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Archive for May, 2010

Interested in Dividend investing, but don’t know how to start?

I had this dilemma when I was figuring out what I wanted to do with my ROTH IRA account. I opened this account sometime in 2006 and had no plan at all. I was just buying some ETFs with somewhat messy allocation and I truly had no clue what to expect from the portfolio. Was I looking at capital appreciation, growth, value or income? I had no idea.

To start investing I needed to find out what I wanted. All the time, every minute I was thinking how to increase my savings, how to boost my contributions into my investment accounts to make them growing at higher speed. And that was the moment I found what I wanted to do with my ROTH IRA account.

I did a lot of researching on the Internet what would be the best strategy and approach which would satisfy my initial question to boost my portfolio. I realized, that dividend investing may be the point. Investing into dividend paying companies may bring some capital appreciation over time and deliver additional capital to reinvest and boost my portfolio. And that is my 2010 year goal to bring it up to levels where the portfolio will be speeding up as a snowball and growing faster and faster.

When researching how to invest in dividend paying stocks I came up with several good ideas. One I liked a lot was that over the long term dividend oriented portfolio outperforms all other investment strategies. And that is what I wanted.

So how to start?

The best way is to read and learn from others. I found several great blogs on the internet and I learned a lot from the investors who run them. So, here are my favorite blogs from which I have learned the most:

The Dividend Guy
For me: the most valuable blog I came across during my research and I learned the most. The most valuable information you may find on this blog is the investment strategy, which you can find in “My investment process”. I also value the holdings section, which can provide ideas for stocks and ETFs suitable for adding into a portfolio. For me this section provided a great link between holdings and valuation of stocks. Lastly, the greatest value is the weekly review of what’s happening in the dividend investing world. If you are a novice investor like me, read this blog.

Dividends Value
A blog literally loaded with dividend stock analysis, tools and valuable advice on dividend investing. Originally, I came across this blog through The Dividend Guy. This blog is also a “must read” blog. As a newbie in dividend investing you may start with following the blog and its ideas and as the time goes you start being more proficient in selecting and analyzing stocks yourself and be more “do-it-yourself” directed. However to start, read this blog first on regular basis.

The DIV-Net
A blog of the dividend network. Another great source of information on dividend investing. All experienced dividend investors who I could find on the web are contributing on this blog, so you may find several different ideas from all these guys at one spot. Locate “Recent DIV-Net Core Member Posts” section and you will have them all at once. Read a lot. After about six months of reading I was able to gain some confidence on what I was doing with my ROTH IRA portfolio, so even today with such a scary market behavior I am confident enough to hold on the strategy, which I believe will save me money in the future.

The Dividend tree
Just go to categories and you find gems in there. Analysis, Asset allocation, Dividend increase, Investment process, When Markets Collide and many others worth of reading.

Dividends4life
The last of the blogs I read on regular basis. You will find a lot of valuable analysis and advice on this blog such as One Rule To Improve Your Investing Performance (DIV) and a lot of investing ideas. It has a lot of educational value (for example go to “Process” category) which will help you to create a sustainable strategy.

If you are thinking about what strategy to go and considering dividend investing and reinvesting all dividends to create a snowball which will boost your savings the best start is by reading those blogs.

My contribution to the dividend investing would be a short advice of how to start with a small account (if you have only a few bucks a month to invest). The dividend guy writes about it in his post What Would You Invest in if you only had $1000. However I might have my recommendation here. If you have only $1000 to start with and then ca. $50 a month as subsequent contributions, you will be forced to watch your costs primarily. And here I am not talking about the costs implied by the fund (which is one important aspect too), but by your broker. Yes, you may set up an automatic payment, but that will tie your investment decisions and asset allocations. You won’t be able to allocate your money freely into under-allocated funds and reinvesting the dividends will be limited only to reinvesting into the same fund which generated the dividend (DRIP), which I personally do not favor.

To overcome this limitation a non transaction fee (NTF) fund may be your solution. With this fund(s) you can invest as little as one dollar and it will cost you nothing. There are some other limitations, such as you cannot sell such fund earlier than after 180 days redemption period otherwise a fee will be applied, these funds may be a bit more expensive (the expense ratio is higher) than the regular funds and you still will need some amount for an initial investment, however you may find funds with zero initial investments.

A regular investing of small amounts into these funds can help you save enough money, get a nice dividend and once you save, you can sell the fund and reallocate your money into ETFs or individual dividend paying stocks so the commissions won’t eat up your profits. At least I learned dividend investing this way.

Visa under panic but creates great opportunity

When I opened the computer on Friday and saw the drop in price, my first thought was “what happened again?” and that “I might have jumped in too early” when I bought Visa (V) the previous day. But then I stopped panicking and started thinking again. What caused the major defeat of Visa along with Master Card (MA) and other financials? It’s our comrades in Senate whose philosophy is to help you even if you do not want any help and protect you against yourself. Maybe next time, whenever any of us refuse governmental help, the comrades may start using force and arresting us for not accepting such a generous (even unwanted) help.

Well, I sold Visa today to protect my money. I wasn’t willing to hold on losing trade. Maybe it was wrong approach because the stock may start growing again. Maybe.

Right now It seems like it will be driven further south, mostly by totally uninformed investors. Wall Street seems have no clue how Visa is making money and this is why investors start panicking whenever any news about credit cards come out. Earlier, about two years ago, I wrote about an analyst who recommended selling Visa, because it was exposed to credit card delinquencies. What a nonsense!

Today Visa is once again driven down by a crowd who is clueless how this company makes money.

You may already know that whenever you use your Visa credit or debit card your merchant pays 1% to 3% fee, called interchange fee. Most likely the merchant passes the fee onto a consumer, but large retailers may not. However that is not the point. A general public THINKS that this is the fee which goes to Visa (or Master Card). But that’s incorrect. Visa doesn’t receive a penny from this fee.

Who gets the fee then if it’s not Visa? I have read several conclusions these days stating that the cap approved by Congress may affect Visa revenue. Well, if Visa is not a receiver of the money, it won’t affect them at all!
I can see the confusion here. I read on CNN Money the following:

“Industry kingpins Visa and MasterCard collected interchange fees of at least $35 billion in 2007, according to government estimates.”

Everybody automatically assumes, Visa and Mastercard got so fat on this. Maybe this is why Dick Durbin got so jealous and decided to act and push the bill to protect his incompetent voters. In former Eastern post-communist countries you may find many such Durbins.

So what’s the deal with Visa and interchange fees? Visa collects those fees, but reimburses them back to the card issuing banks. Visa doesn’t keep a penny. When you take a look at annual report on Visa’s web, you will clearly read:

“Although we administer the collection and remittance of interchange reimbursement fees through the settlement process, we generally do not receive any portion of the interchange reimbursement fees.”

It seems, that investors didn’t do their homework when investing into Visa. All the mess around this stock is a pure overreaction and there was no need for such a sell off.

OK, so how is Visa making money? They charge processing fees and service fees based on transaction volumes and these are fully paid by issuing banks. Of course, banks will pass those fees down to their clients (in this chain the retailers), and they pass it on you, but the cap most likely won’t affect Visa at all, because banks will most likely reduce their own fees charged on top of the Visa’s ones.

I could find (unfortunately too late) that Visa anticipated something like this and on their web site they published the following:

If we cannot successfully defend our ability to set default interchange rates to maximize system volume, our payments system may become unattractive to issuers and/or acquirers. This could reduce the number of financial institutions willing to participate in our open-loop multi-party payments system, lower overall transaction volumes and/or make closed-loop payments systems or other forms of payment more attractive. Issuers could also begin to charge higher fees to consumers, thereby making our card programs less desirable and reducing our transaction volumes and profitability. Acquirers could elect to charge higher merchant discount rates to merchants, regardless of the level of Visa interchange, leading merchants not to accept cards for payment or to steer Visa cardholders to alternate payment systems. In addition, issuers or acquirers could attempt to decrease the expense of their card programs by seeking incentives from us or a reduction in the fees that we charge.

So will this hurt Visa or Master Card? Potentially this may have some impact on these companies. As Visa states, it may happen by “steering consumers to alternative payment methods”. But, what are those methods besides cash or writing checks? Will you be using checks or cash rather than your debit or credit card? I personally do not carry checks or cash at all and use my debit card. It will be banks who will most likely absorb this loss rather than Visa, but they won’t quit using Visa or Master Card network.

Even though Durbin’s amendment passage is really unfortunate, and stupid socialistic way of governmental interference with free market and part of the game and its risk, I was also forced to sell the stock and wait until the Wall Street realizes that they overreacted this too much and the stock starts recovering. Originally I believed the recovery would come today (Monday 17th), but it didn’t happen and the stock displayed another strong selling pressure. The stock corrected ca 23% so far, some say it will go even lower all the way down to $40 – $60 range. Let’s see what will happen in a few upcoming weeks.

Nevertheless, Visa is creating a great buying opportunity. It’s internal fair value is at $100 per share so the stock still has great potential for recovery and growth. This huge drop will allow buying the stock very cheap.

Posted by MartZee May 17, 2010

Visa sold today

I gave up on Visa and even though my original stop loss was lower then today’s sell I decided not to wait for further loses and sold. I am going to wait for the market reversal and buy Visa back when it shows some strength and will to grow. Right now it looks like the stock will fall more.

Posted by MartZee May 16, 2010

Picks 05/10 – 05/14

Trading Account:

New [tag]stock picks[/tag] this week:

Stocks bought or added to portfolio this week:
Bought 18 V @ 86.71
Bought 45 MED @ 34.13

Stocks dropped from portfolio this week:
none

Stocks watched this week:

none

Existing & new [tag]holdings[/tag]:
Symbol Qty Last Gain($) Gain(%) Stop ATR Risk to
stop (%)
[tag]MED[/tag] 45 35.76  72.90 4.75 25.48 2.5700 -25.36
[tag]V[/tag] 18 77.26  -170.24 -10.91 72.00 4.2500 -16.97

Contribution this week: $100

Current [tag]capital exposure[/tag]: -28.38%     Learn more

New positions available to open: 0     Learn more

Starting [tag]account value[/tag] = $2,080.90

Account value = $1,963.60  (without margin)

Buying power = $0

[tag]Portfolio Gain/loss[/tag] this week = -5.64%

[tag]Portfolio[/tag] Gain/Loss for MAY 2010 = -18.44%

Portfolio Gain/loss for 2010 = -33.35%

[tag]Annual Return[/tag] (CAGR): -30.35%

Lending Club:

Debt notes
Available cash: $8.21
In Funding Notes: $25.00
Outstanding Principal: $369.28
Accrued Interest: $2.46
Account Total: $404.96  Net Annualized Return: 12.85% 
Contributions this week: $0.00
Weighted Average Rate: 11.56%
Expected Monthly Payments: $12.34
Payments to Date: $8.31
Principal Payments: $5.72
Interest Payments: $2.59
Late Fees Received: $0.00

 
 

aboutthisboy.com

ROTH IRA Account:

New [tag]stock picks[/tag] this week:
05/10/2010 Bought 39.936 GABUX @ $6.26

Existing & new [tag]holdings[/tag]:

NTF Mutual Funds
Symbol Qty Last Gain($) Gain(%) Div.
Y(%)
Port.
(%)
AIGYX 83.472 13.82  153.59 15.36 7.13 30
ATIPX 106.395 9.03  20.57 2.19 7.04 25
GABUX 39.936 6.27  0.40 0.16 3.99 7
HISIX 26.918 6.57  -23.15 -11.57 4.56 5
SICNX 54.495 6.76  -31.61 -7.90 4.97 10
SWDSX 53.286 11.86  27.80 4.60 4.00 16
SWLSX 29.814 9.87  25.34 9.42 1.63 8
Individual ETFs
Symbol Qty Last Gain($) Gain(%) Div.
Y(%)
Portfolio
(%)
AOD 219.0 7.83  -289.08 -14.43 17.98 84
IGD 29.0 11.63  -19.43 -5.45 12.67 16
Individual stocks
Symbol Qty Last Gain($) Gain(%) Div.
Y(%)
Portfolio
(%)
Account target and current allocation
Individual stocks 0 42% 0%
NTF Mutual funds 3,836.20 38% 64%
ETFs 2,052.04 20% 34%

Contribution this week: $0

Starting [tag]account value[/tag] = $5,939.31

Account value = $5,970.72 

Dividends received in May 2010 = $5.01

Dividends received in 2010 = $111.73

Portfolio dividends yield 2010 = 1.87%

Portfolio dividends yield lifetime = 3.28%

Dividends received lifetime = $195.85

[tag]Portfolio Gain/loss[/tag] this week = 0.53%

[tag]Portfolio[/tag] Gain/Loss for MAY 2010 = -5.87%

Portfolio Gain/loss for 2010 = -1.97%

[tag]Annual Return[/tag] (CAGR): -4.10%

[tag]Portfolio Return[/tag] since inception: -13.15%


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Posted by MartZee May 13, 2010

Visa (V) added to portfolio

Today I bought back Visa (V), which I consider a great stock with a great growth potential.

13:40:39    Bought    18  V  @  86.718

Posted by MartZee May 11, 2010

Medifast (MED) added to portfolio

This time I weighted my decision to buy this stock and since the stock is one of the leaders which survived the drop and even rose in price, recently it received “strong buy” recommendation I decided to add shares of this stock into my portfolio.


14:07:44    Bought   45  MED  @  34.1399

Posted by MartZee May 10, 2010

Should we chase this rally attempt?

When looking what the stocks, mainly those I was ready to buy back did this morning I said to myself “I should have hold them and I shouldn’t have stop loss applied. Today these stocks opened mostly with gaps and I could have made money.” Yeah. This is what I have tried last Friday and cost me money. There will be many other opportunities and chasing stocks just to make up previous loses is really a bad idea.

And the market can still turn down at the end of the day.

What is behind today’s rally? Just another hype based on Europe trillion dollar rescue plan. C’mon, is this anything solid? Stocks are rallying just because in Europe they will spend trillion of dollars to rescue Greece (which in my opinion will do the same job as throwing money out of the window) and other countries in troubles. Most likely they will have to print new Euros to do so.

The Wall Street is crazy.

I would agree jumping in if the rally would be based on the news of 290,000 new added jobs last month, but that doesn’t seem to be the fuel of this madness.

However, let’s see what the market will do today and next few days. Maybe the rally attempt will sustain and I can start buying back. This time with clear mind.

Posted by MartZee May 07, 2010

Grrr I am so upset

I am so upset with myself now. All the rules and strategies I was working on for so long trying to protect my money and today morning I threw it all away.

Visa has been already sold on stop loss with a loss. I am such an idiot!!! Well I am expecting MED to follow soon. I am planning on buying these stocks, but this was too early and greedy vision of buying cheap blurred my mind.

OK, MED has been sold right now and I gave up some $200 dollars this morning. @##$%^@