和時間做朋友 -- let time be your friend

Dividend investing is not a get-rich-quick scheme. Because of this, sometimes we may get impatient and become off track.  For example, for me, I would like to think in this way: I am still relatively young, so I don't want to set up my account for retirement. What I want to do is to use my money to generate more money and accumulate more wealth with some "big risks big return" method.  So sometimes the buy-low-and-sell-high strategy looks more attractive.  Those vivid stories of become-rich-overnight itches dividend investors and make some of those not very determined ones deviate from their well-planned right track. 

 

It is no doubt that success is possible using this buy-low-and-sell-high strategy.  However, from the long run, it is not necessarily the case.  There are multiple studies on this.  For example, DGI offered several excellent examples in this article, including his own portfolio performance, to prove how to crush market with dividend growth investing.  According to Ned Davis Research, a $100 investment in dividend growers and initiators in 1972 turned into a cool $4,168 by the end of 2012, compared to $1,622 for an investment in S&P 500. However, the investors that put $100 in 1972 in non-dividend payers and dividend cutters & eliminators ended up with only $193 and $88 after 41 years.

 

 The beauty of dividend investing is inaction.  You don't need to do much once you choose good companies to invest in.  Let time be your friend.  The great businesses will utilize your money efficiently, and generate a live passive income stream for you.

 

The key is to look for the best businesses, not the cheap valuation metrics.  Buffett said it was better to pay a fair price for a great business rather than a great price for a fair business. When talking about buying a stock, I tend to be a cheapskate. I don't want to pay high price for any stock if possible.  I incline to wait for very low entry points.  If the entry point ever comes, that's my strike of luck. However, most of the times, the entry points I set up don't come at all, leaving me chagrined at my decision. Worst of all, if the market prices get lower and lower and they are finally near my entry points, sometimes I'll reset the entry points to be even lower.  This is really my sore spot.  I have missed many opportunities because of this.

 

Josh Peters at Morningstar pointed out that the best-of-the-best dividend-paying stocks are rarely cheap, and when they are, it's usually because the whole market has been crushed and most other stocks are cheaper still.  His words has really struck home, pinpointing to my stingy thinking. Ben Graham mentioned the related thinking in his final (1973) edition of The Intelligent Investor:

The risk of paying too high a price for good-quality stocks--while a real one--is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions....These securities do not offer an adequate margin of safety in any admissible sense of the term.

 

I become clearer and clearer that if you look at great businesses, entry points don't matter that much (although selecting a proper entry point is still very important.) , as long as I stick with my buying guidelines and let time be my friend.  Even though I may not hit the lowest entry point, I still have margin of safety by buying economically defensive and competitively advantaged businesses with strong balance sheets, and manageable payout ratios. 

 

There is an old saying: "More haste, less speed".  Discipline is the most important trait for dividend investors to become succeed.  If you are still worried about the turtle slow aspect of dividend investing, just look at the dividend income of fellow blogger My Financial Independence Journey. comparing his year-to-year dividend income, I don't think this dividend investing is as slow as imagined.  His annual dividend income is really encouraging to me.