Saturday, March 19, 2016

Question: Can you blindly buy stocks and retire?


Here's an interesting question. Let's say you're not a skilled or experienced investor. You don't know all the lingo and still look up words to read balance sheet. But you don't want to pay somebody a good portion of your paycheck to invest for you. Can you still have a good retirement/dividend income by buying the largest cap stocks with a long history of dividend growth at arbitrary prices?

Reason for this question: 

My workplace has a 401k plan but does not allow for individual stock purchases. Rather, it uses a variety of equity etfs, bond etfs, and treasuries. One good thing about owning these etfs is the ability to see their buys and sells. I've noticed that my dividend etf buys large cap dividend stocks with a long history of dividend growth (KO, MCD, PEP) monthly if not weekly. It will even buy these companies at all time high even though analysts, SA commentators, and multiple investing websites call them overvalued. During market corrections my ETF will flood the market with buys. They rarely if ever sell. My etf is not alone. Many other large etfs like Vanguard, State Street, and Charles Schwab are doing the same.

Approximately a year ago I decided to copy these etfs techniques in my Loyal3 account. At first I used only KO, PEP, K, KHC, and UL. Over time I did my research on new corporations and added eleven (11) more stocks for a total of sixteen (16). 

Here were my rules 

1) buy $20 worth of every sixteen dividend stocks listed below on the 15th of every month no matter the price. 

2) reinvest the dividends into the stock on the following months. For example, UL pays $6 for X month. On month X+1, I will invest $26 into UL.

3) invest large sums of money into my core consumer staples during market dips. For example, $1000 into KO when it reached $38.00 and another $1000 into UL when it reached $40.00.

4) Unless there was a SEC violation. DO NOT SELL. EVEN IF THERE IS A DIVIDEND CUT.   


My Loyal3 portfolio is now composed of KO, DIS, K, KHC, SBUX, PEP, MDLZ, NKE, YUM, AAPL, MCD, UL, WMT, DPS, VFC, and HSY. Here is a summary as of March 19, 2016.


TickerNumber of sharesContributionGain/lossPercentage G/LDividend per year
KO75.0077$3,033.00$387.3513.00%$105.01
DIS5.5567$600.00-$48.78-8.00%$7.89
K7.6276$510.00$70.9214.00%$15.26
KHC14.4097$1,011.43$102.5810.00%$33.14
PEP7.5179$720.00$41.496.00%$21.13
SBUX12.5483$683.00$66.1310.00%$10.04
UL51.3961$2,087.00$223.7711.00%$67.84
WMT41.8539$2,548.00$254.1210.00%$83.70
DPS1.1389$100.00$2.903.00%$2.41
APPL2.0472$225.00-$8.16-4.00%$4.26
VFC6.6413$420.00$21.655.00%$9.83
YUM2.7867$200.00$18.239.00%$5.13
MCD0.5032$60.00$2.444.00%$1.79
MDLZ4.2947$184.00-$9.03-5.00%$2.92
HSY3.7958$340.00$5.342.00%$8.52
NKE3.0253$190.00$0.560.00%$1.94
$12,911.43$1,131.519.00%$380.81total
2.95%percentage

Like my etf, I blindly bought the market at all time highs, lows, and everywhere in between. Even after blindly investing, I now own a mix of steady dividend stocks, value dividend stocks, higher dividend growers, and blended investments.

Besides MDLZ, DIS, and AAPL, I am in the positive with thirteen of my stocks. I have a capital gain of over 9% and my portfolio produces $380.81 a year or 3%. In a fifteen (15) month time period i have received 12% return on my investment (9% cap+3% dividends). 

According to Yahoo, the SPY (that thing every investor loves) has a -6.2  1-year total return. https://finance.yahoo.com/q/pm?s=SPY

Which means by blinding buying stocks and following the four criteria, I have almost beaten the SPY 3x over from January 1, 2015 to March 19, 2016. This is even a better return than my dividend etf. 

All this experiment shows is blindly buying large caps could potentially lead you to have enough money for retirement. Sure I could have gotten more cap gains if I bought at the lowest point; but, just by copying etfs strategies I have created a monster portfolio that trumps the SPY.   

I have no idea how this portfolio will last in a bear or recession but I will keep this experiment going as long as I can. Spin offs will get the same treatment $20 a month.

Either this strategy is the best ever or I'm the craziest person on the market. You know the drill. Do not take my advice for anything. I'm just some guy on the interweb. 

8 comments:

  1. I don't think it's a good idea but if someone tried to do it they would probably be in pretty good shape if they randomly picked stocks from Dave Fish's dividend champion list.

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    1. hey Captain,

      I agree this strategy is insane compared to looking for value and buying on dips. I tried my best to buy based on the etf principals of buy-and-hold. Look for good dividend stocks and hoard it as best as you can. Lucky loyal3 is mostly composed of large cap dividend stocks. What's really strange is how diverse my portfolio has gotten with this method. Originally I limited myself to big old dividend stocks. Since following this method I now have high growers (NKE, DIS, AAPL,SBUX) from different areas of the triangle.

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  2. Interesting strategy. How would you determine a market dip? Say in 5 years time? I think it is possible to test your idea over a series of simulation runs but in any case, the continuous investment method will definitely yield gains over a long period (10+ years, more the better) especially with your list of companies.
    D4s

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    1. Hi Div4Son,

      You know a dip when you see it! But I would consider a dip when VIX goes above 20 and there is a general negative attitude in the marketplace. This is not scientific nor is it backed by any study. Like my mentor tells me the marketplace is an art. There is no amount of math to explain our insanity. Take for example october 2014, December 2014, January& February 2015, August 2015, September 2015, and basically january and February 2016. Like how you bought UL, MMM, and DEO in january even though it wasn't the bottom, you knew that the market was pulling back and there was a general bad vibe in the air. I do the exact same thing.

      Negative feelings+vix 20+ is my best indicator of a dip. And it's pretty obvious when you can spot negative feelings. The front page of CNBC, yahoo, and a quick google search will have "the market is going to crash." Or you could sign up each of them on twitter and have it all at one place. When markets goes up all these organizations will post "buy now before you lose out." When it's bad they will incite a riot. Institutional etfs rarely sells. It's the mom and pops that start the riots after reading these articles. When I was a young investor I used to do the same. Once I started dividend investing vs growth investing I will now only sell in certain situations. I've learn from older investors. 80% of the market is ran by institutional investors. 19% want a quick buck. Only 1% is here to build wealth.

      My pull back buys were KO in August 2015 when vix was above 20+daily articles by the MSM about interest rates killing the US. KO went from 42 to 38 in an instant. And UL in August-september when the price dipped at 40 and below. I bought a bunch of SO in january/february when vix again when above 20 + daily articles from MSM saying china will crash and put the entire world into a depression.

      Now this is different than a recession. A recession to me is when the 10 year minus 2 year touches 0. Of all the doom and gloom doctors out there I have never seen such an accurate indicator of market crashes. Whenever the percentage is 0 something bad is about to happen. If it goes below 0 then something really bad is about to happen.

      As of right now it's at 1 so I believe we are nearing the end of the bullish/stagnated run. It's time to save up money and put more into defensive stocks but it's not time to run for the hills yet.

      https://research.stlouisfed.org/fred2/series/T10Y2Y

      i hoped that helped. I like to rant

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    2. Thanks. I like the use of your indicators. Basically, your strategy is to buy regularly, hoard cash during the market highs and double down when the market dips (based on your Vix and fed indicators). Of course, you're not 'blindly' picking your companies :)
      Thanks for the clarification on the Vix. I may try to incorporate portions of your strategy into mine though I am in a funk this last two months with big expenses. (Roof, HVAC, insurance, tax ... The list goes on....)
      D4s

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    3. sure thing div4son. I'll write another article about the vix this week. It's an interesting indicator that nobody really uses =)

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  3. Excelent!!. I am doing the same: 12 stocks * 25.00 per month. Free with Loyal3.

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    1. hey matusalen, I guess I'm not the only one. keep it up and we might both enter early retirement =)

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