Podcast 154 - A Game to Develop Investment Confidence and Skills

Welcome to Safe Dividend Investing’s Podcast # 154 on February 8th of 2024.
 Today, I will be answering one interesting investment question whose answer invites readers to participate in a game that will develop their investment skills.

QUESTION (1)

As a self-directed investor, how can I gain the confidence to put thousands of dollars into safe dividend stocks I would select for my future retirement income?

 (A transcript of this podcast is available.)

  SIX INVESTMENT  BOOKS BY IAN DUNCAN MACDONALD, ARE AVAILABLE FROM AMAZON.COM  KINDLE BOOKS)

(1) CANADIAN HIGH DIVIDEND INVESTING -
In this 325-page book, learn how to select, purchase and build a portfolio of 20 Canadian strong dividend stocks. Summary records of 215 stocks are sorted in multiple ways, and each stock's unique page provides detailed scoring data and 24 years of price and dividend trend data.

(2) NEW YORK STOCK EXCHANGE'S 106 BEST HIGH DIVIDEND STOCKS -
In this 334-page book, there is a 2-page report for each company scoring 11 data elements. It also lists 23 years of historical share price and dividend payouts so that investors can judge the stock's reliability. Released December 2022.

(3) AMERICA HIGH DIVIDEND HAND BOOK
                                              &
 (4) CANADIAN HIGH DIVIDEND HANDBOOK 

in these two books, pages of charts are sorted four ways by stock score, share price, dividend yield percent and alphabetically. A page for each stock provides eleven facts which created each stock's total score. Both books list all common stocks that were paying dividend yield percentages of 3.5% or more on the New York Exchanges and the Toronto Stock Exchange. 

(5) SAFER BETTER DIVIDEND INVESTING:
All 628 stocks paying dividends of 6% or more on the NYSE and the NASDAQ are scored and sorted by score, price, dividend % and alpha. Plus 199 high dividend Canadian stocks.  The answers to 128 questions asked by investors are provided. This instructional reference book will make building a better investment portfolio faster and easier.

(6) INCOME AND WEALTH FROM SELF-DIRECTED INVESTING

In this, his first investment book, in easy to understand language, Ian MacDonald reveals the serious concerns you should have about entrusting your money to investment advisors.  Step-by-step, he shows you how you can realize an annual 6% income while your portfolio continues to grow year-after-year. 654 stocks paying dividend yields over 3.5% or more on the Toronto Stock Exchange are scored and listed.

FOR MORE INFORMATION ON THESE 6 BOOKS, HIS 3 NOVELS, PAINTINGS, PHOTOGRAPHS  AND DIGITAL ART VISIT www.informus.ca   and also www.artgalarian.com 

Ian Duncan MacDonald 
Author and Commercial Risk Consultant,
President of  Informus Inc
                              2 Vista Humber Drive
                               Toronto, Ontario
                                Canada, M9P 3R7
                                 Toronto Telephone - 416-245-4994
                                  New York Telephone - 929-800-2397
                                   imacd@informus.ca

Transcript

Safe Dividend Investing

PODCAST 154

8 January 2024 

Greetings to listeners all around the world. Welcome to Safe Dividend Investing’s Podcast # 154, on January 8th of 2024.  

My name is Ian Duncan MacDonald. In today’s podcast, I will be answering one very interesting investment question that is of concern to millions of potential investors. Those who have steered clear of  investing in the stock market because they do not understand how or why they could do it safely as self-directed investors. It is not difficult to be successful at it if you keep your investing simple and straight forward. 

The objective of my books, my website and my podcasts are to show all those seeking financial independence how to become informed, confident, successful, self-directed investors.

QUESTION 1  

As a self-directed investor, how can I gain the confidence to put thousands of dollars into safe dividend stocks I would select for my future retirement income? 

The lack of confidence that causes you to avoid investing in the stock market has protected you from losing money in money losing investments. However, it has not helped you from losing money every year to that silent thief called inflation. 

Every year on average that bank savings account where you have stashed your savings is losing about 3.5% of its purchasing power. If you have $200,000 in your bank account, you are losing about $7,000 a year in purchasing power to inflation. The amount of interest the bank is paying you to use your money, so they can invest it and reap the profits, does not come close to compensating you for this inflation loss. 

If banks can take your savings and invest it profitably and safely so can you. It is just a matter of adopting some safe investment practices. 

 Banks are very careful with their money. They are noted for being conservative investors. Giving loans is one form of investing. Try to get a loan from a bank without providing them with security that is far greater than the loan amount.  Their first rule in investing is do not lose money and that should also be your first rule.  

Unlike speculators who invest based on tips, media hype and vague future potentials, a banker very carefully analyzes the risk before  putting their money into any investment. They also spread their money over many investments to gain the safety of diversification. They know the future can be unpredictable and banks control the loss millions of dollars on bad loans every year. They know if they are too conservative in their investing that it will hurt their total income. They also know a small number of unpredictable bad investment will be irrelevant when the profits from the billions of dollars of their good investments are taken into consideration.  

No one can accurately predict the future that is why, when establishing a self-directed stock portfolio, it is recommended that you invest equally in 20 carefully chosen financially strong stocks paying high dividends. You can not be so scared about investing that you make no investments. Nothing ventured. Nothing gained. Just invest in a logical careful manner and accept that you will not be right about your choices 100% of the time. 

It is important that you learn how to find those few good, safe stocks. In North America, there are in excess of 6,000 stocks that you could purchase. However, there are fewer than 200 that I would feel I would feel safe investing in. Out of these 200 you want to find and invest in only the best 20 stocks. Investing in too many stocks means you must be adding weaker and weaker stocks to your portfolio. Too many stocks also create too much work in selecting and monitoring the portfolio. The more work it creates the less likely you will put in even the minimum amount of time and effort your portfolio requires. Keep your stock portfolio easy and simple to manage. Don’t invest in anything you do not understand or can not measure.

 It is critical that you, not someone else, carefully select the “best 20” stocks for your portfolio. Your intention is to own these initial 20 stocks for decades. To hold them for such a long time means you must have faith in the strength of the 20 stocks you selected. Every few years your portfolio will be hit by recessions and market crashes. The share prices will temporarily dip. However, you will find that the dividend payouts on the vast majority will remain steady and a few will even climb. You just have to wait out the share price dip while living off your healthy dividend payouts. Your share prices will again grow to new record highs resulting in increased dividend payouts. This constant evolution of your portfolio will keep your wealth and income ahead of that silent thief, inflation. You should expect your strong portfolio to double in value within five years.

What is the best way for you to internalize good investment habits and prove to yourself that you are perfectly capable of selecting 20 strong stocks for your portfolio? I propose you learn how to do it by playing a game in which you invest $200,000 of play money in stocks. This game could take some  as long as year to prove that they are capable of building and managing a successful, growing stock portfolio. To make the game interesting I will donate $100  to that one participant who  realizes the greatest gain in total money from their portfolio of 20 stocks over one year. 

The first step in this game is to identify the 20 safe, financially strong , high dividend stocks that you think will grow and provide you with a life-long steady income. While you can use any of the many stock selectors that are freely available on the internet (like Yahoo Finance) in your search, I would suggest that you might find it easier and faster to  obtain a copy of either the “New York Stock Exchange’s 105 Best High Dividend Stocks” or the “Canadian High Dividend Investing – 215 Stocks Scored and Analyzed”. These two work/reference books are available at amazon.com.  While an e-book version is available for less than $10, I would suggest that you spend a bit more and purchase the paperback copy. You can more easily write notes on each stock’s printed page  and highlighting information.   

To help you find your stocks all the stocks in these two books are sorted by dividend yield percent, by share price and by their stock score. Going through these lists and the very detailed pages for selected stock with their 20 years histories of share price and dividend payouts makes it easy to sort out which stocks to choose.   

The objective of this stock selection game is to find the best 20 stocks that over one year will  average a dividend yield of more than 6% and grow the total portfolio’s stock value by 12% or more. It will require you to make compromises because perfect stocks do not exist. 

You will learn that the financially strongest companies with the highest stock scores, whose share prices are high and appear to be on a trajectory to go higher, usually pay dividend yields of less than 6%. If the dividend yield is less than 3.5% you would only be breaking even on the ravages of inflation. 

As well, as the share prices of many strong stocks increase, they often, for competitive reasons, increase their dividend payouts to keep their dividend yield percent from slipping below what it was in previous years. While these financially strong companies can give your portfolio a solid base. They will not provide enough dividend income to reach the 6% average dividend yield return for the total portfolio. 

A good dividend income is important because if your objective is to eventually live off your stock portfolio you need a reliable dividend income. It removes the necessity of constantly having to sell some of the shares in your stock portfolio to provide money to live on. Every share you sell decreases your dividend income. Even during market crashes and recessions when almost all shares drop in price, strong companies continue to pay their regular dividend payouts.  

While stock prices are determined by bidding between external optimistic and pessimistic speculators, the dividend payouts are conscious strategic decisions made by the executives of the company. Therefore, you also need smaller, less financially strong companies who pay dividends yields significantly greater than 6% to offset the lower dividend yields from your larger, stronger companies. 

Since the shares of high dividend companies would be less expensive, they provide a better chance to show faster increases in their share price than larger companies.  It is not unusual to see a $4 stock climb in a few years to $24 a share. Seeing $100 stock climb at such a fast rate is very unusual.

You are always advised to check the 20 plus years of dividend payouts and share prices of each stock presented in the books for each stock.  Strength and reliability of a stock are reflected in these historical records. Those stocks showing annual gains over 20 years are the ones most likely to continue their upward trajectory. They reflect the skilled, experienced managers who are directing the company.

The scoring system used to  measure the desirability of a stock is calculated out of a maximum of  100. It is explained in detail in the books and can be calculated manually. The higher the score the stronger the company. The highest score, out of thousands I have calculated, was a 78. The lowest score was an 8. I personally avoid stocks scoring below 50 but I do own a few that have fallen below 50. I keep them because they are often paying dividends much higher than 6% and can have  important financial strengths such as book values higher than their share price. 

To help you balance your choices between high scores paying lower dividend yield percents and lower scores paying higher dividend yield percents, game participants will receive an Excel spread sheet that will help them balance stocks. 

Going through the list of stocks in the book you may initially want to eliminate for consideration the lowest scoring stocks and those with the lowest dividend yield percent. Only stocks paying dividends yields greater than 3.5% qualified to be added to the books. When you make your final choice of a stock be sure to rescore it to confirm that there have been no dramatic changes in value. As well, do a Google search of the company name with the addition of the works “legals” and “complaints”. You want to eliminate any negative surprises.

Diversity is important for safety in investing. That is why it is recommended that you  invest the $200,000 in play money equally in 20 stocks and not in one or two stocks. How many shares of each stock will you be able to buy for $10,000 at their current price? The number of shares initially purchased become important at the end of the game in calculating how much money you have gained.  

If you are interested in joining in this stock game send an email to me at ianduncanmacdonald@hotmail.com  requesting the game spread sheet. On this Excel spreadsheet you will enter all the following information  and return a copy of your completed spreadsheet to me.  This will be your registration for the game and set your start and ending limits. I will determine who won in March of 2025.  

If you do not have the stock scoring software, you must also request it. For each of the stocks you choose for your portfolio you will complete the initial stock scoring screen for that stock, and take a screenshot of it and store it for future reference. At the end of the one year, you will  again score the stock and take a screenshot of it. This will allow you to compare the changes in the stock over the year of the game. 

The information you will be entering in the game spread sheet registration and sending to me will include:

The Game Starting Date: _____________ 

Your Name ____________________________________ 

Your email address _______________________________ 

For each of the 20 stocks chosen you will provide the following: 

The Stock Symbol. 

The Starting Stock Price. 

The Number of shares the $10,000 was able to purchase for that stock. 

The total dollar value of the shares purchased for that stock. 

The stocks total dividend yield percent at implementation of the game. 

The  Stock’s Score. 

On your copy of this spreadsheet, you will record the amount of each stock’s dividend payout each month over the year, if any. 

At the end of the year, you will record:

The Total Dividend Income from all 20 Stocks over the 12 months.       

The Price of 20 stocks on the game closing date in 2025 

You can then calculate the Gain or loss on share price for each stock. 

The Total annual gains by the 20 stocks on share price.

The Total annual losses by the 20 stocks on share price.

The Net annual gain or loss of all 20 stocks.

The Total of Dividend income added to total share price gains less any share price loss.

At the end of one year, after doing all the tallies  email it into me. I will sort all the replies by total dollars earned and announce the winner. In the case of a tie, a blind draw will be made. 

What do I think will happen over the year? I think that in the process of  sorting out good stock choices from bad choices that you will quickly realize it is possible to sort stocks by strength and reliability. Completing the software’s stock scoring form and scoring each stock will make you very comfortable  with what is  being measured by the  software and how it calculates the risk  score. The elements making up a score are the  Current share price; the Share price 4 years previously; The Stock’s Book Value; The number of Analyst Buy Recommendations; The number of Strong Analyst Buy Recommendations; The Dividend Yield Percent; The Stock’s Operating Margin; The Daily Volume of Shares Traded Daily and The Stock’s Price-to-Earnings Ratio. The books explain in detail why each of  these nine elements were chosen for calculating the stock’s score. 

 Over the year you will see  dividend payments coming in and the share prices fluctuating. This will be your proof  that  it is possible to realize total safe returns far greater than you would ever receive keeping your money in savings accounts and fixed investments like bonds. 

The other realization will be that if you can build such a portfolio  why would you pay an investment advisor and incur  their fees and commissions? Their charges would eat up half or more of your stock’s dividend return every year. Over a few decades this could be hundreds of thousands of your dollars that could have been invested earning money for you.

Since you will have put considerable thought into  the choosing of your 20 stocks you will know exactly what you are invested in and why you chose them. This is so unlike funds, where you hand over your money to an investment advisor. You now have no  control of your money in that fund and only a vague idea as to what the fund may be invested in. Having constructed a portfolio you are now aware that a fund with hundreds of stocks in it must contain a great number of weak stocks that you would personally never have chosen.

Your attitude towards investing is forever changed. When you are approached by salesmen selling investments you will now want to look at what they are proposing in an analytical way and ask meaningful questions. This will not endear you to that salesman. 

That salesman will never have put as much time into analyzing and constructing a portfolio as you have just done. They want to sell the easiest, fastest investment that will immediately make the most money for them, not you. It will be some form of a fund whose empty promises of wealth you will now recognize for what they are.

I also expect that after doing all this initial work and gaining confidence in your analytical abilities that you will want to start investing real money in the stock market long before the one year is up. 

I look forward to receiving the first request for the stock game registration form. A transcript of this podcast is available if you want to review it.