Weekend Reading – March 17, 2012

My first full week of riding my new-to-me 49cc scooter is behind me, and I must say it’s really exciting riding it to and from work. Getting 100 mpg isn’t bad, either! So far, I’ve filled it up once (requires 1 gallon of fuel) and it should last me for at least another week. I’m loving it. All the talk of high gas prices on the television go in one ear and out the other now.

In other news, the market has continued its epic run. This past week, the DJIA closed above 13,000, the S&P 500 closed above 1,400 and the Nasdaq Composite closed above 3,000 points all on the same day for the first time in history. That’s a great headline, and it’s nice to see the economy doing better but this kind of activity makes value investors like myself cringe a bit. It’s tough to find good entry points on quality equities in this market, but that just presents a challenge that needs to be overcome. Either you choose to build cash and wait for a major dip or you dig deep and scan for value in the field. I decided to scan for European equities that have not had the major run that U.S. equities have of late and I made a purchase this past Friday. I’ll post about that very soon.

Here are some excellent articles from fellow dividend growth investors, frugalists and personal finance bloggers from the past week.

 Get Rich With: Blogging?
Mr. Money Mustache analyzes the real possibility of a sustained source of income for himself and his family through his blog and what it means to his early retirement. Kudos on the growth, as his blog has just exploded in popularity. Maybe I’ll have to start dropping F-bombs around here? Haha!

3 Dividend Payers Benefiting from the Network Effect
Dividend Monk highlights three dividend growth stocks that have a network of users that build increasing value the more they use their products. This is the sixth article in Monk’s series highlighting companies that have durable economic advantages, or moats. Good stuff! I especially like the entry on AXP, and I would eventually like to add it, along with V and MA, to my portfolio.

Building My Portfolio for Retirement, with Dividends and Bonds
Dividend Ninja pens a piece on his recent decision to move his equity holdings from index funds to dividend stocks, while still holding his bond ETF’s and bond funds. I applaud this move, as you could probably guess, as I think that a quality basket of dividend growth stocks purchased at opportune times can outperform an index while simultaneously providing a larger, and growing, source of dividend income. Good move Ninja!

I disagree with an expert, buying what you know makes sense
My Own Advisor decided to take the opposite viewpoint of an expert and believes that buying what you know does indeed make sense. I agree with MOA here. Although Larry Swedroe was showing that overly investing in company stock or excessively trading in professionally close stocks is a bad idea, I think that for the most part diversifying your portfolio into companies that sell products that you know and feel comfortable with isn’t a bad idea at all. Peter Lynch, the famous investor and head of the Magellan Fund, was one who always recommended to invest in what you know. Warren Buffett is also another well-known investor who invests in his “circle of competency”.

Milestone: Portfolio Value Reaches $50,000
Deedubs just reached $50k in market value for his portfolio. This is a huge milestone, and one that I reached not long ago myself. Congratulations Deedubs! He’s been on a tear lately, buying quality dividend growth stocks in large blocks as he continues to build his portfolio. I like his strategy!

On The Radar
Compounding Income lists a few stocks on his radar. It’s becoming increasingly difficult to find value in this market, but Compounding Income believes he has a few solid choices here. I agree. I recently added to my position in one company on his watch list.

Changing Your Life By Working Abroad: The Financial Benefits
The Stoic Investor discusses the benefits of working overseas. I completely concur here, and for the open-minded out there this could be a great way to supercharge your savings. Although I’m not particularly interested in working overseas, I’m definitely open to the idea of retiring overseas. Moving to a low-cost location like the Philippines, Thailand or Ecuador where your dollar goes much further could bolster your chances of success in early retirement.

A 100% Dividend Stock Portfolio is a Safe Portfolio
The Dividend Guy gives reasons why a 100% dividend stock portfolio is a safe portfolio. Personally, about 95% of my money is long on dividend growth stocks, with the other 5% of my net worth in cash acting as dry powder awaiting deployment depending on market conditions. I feel fine with these numbers, and I actually believe bonds and fixed income is riskier than equities in current market conditions due to the low interest rates and inflation. I think real returns in fixed income is abysmal or negative, depending on which inflation numbers you use. For the risk you take, I think that is simply unacceptable. I’ll wait for interest rates to rise before I take on any fixed income. Even if you hold to maturity on bonds, you’ll still be collecting less than the next guy when rates rise.

Has Dividend Growth Kept Up With Inflation?
David Van Knapp penned an excellent article on dividend growth vs. inflation. This article uses real-world numbers going back over 50 years and shows that dividend growth has well outpaced inflation over this time period. I don’t think I’ve ever see anyone else ever go back this long and compare inflation to dividend growth. This is an excellent resource.

Medtronic Inc. (MDT) Dividend Stock Analysis
D4L analyzed Medtronic and concludes that is it undervalued and a 5-star buy right now. I agree with him here. I think that the medical device makers like BDX and MDT provide some value in this expensive market. The health care sector in general has some decent value right now.

4 Money Saving Tips for the Bathroom
The Money Monk posts some intense ideas on saving money in the bathroom. Are you ready for a cold shower? 

Thanks for reading.

Photo Credit: Benoit Mahe

Comments

  1. says

    Hey DM,

    Thanks for the mention, much appreciated!

    Glad the scooter is working out for you. It sounds like this is going to be the best solution to your problems of keeping expenses low and reliable transportation.

    The market has been on a freaking sprint this year! I’m going to keep investing in cash. Sure, I might be guilty of timing the market, but when it’s overpriced it’s overpriced, no?
    Hope your having a great weekend!

    • says

      The Stoic Investor,

      No problem!

      Yes, the market has been unreal so far in 2012. That’s unfortunate, as it does provide difficulty in choosing great stocks at attractive long-term prices. I don’t believe in timing the market, so I’ve been deploying capital like I have been all along, however now certainly wouldn’t be a bad time to build a sizable cash position.

      Take care!

  2. Anonymous says

    Hello DM

    May I suggest you wear brightly colored clothes while riding your scooter. People in autos tend to not see or look for motor bikes, they are looking for other cars. I ride a Harley and know this for a fact. Becareful.

    Bill for Wmsport

    • says

      Bill,

      Thanks for the kind suggestion. I do wear a bright orange backpack to/from work, however my work clothes unfortunately consist of black pants and a black shirt. The only way around this would be to wear bright colored clothes on the commute and change when I get to work. That’s certainly a possibility.

      Keep in touch!

    • says

      Hey Mantra,

      Nice to hear the crazy MPG you’re getting on the scooter! If you’re in the market for a jacket/outdoor wear, I do second Bill’s opinion. Just a quick search at rei.com (I know they’re are more value places out there, though) and I found this: http://www.rei.com/product/826562/novara-stowable-bike-jacket-mens .

      I have something similar to this when I ride my bicycle. It gives me a level of confidence, and keeps my shirt clean.

      Take care,

      Mike

    • says

      Mike,

      Thanks for the tip. That’s a pretty sweet jacket, and it would definitely improve my visibility to other drivers. I’ll definitely have to look into something like that!

      Take care!

    • says

      defensiven,

      Thanks for stopping by!

      You can read all about it very shortly, as I’m currently just editing the article before I publish it. It will be online within the next couple hours.

      Let me know what you think.

      Best wishes!

  3. says

    interesting point you make about bonds. I hold them in my portfolio for the deflationary hedge they provide. but I hate them.

    I also agree that, with interest rates this low and the Fed trying hard to ignite some inflation, they are becoming steadily more risky. what to do, what to do….

    • says

      JC,

      I understand the role of bonds as a hedge, and I will eventually have a small allocation toward fixed income at some point, but with the interest rates being where they are at I just can’t purchase any right now. When rates rise, the bond holders will get killed.

      I wouldn’t mind a 20% allocation toward fixed income, but I find that day quite a ways off in the future.

      Couple the fact that dividend growth stocks typically offer a higher yield than a bond, along with the fact that you have a pretty decent chance of appreciation (vs. depreciation on rising rates), it just doesn’t make sense to hold bonds right now.

      Best wishes!

  4. says

    Thanks for the mention, DM!

    I’m glad to hear the scooter is working out well for you. The gas savings will definitely be nice, especially if gas prices remain high.

    The current market is indeed challenging, but like you said, it just means you have to dig a little deeper for good value and stay on the lookout for dips. I don’t know when we’ll get a major correction, but I found this historical analysis to be quite interesting:

    http://seekingalpha.com/article/439501-best-starts-to-the-year

    If history repeats, then the market may finish the year higher than it is now. I plan to just take it as it comes.

    • says

      Deedubs,

      No problem, my friend. It’s great to see someone in my age range with similar goals and similar investments.

      Based on that article, it looks like we have a good shot of having a strong year for the market.

      I look forward to keeping in touch as we both dig deep for those values.

      Best wishes!

  5. says

    Mantra,

    Sorry to arrive late to the party! :) A stellar mention and a great weekly lineup. I really like the way you have gone into each of your roud-ups in such detail!!

    Why don’t you write me a guest post some time? ;)

    Cheers
    The Dividend Ninja

    • says

      Ninja,

      Thanks for stopping by. No problem on the mention, always looking forward to your posts.

      Thanks for the invitation! I’ll have to come up with something. Let the writing begin.

      Take care!

  6. says

    Thanks for the mention Mantra!

    Like our friend the Ninja, I am more than willing to give you a guest post spot sometime!

    Of course, he got to you first :)

    Let me know OK?

    Mark

  7. Anonymous says

    Hey There

    I wondered how your scootering was going and was going to PM you but remembered your blog! I will RSS link to it now.

    Sounds like you are enjoying it and it is meeting your transportation needs. Those quick changes you made were inspiring!

    Shawn

Join The Discussion!