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Welcome to Safe Dividend Investing’s Podcast # 161 on March 28th of 2024.
Today, I will be answering 2 interesting investment question.
QUESTION (1)
HOW CAN I RECOVER FROM A STOCK LOSS AND REGAIN MY CONFIDENCE?
QUESTION (2)
I BOUGHT SHARES IN A STARTUP THAT FAILED AND WENT OUT OF BUSINESS, HOW CAN I GET MY MONEY BACK?
In Podcast #154, I announced a contest to select 20 stocks using $200,000 in “play money” that will generate the most capital gain and most dividend income over 12 months. While this contest was created as a learning exercise for those who have been hesitant about investing in the stock market, it is open to anyone who wants to test their investment skills. To make it a bit more captivating, the winner will receive $100 as an incentive.
SIX INVESTMENT BOOKS, BY IAN DUNCAN MACDONALD, ARE AVAILABLE FROM AMAZON.COM KINDLE BOOKS, THE FOLLOWING ARE THE 2 LATEST:
(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. Released September 23.
(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.
A TRANSCRIPT OF THIS PODCAST IS AVAILABLE.
FOR MORE INFORMATION ON HIS 6 INVESTMENT BOOKS, 3 NOVELS, PAINTINGS, PHOTOGRAPHS AND DIGITAL ART VISIT www.informus.ca
Ian Duncan MacDonald
Author, Artist, 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
Podcast 161
28 March 2024
SAFE DIVIDEND INVESTING
Greetings to listeners all around the world. Welcome to Safe Dividend Investing’s Podcast # 161, on March 28th of 2024.
My name is Ian Duncan MacDonald. In today’s podcast, I will be answering 2 interesting investment questions.
In Podcast #154, I announced a contest to select 20 stocks using $200,000 in “play money” that will generate the most capital gain and most dividend income over 12 months. Seek out the transcript attached to Podcast #154 for more details.
While this contest was created as a learning experience for those who are hesitant about investing in the stock market, it is open to anyone who wants to test their stock picking skills. To make it bit more interesting the winner will receive $100 as an incentive at the end of 12 months.
Request the Excel entry file, if you are interested in participating,at ianduncanmacdonald@hotmail.com.
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
HOW CAN I RECOVER FROM A STOCK LOSS AND REGAIN MY CONFIDENCE?
I recovered from a $300,000 stock loss 24 years ago. The loss occurred when I entrusted my life savings to a long-established investment advisor. He invested all my money in mutual funds. I was assured by him of a safe investment because of the funds large size, its carefully chosen stocks, its diversity and its experienced professional management.
All I had to when I retired in a few years, was to slowly liquidate 4% of the units in this glorious mutual fund each year. He assured me the portfolio would last until I was 90. That seemed a long way off at the time - but now, decades later, not so far off.
The logical idea that by selling mutual fund units each year I would be destroying the source of my income never occurred to me. I was stupidly putting my blind trust in a “salesman” who was paid to separate me from as much as my money as was legally possible and transfer it into his pocket. That the investment that could be an illusion created by fund marketers never occurred to me. What the fund was invested in was also something I did not know I should question. As well I never thought about the implication of an average inflation rate of 3.5%. I willingly turned over hundreds of thousands of dollars to the advisor.
I was smart enough to ask how much it would cost me for his managing my wealth. He smiled and replied so little that I would not even notice it. This non-answer, for some reason was accepted by me.
Having my pockets picked over several years was not all unpleasant. He owned a private resort on an island on which I was wined and dined over several days each summer. It never occurred to me that I was paying for the fine wines that he had bought at auction. In my mind he was just a generous friend and host. There is nothing truer than the old saying that there is no such thing as a free lunch.
After the $300,000 loss, I took back what money was left and set out to find a way to safely recover what I had lost. The clock was ticking. Retirement was not far off.
The first thing I did was to control expenses. I became a self-directed investor. No longer would I pay or trust anyone but myself to touch my investments, especially financial advisors.
What have I learned since then? I have learned that no financial advisor is going to spend the reasonable length of time that I spend to thoroughly research perhaps 50 individual stocks to create strong portfolio of 20 stocks. Why should they? It is too easy for them to sell naïve investors on placing hundreds of thousands of dollars in the vagueness of mutual funds, index funds and ETFs. In five or ten minutes they can close the sale of a mutual fund to someone who mistakenly relies on their questionable advice and supposed expertise. The fund sale will generate thousands of dollars in income for the advisor every year, perhaps for decades.
Since it is a fund, it requires zero effort on the advisor’s part to pick the stocks and manage the fund. This is all done by the fund company. What a great way to make a big income if you are a good salesman while convincing yourself that you are helping this ignorant client instead of yourself. I calculate that I have saved several hundred thousand dollars in advisor fees and charges since taking control of my own investments.
To limit the possibility of another catastrophic loss, I spread my money equally among 20 financially strong stocks. No one can accurately predict the future, therefore I anticipate that one or two of my carefully chosen stocks at any might not gain as quickly as I would like or at various times might even fall below what I originally paid for the stock. However, as expected, I have seen that these few deviant stocks represent a small percentage of the total portfolio and their impact upon the total portfolio was irrelevant. The gains in the other stocks far outweigh any laggards. No matter how smart and thorough you are in building the perfect portfolio, a perfect portfolio is not possible. Getting it right 80% of the time will give you the income and growth to live very well off your portfolio.
Since, I know exactly what I chose to invest in and why I carefully chose those stocks, I sleep better at night as I recognize that I may never sell these stocks. I escape the anxiety that speculators face who buy unprofitable stocks with unproven potential. They are constantly faced with the question of, “Is now the best time to sell this stock”.
Investing my way is so unlike investing in funds, where you have only a vague idea as to what might be going on with the hundreds of stocks that are supposedly in the fund. You soon realize in your research for the 20 best strong stocks for your self-directed portfolio that that there are not hundreds of stocks worth investing in. That the big number of stocks that fund managers love to toss out is supposed to impress naïve investors. The want investors to believe that the larger the number of stocks in a fund, the stronger the fund. How wrong they are. The larger the fund the more mediocre weak stocks it has in it.
All the 20 common stocks in my portfolio are paying high dividends over 3.5%. Some are paying close to 10%. These chosen stocks all display years of constantly increasing their dividend payouts. It is easy to view stock dividend payouts going back for decades.
The source of the dividends are company profits. All my stocks are profitable. Without profits companies cease to exist. Interestingly, I have found that dividend payouts increases are higher and rise at a much faster percentage than share prices.
To help me objectively grade stocks I built stock scoring software for myself (which I now share with my readers). It allows me to balance high scoring stocks paying lower dividend yields with lower scoring stocks paying higher dividend yields. This balance gives me an average dividend yield percent of at least 6 %. You need this balance because the strongest stocks rarely pay dividend yields over 6%. You want a balance of both high financial strength and high dividend yields in your portfolio.
There is rarely ever a reason to sell stocks in your portfolio to realize cash to live on. Even in market crash years and recessions you can live well off your steady, reliable dividends as you patiently wait for share prices to again reach new record levels. I learned, before I needed a dividend income to live on, that if I invested the dividends back into those 20 stocks, I could expect to double of my portfolio’s value in about 5 years.
I have invested this way for more than 20 years. The portfolio grew into 7 figures and the annual dividend income grew into 6 figures. It is still growing and keeping me ahead of inflation.
Friends worried about their investments asked me how I was able to achieve my results. I showed them exactly how I invested. This led to my writing 6 investment books to help as many people as possible become successful self-directed investors. In each book I have made it easier and faster to build a strong dividend portfolio. In the last few years, I added the weekly podcast called “Safe Dividend Investing” to reach even more people with my message of self-directed investing.
I suspect the last thing the investment industry wants is to encourage self-directed investing. The have zero motivation to show investors all the free internet tools that make successful investing easy. I also suspect that most investment advisors would not have a clue how to quickly identify 20 financially strong, safe companies paying high dividends.
Thus, you too can recover from a catastrophic investment loss by following the logical, straight forward strategy that I followed. It is made easy with my stock scoring software, charts and historical data on hundreds of high dividend stocks.
QUESTION 2
I BOUGHT SHARES IN A STARTUP THAT FAILED AND WENT OUT OF BUSINESS, HOW CAN I GET MY MONEY BACK,
Almost all “start ups” are unprofitable speculative companies whose revenues never exceeded their expenses. The chance of an investor in failed speculative startup stocks ever recovering their money are slim to zero.
When you invested in that startup you agreed to a clause somewhere in an agreement that you are a only a shareholder of that company. Your liability, as a partial owner of that company, is limited to the value of the shares you purchased. This is why incorporated companies are called limited liability companies and why disgruntled creditors can’t come after shareholders for the money they may have lost when the company did not pay its suppliers. With proprietorships and partnerships creditors can go after the owners.
Whoever sold you those shares would also have made it very clear in writing that in buying these share you were promised nothing in return for your money. The first thing you should now do is review all the documentation involving the purchase of the shares just to confirm your legal position.
If you bought these shares in a legitimate stock market, then the accuracy of any documents you received about the stock are public record and scrutinized by the Securities Exchange Commission for accuracy. If it can be proven that fraudulent information was filed with the Commission, then there might be a case of suing the officers and directors of the company directly. The directors probably have directors’ liability insurance to cover such legal actions. If they do not have insurance, they individually may lack the assets to make a legal action worthwhile. Suing an insolvent company would be futile if its assets have been stripped out long ago. This leaves no assets to execute judgments against
The sad part is that the officers and directors had no problem in promoting shares that promised nothing. They know speculative investors rarely bother reading all the information filed on a startup company. Speculators buy into the hype that they are going to get rich by buying shares in a start up company that may not now be profitable but whose share prices will soar as the company realizes its great potential. The lawyers for such companies made sure that nothing is promised in the documentation they prepare, and that it was made clear that this was a speculative gamble on the part of the investor.
It is possible to buy shares in companies that are not traded on stock exchanges. In doing so you do not have the Securities Exchange Commission monitoring the shares and protecting you. A non-public company makes such a stock purchase even more speculative.
Most jurisdictions limit how many shareholders can invest in privately in a company. Over a set number they must accept all the Security Exchange conditions of being a registered public company traded on an exchange.
Since companies do not become insolvent overnight the indications that the company is in trouble are usually evident months before it fails. You will often see the volume of shares being traded decline along with a decline in share price. It will become harder and harder to sell your shares to unsuspecting naïve investors. communication with the company will be difficult as they hide from share holders. They have little to say to the shareholders because they are attempting to sell the company at a fire sale price to anyone who would buy it. Such a desperate sale may or may not return some money to shareholders.
As soon as the trade suppliers start placing what they owed by this delinquent company with collection agencies and initiating legal suits against the company the end is not far away. The reporting of them writing NSF checks may be the final blow. This is why you always before buying a stock do a quick Google search with the company’s name and the words “complaints” and “legals” added to the search. Sometimes it discloses a serious financial situation.
After a speculative stock loss you hopefully realize that you should have more thoroughly analyzed the company’s potential. The idea that a quick, easy fortune was going to be made blinded you to reality. Your only consideration had been how much money the promoters said you could make. How much you could potentially lose was never your consideration - but it should have been.
If the unsuccessful company declares formal bankruptcy, then the trustee in bankruptcy and a group elected from the creditors will liquidate assets and distribute funds according to bankruptcy laws. Shareholders are at the very bottom of the legal distribution pile to receive a payout . They follow bankruptcy trustee fees, taxes, secured creditors, unsecured creditors, and employee wages. Out of hundreds of bankruptcies I was involved with I can only remember one where shareholders shared in what was liquidated.
Interestingly, most companies who fail do not go formally bankrupt. It costs money to go formally bankrupt. Such failed companies are classified as “limited companies out-of-business with no seizible assets”. The company has been abandoned, and everyone involved has walked away. Spending money on a formal bankruptcy in such a situation is a waste of money.
You write your loss off to experience and vow to never again invest in a speculative company being sold on its potential. You promise yourself to only invest in financially strong, profitable companies, who have paid high dividends for a decade of more. Unfortunately for them, those who see investing as a sport or game will soon find safe logical methodical investing lacks the excitement of the gambling that they crave. They will revert back to speculating.
Diversity in investments is important. A portfolio of 20 strong stocks that you have invested equally in is safer than one stock. It would be unusual for all 20 carefully chosen strong stocks to ever rise or fall at the same time.
Careful, frequent monitoring of a start up stock can minimize your losses. Despite how unlikely it might be , maybe this inexpensive start up stock may some day be another Microsoft or Apple. If you really must invest in a speculative stock, recognize the risk for what it is and limit your investment to what you can afford to lose.
END