DIS). They have movies, television studios, merchandise, theme parks and plenty more to offer. Even if one market slows down (theme parks during winter, for example), the remaining markets still push the growth. They also own many of the best known franchises in the world, like Mickey Mouse, Marvel, Star Wars and Pixar. Similarly, companies like Coca Cola (NYSE:KO) or Johnson & Johnson (NYSE:JNJ) are extremely diverse and have no immediate weaknesses in terms of being pushed out of the market.

Profitability

I also like seeing that the companies I invest in have been consistently profitable. That means that during the past five years, I need to see that at least three of those years have been profitable and that the average yearly change is at least 5% - less so if it's quite obviously a dividend stock.

I understand that past trends are no guarantee for future trends, but it does set your expectations.

Other

I have a couple of other criteria, of course, but those three are essentially the main ones. I'll go into more detail as to which individual companies I've picked at a future date and explain my reasoning.

Investing, Speculating, or Gambling?

Most people who have money on the stock market don't really know if they're investing, speculating or gambling - and there is absolutely some overlap between the three. These three activities are, as far as I can see it, three very distinct approaches to making (and losing) money on the stock market.

Gambling involves putting money down and risk losing it. The problem with gambling is that, for most players, it's not actually about winning, it's about playing. Have you ever met a gambler that won money and said he was done gambling now? That his wins were finally good enough and he could withdraw from playing? Probably not.

The same goes for the gambing approach with investors; they might think a small medical company, for example, might strike it big, so they put a lot of money down on a penny stock and either lose it all or gain it back 400-fold if the company discovers the cure for Ebola. It's a gamble, and there is never any way for people to know if it will pay off.

Personally, I find most investment gamblers have a very poor relationship to money. They might lose heavy several gambles in a row, win one and feel it's worth it. The game is what matters, not the balance or the final outcome. 

Speculating is doing something despite there being an inherent risk. You don't know if Alibaba is going to go up or down after their IPO, so you buy stock as early as possible, because you feel fairly confident that it's going to go up. You're not sure, but you've got a pretty good idea that's where it's going. You've done your homework and feel like the current value of the stock is lower than what it "should" be and think the market will surely correct this, at which point you can sell for a profit. 

I see a lot of day traders as essentially speculators. They look at a stock that's just dipped below where it tends to be during that point of the day, and pump in $10,000 assuming that it's going to rise back to where it was, then sell it off once it reaches that point (or slightly higher), because the assumption is that the next motion will be down again. There's some huge money to be made in speculation, but it's also risky and takes a lot of time and effort.

If I had a massive sum of money, no dayjob and could trade stock without any fees, I would be more inclined to speculate. Right now, though, it just really isn't worth it. 

Investing is being aware of the risk and playing what you think the odds are. The time scale is also much longer than in simple speculation. An investor might be familiar with the overall trends of certain markets and individual stocks during long term and finds the odds of that trend continuing to be fairly certain. He/she invests money in several different stock from different markets, knowing that even if one market or company were to have a slump or recession, your other investments would still pay off in the long term. A long-term investor approaches the market with the mind of a technician, not caring as much about the possibility of quick wins, but rather the mind of a person who has a specific end goal.

None of these three is better than the other; I think I should point that out, but they do portray very different personality types. I see myself as an investor, but have a few small gambles; mainly penny stock that might grow a lot very suddenly if the company strikes it big.

Dividend vs. Stock Growth

As I'm sure many of you know, I've been giving a lot of thought into the stock market during these past few months. One of my biggest questions has been the efficacy, in the long term, of buying stocks that increase in value versus stocks that pay out a regular dividend.

As far as I can see at the moment, both methods have clear advantages and disadvantages.

Dividend Stock

The obvious advantage of owning stock that pays out a high dividend is that you can more or less count on the money to end up in your pocket no matter how much the value of the stock goes up and down. If I want to get $50,000 a year from a stock that pays out a $1 dividend quarterly, the math is simple; I need to own 12,500 stock in that company. It doesn't matter what the price of the stock is; it can plummet by 50% overnight and - as long as the company doesn't change their dividend plan - my payments will remain the same.

One of my favorite dividend stocks at the moment is Chevron (NYSE:CVX), which during 2013 paid a dividend of $0.9 for the first quarter and $1 the remaining three quarters. During 2014, they've increased their dividend to $1.07, and we're looking at it probably reaching $1.10 within the next half year or so. The stock itself is a steady, gradual grower, moving from just over $102 per stock in the beginning of 2012 to around $125 now. It's no massive growth, about 18% in almost three years, but what it lacks in growth it more than pays back via dividends.

For example; if I were to buy 1,000 stock of Chevron right now, it would set me back about $102,000, but every quarter, I'd get $1,070 of that back. It'd take me 25 years to earn the purchase price back in dividends, assuming it doesn't grow at all. More likely, it's closer to 10 to 15 years. During that time, the stock itself has probably grown in value as well, and my $102,000 investment could be worth over $200,000.

The disadvantage of dividends, of course, is that it's very difficult to keep track of what you own. As these stock tend to grow slower than other stock, it's almost impossible to just sell your holdings for a quick pay-day, you need to sit it out and just let the money accumulate. For many, this is ideal; the idea of selling stock is anathema to many people. For others, who enjoy speculation and regular trading, this is a disadvantage.

Growers

The advantage of stock that grows over time is obvious. If you buy 500 stock at $200 each (for a total of $100,000) and it grows to a value of $270 a little later, you can sell off a couple of your stock to get some of your money back. This means you always have more or less ready access to capital that you can be fairly certain will increase over time. If you're saving up for a distant future event, say retirement, buying a house or car, or even just having a buffer in case you lose your job, this is a great thing.

There are several great "growers" out there. Apple (NASDAQ:AAPL) is one of the more obvious, having grown 3510% in 10 years (and 25,76% this year alone!). They currently show no sign of stopping, and I believe every dollar invested in Apple is a dollar well placed. 

The disadvantage, of course, is that you can never be sure that the stock will continue growing year on year, and sudden changes in fortune can stall your growth or even take away from it. People lost millions of dollars in the stock market crash of late 2008 and early 2009, often seeing their total holdings drop up to 60% depending on which markets they were most heavily invested in. Microsoft (NASDAQ:MSFT), which had opened in 2008 at $36.12, was down at $15.28 at their worst in 2009, and it took them until November 2013 before they'd recouped their losses and traded above $36.12 again.

Even though the stock market crash was a massive anomaly, small mini-recessions or stagnation happens all the time, sometimes in a single market (say housing or medicine) or sometimes as a general trend in all markets. Relying on stock growth can be very risky, but if you spread your wealth into many markets you're safer than most.

The best of both worlds

There are a couple of stock out there that have both great dividends and great growth. These two things buffer against each other, so that even when growth is small, dividends still give you regular cash. Also, even if the dividends might be small, the growth of the stock makes up for it. I believe it's essential for your portfolio to include a couple of these.

My favorite best-of-both-worlds stock at the moment is Disney (NYSE:DIS). Even though they only pay dividends yearly, the value of their dividends has grown very rapidly. Just these past five years, the change has been:

  • 2009: $0.35
  • 2010: $0.40
  • 2011: $0.60
  • 2012: $0.75
  • 2013: $0.86

They still haven't announced their dividends for 2014, but I'm expecting them to land around $0.90 to $0.95, possibly even above $1.

As well as having good dividends, their stock price growth has been a very nice upward curve since their drop in early 2009. They opened 2012 at $39.91, 2013 at $52.19 (more than 30% growth), 2014 at $76.11 (more than 40% growth). They're currently hovering around $90, which is 20% higher than they opened in January. Stock bought for $100,000 at their very lowest in September 2011 would be worth $267,730 now and would have paid out $6,714 in dividends. Adding up the growth and the dividends, that's about 275% growth in three years.

Another favorite in the same category is PepsiCo (NYSE:PEP) which has steadily grown their quarterly dividends from $0.45 five years ago to $0.66 today. During the same time, their stock value has grown by about 55%, most of that coming from gains in 2013 and 2014. $100,000 invested five years ago would be worth $171,752 today ($17,503 of which would be dividends, the rest in stock growth).