Freedom Fund Update – November 2012

Well, the time has come to update the Freedom Fund once again as we start another month. The Freedom Fund is my portfolio, and I think it’s aptly named. My portfolio is my way to freedom; freedom from working at a job I don’t enjoy to purchase goods I don’t need to impress neighbors I don’t care about.

I feel extremely fortunate and thankful that I’m able to post these updates every single month which shows the power of monthly contributions to investments because of the high savings rate I maintain. It shows how a relatively large sum of money can be built through the power of time, patience and perseverance.

It’s important to keep in mind that while updating the overall value of my portfolio is important for historical reference and for purposes of keeping track of total return, my main focus is on the rising dividend income stream the Fund provides.

My Fund has experienced what I believe is the first monthly decline in overall value between monthly updates here on the blog. This is due to a number of different reasons. First, the overall market has been bearish over the last month and the S&P 500 is down 2.24% over the last 30 days. I’ve experienced some particular weakness in certain positions with Intel Corporation (INTC) down 4.94% over the last month and Norfolk Southern Corp. (NSC) down 4.81% over the course of October. Second, I didn’t contribute as much as usual in terms of new capital due to other personal needs (cheap alternative transportation). Also, October was a light month in terms of dividends received.

It should be noted that as my portfolio grows in value, market gyrations will have larger overall effects on my portfolio’s value than my capital contributions and dividends received. Again, the portfolio value is of secondary concern to the income it generates.

The current market value of the Freedom Fund now stands at $81,043.57. This is a slight decline from the last published value of $81,101.40. I plan on taking advantage of the recent market weakness and do plan on investing a larger amount of fresh capital than usual during the month of November. I’m very excited to go shopping!

There were a number of changes made to the portfolio over the last month. I completely sold out of my Total S.A. (TOT) position and used this capital to initiate a new position with Lorillard Inc. (LO). I also added to my position with Kinder Morgan Inc. (KMI) during the month of October, bringing this position up to 100 shares. Overall, I’m very pleased with the changes made here. I don’t sell often, as any regular readers know and so my sale of TOT came after much thought. It was right as it does not fit my strategy of investing in businesses that continue to pay me higher dividends year after year.

I’m currently still invested in 29 positions. I sold TOT, but quickly initiated a new position in LO.

These updates are mainly designed to show the increase in the value of the underlying equities I’m invested in, but the main purpose of investing in dividend growth stocks is for the rising stream of dividends over time. So, with that said I don’t put too much emphasis in these monthly updates on the value of my portfolio. I think it is a good idea, however, to keep track of the rising (or falling) value of one’s securities and be aware of where they are in terms of the marketplace and whether or not certain stocks are attractively priced or not. It proves to be a useful exercise, for me at least, to update the values monthly. It gives me fresh perspective on which equities are performing well and which aren’t, and from there I can make educated decisions (based on further due diligence) on which stocks I’d like to add fresh capital to (while considering portfolio weight as well).

Full Disclosure: Long INTC, NSC, LO, KMI

How are your portfolios doing? Using the market drop to your advantage?

Thanks for reading.

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35 Comments

  1. The silver lining here is that market fluctuations have become more meaningful to your portfolio value than your contributions – which means your Freedom Fund is becoming its own animal. Good work, as usual.

  2. My FI portfolio value went up, but that was only due to the large amounts of cash I transferred to it. The invested value dropped. But with all the purchases that I made in October I was able to increase my forward 12-month dividends around 40% over the month and that’s what I look at first as far whether progress was made during the month. Great job!

  3. I love the Freedom Fund updates DM! I think it is because I enjoy seeing how you are progressing. I started reading your blog when you first started and when I was just beginning to turn my financial life around. Feel like I’ve been watching the Freedom Fund since it was a baby!

  4. A small drop in value over a period of only a month is nothing to worry about as you mentioned. If it was a year later and the value had dropped that might be cause to worry.

    As a DG investor, I am much more interested in how much my future dividend payouts are increasing and not too concerned with the day-to-day or month-to-month market gyrations. It’s also much easier to sleep at night than if I was worried solely about capital gains.

    I will be keeping an eye on your purchases in Nov., good luck!

  5. You should reward yourself with a trip to the library, park, or beach and place the dirt/sand/books in your hands and realize that no matter how torn up they appear to be, they have provided much much more value and worth to so many others over their lifetime!

  6. Headed Home,

    Absolutely. Great point there. And as market fluctuations bring one’s portfolio value down that means it’s time to take advantage and inject even more fresh capital to attractively priced opportunities.

    Thanks for stopping by.

    Take care!

  7. PIP,

    Absolutely: the progress we all should be tracking is the growth of dividends month after month. That’s what we will be living off of, so that’s what we need to worry about.

    Congratulations on growing your own fund during a down month and by staying so dedicated to your plan. Staying consistent is key!

    Best regards.

  8. The Stoic,

    Thanks for stopping by!

    I appreciate the support. It’s funny. Sometimes I look back at my first Freedom Fund update from April 2011 and see the value of $29k and think of how far I’ve come. I’m proud of the success so far, but I’m equally appreciative of the support of all the great people in this community. So, thank you!

    Best wishes.

  9. austinbroker,

    Great points there. Thanks for adding that! I actually look at the value drop as an opportunity to add fresh capital. I’m planning on adding $4-5k to the Fund during the month of November, but the strong start to the market today leaves me rolling my eyes a bit. Let’s hope the election provides us all the volatility we need!

    Take care!

  10. FYC,

    Great idea. I’m definitely due for a trip to the beach and the weather is just stunning down here in Florida right now. Mid-70’s during the day with low humidity and a slight ocean breeze. It’s amazing. Thanks for the idea.

    Hope you get a chance to take a trip to one of those locations as well!

    Best regards.

  11. A small drop in portfolio value is to be expected once in a while. One thing to keep in mind is that when we’re buying undervalued stocks, there’s no guarantee that we’ve bought at the bottom, so there could be additional downside before Mr. Market gets his act together and gives the stocks higher, more appropriate valuations. I think this is the case with INTC and NSC.

    Keep up the good work! It sounds like you’ll have enough new capital to make a few purchases in November, so I’ll be interested to see what you buy.

  12. DGM,

    I don’t mind drops in the portfolio value at all. That simply means stocks are dropping in price and nobody loves a sale more than I do! 🙂

    Yeah, I’ll have about $4,500 to put to work this month. I’m very excited to go shopping! I’d actually have closer to $7,000 to invest, but I took $2,500 out of cash to purchase a scooter or car as alternative transportation when the bus runs late.

    MCD is at the top of the list for a purchase this month, but VOD, NSC, KMI, KO and a few others are looking interesting to me. I wouldn’t mind buying INTC here, but I already have a fairly large allocation to it currently. I should also keep an eye on industrials here.

    Looking forward to seeing what you purchase as well!

    Best wishes!

  13. Your dedication to your plan is inspiring! My progress is slow at the moment. My DG investing has just started. In the past, I’ve invested primarily in my 401K but I’ve never been happy with the lack of control I have over the funds. My employer tells me what I can invest in and the Feds tell me when and how I can have my hard earned money back! Frustrating!

    I’ve learned a lot about the benefits of dividend investing through your site and others and am seeing my little account begin to grow. I’m adding to several positions that have gone “on sale” this month as well. I’ve been working on building a position in LEG but it has taken off like a rocket! I never thought I’d be upset that one of my stocks took off! My thinking sure has changed over the past two years!

    I’m still on the fence on INTC which is why I’m just adding to other positions right now. The company has great fundamentals but I can’t get Eastman Kodak out of my mind. Remember them? A great niche company but they got behind the curve when digital photography developed. They even had a patent on a digital camera before it began being produced by other companies. They were just too slow to change and never were able to catch up. INTC has a niche that is shrinking. While I don’t believe what some are saying about the demise of the laptop, I do think the market will continue to contract. At the moment, INTC is way behind the curve in the mobile market. Can they catch up and beat the competition? Only time will tell but based on the stock price, a lot of people are betting against them. I will probably regret it later but I think I’m going to pass on INTC for now.

    Anyway, I enjoy your posts. It hwlps me “keep my head in the game.”

    Steve

  14. DM always enjoy your posts. I don’t put too much on portfolio values either, since dividends will eventually pay my bills, not theoretical changes in values =)

  15. DM – You have made outstanding progress since you started dividend investing. Well done sir. I wouldn’t worry about a small drop in the value of the portfolio either. I can’t wait to read your blog a few years from now and see how much further you have got. You are an inspiration.

    One thing I am confused about though. Your current transportation. Do you have a scooter now ?? I can’t quite recall but I thought you had a scooter, then you sold the scooter and got a car, then I can’t remember if you sold the car and got a scooter again or not?

  16. I forgot to ask….

    Does your freedom fund number of $81,043.57 include the $4500 of cash you mentioned in a reply above? or is this strictly the value of all the stocks?

  17. Hey DM, always good to see your progress and congrats on having some cash to allocate. That is always fun, dry powder.

    I massively agree with most everything you write, MCD is a sick play at this point. I love the business, 10 new stores in Siberia, bagged coffee in Canada, and their salads and oatmeal are good eating.

    I am curious as to how you would justify a KO purchase, the yield is 2.8%. I personally find it hard to buy KO even though it is such a great company. What are your thoughts behind locking in a rather low yield with moderate growth? Do you think they will grow faster in the future? That could be a possibility. I find it hard to pull the trigger and maybe you can help me with that because I would like to increase my KO position.

    Best wishes,

    Joe

  18. Hi DM,

    Nice to see another update of your Freedom Fund! My update will go up later this week and the really interesting thing to see is that we both experienced a very small “paper loss” in portfolio value even though the DJIA had around a 2% loss the past month. And yet, the dividends kept rolling in…you have to love it 🙂

    Keep up the good work and I look forward to your next update!

    -Samir

  19. I bought NSC the other week, then last week i realized i was driving past a Norfolk Southern train railyard. I thought to myself,” I own a little piece of that and they pay me dividends every quarter for my ownership! I could be on permanent vacation in any country (except non developed) on any beach somewhere with internet and/or bank branch and still collect my dividends.”
    It is a great feeling and i smile everytime i pass by now, though still trying to get within biking distance of work. I will smile even more once FI and moved to the many different beaches of the world.

  20. Anonymous,

    Great questions there. Thanks for stopping by!

    As far as my transportation goes, I currently have no personal transportation and rely on the public bus system here in Sarasota solely. I do plan on changing this very soon and am currently weighing the benefits and drawbacks of a car vs. a scooter.

    As far as your second question, the value of my Freedom Fund represents the value of equities only and no cash is included in the total current value.

    Best wishes!

  21. Samir,

    Thanks for the support!

    I can’t wait to see your update as well! I see you received a monster month of dividends. Great work there! You’re doing fantastic.

    Keep up the great work.

    Take care!

  22. FYC,

    Great stuff! It’s awesome to receive dividends from a company and then go and see their products or personally use them. I smile every time I use Gillette razors or stop by McDonald’s. It feels good to support the companies I’m invested in.

    And yes, a great benefit of dividends is that you’re able to live anywhere and still collect your check!

    Best regards.

  23. Joe,

    Thanks for stopping by. I always appreciate your thoughts.

    With KO, it basically comes down to risk reduction (risk adjusted returns) and allocation. I’m currently well under-allocated to KO, and I’d like to rectify that at some point. Is this the right time? Probably not, due to the unfortunate valuation.

    I also look at risk. For a guy who’s 100% long on equities, with no fixed income exposure, I do like to invest in fairly conservative defensive companies and KO almost plays out like a bond. I don’t see a lot of downward pressure on KO shares here, unless there is a major market correction…and then it’s all bets off. I look at the risk adjusted returns and think that KO will probably provide decent high single digit returns for fairly low (for an equity) risk. It’s all about risk vs. return..and so KO has the low yield in exchange for lower risk.

    Again, KO might not be ripe for me right now. I’d like to add to MCD, VOD, NSC, KMI and others and even initiate positions in some attractive cyclical industrial plays. So, we’ll see!

    Best wishes.

  24. Steve,

    Thanks for stopping by and sharing your story. I appreciate where you’re at and it sounds like you’re definitely on the right path! Way to go.

    As far as INTC, it’s interesting that there hasn’t been much that has changed in terms of their mobile exposure over the last year. I first initiated a position with INTC in the summer of 2011 and they haven’t made a big move. I think that PC sales may contract further and then eventually stabilize. I do think tablets are the way of the future, but I don’t necessarily think that non-Intel Apple products will be the only choice here, and we don’t even know that INTC won’t eventually have chips in those products. It all depends on who delivers the best performance at the best price, while still consuming the least energy. INTC could fill that role. Also, INTC is big in the server business.

    That all being said, I already have a fairly large position in the company so I don’t think I’ll add any more right now. However, if I didn’t already have a position I’d definitely be interested in starting one at this price. I don’t see it going much lower, and you’re paid a very handsome yield while you wait.

    But, in the end there are many companies to invest in. If INTC doesn’t make you comfortable then you should definitely look elsewhere. I try never to “sell” myself on a company and if it doesn’t jive with me…then I move on.

    Best wishes!

  25. Investing Early,

    Absolutely! I actually am glad to see the market value of the Fund drop this month as it means that equities are presenting a possible opportunity. Value dropping and dividends rolling in presents a very fantastic situation! More cash and cheaper shares make me a happy investor!

    Best regards.

  26. I’ve thought about my transportation situation and concluded I’m not giving up my car. Other than being FI, a car gives me the most freedom of anything I can think of. I’m not talking monetary freedom, but the freedom to go anywhere I want at the drop of a hat. Not having my car in Korea makes me miss it that much more. I regularly drive government vehicles although minivans are not my cup of tea. Going for a nice long car ride is one of the first things I’m gonna do when I get back. Unfortunately having a car means I’ll need to work longer. Oh well, it’s worth it to me. If you decide to get a car again I undestand!

    I absolutely hate waiting for the bus. Man I’m spoiled…

  27. I appreciate the reply, DM! It makes a lot of sense to me. And you would be in good company buying, it seems like a Buffet-esque move, to buy a good company at fair value. Plus KO owns water rights all around the world, I recall reading. So there is much more than just the beverages. Thanks for giving your perspective, safety and confidence in one’s portfolio is as much an important ingredient in a long term portfolio as any, I’d wager, especially to long termers like us…We need to be able to sleep pretty good at night for many years straight.

    Looking forward to reading more of your journey and about your transportation methods too. Inspiring to see real frugality in action! I’m with you! Still making my own detergent, air drying my clothes to prevent wear and tear from the dryer, making my own meals, and such. Have a great weekend.

  28. Amazing to me that you’ve been able to see your portfolio increase by 50K or so in a little over a year…that is phenomenal work, and you are increasing your income stream at the same time.

  29. High Yield Soldier,

    Thanks for the support. It’s much appreciated.

    I made great progress, but am a bit disappointed because I know I left some on the table by taking a break and making some missteps here and there. Either way, I’m still extremely lucky and grateful to be where I am today.

    I hope your progress is going great as well!!

    Best wishes.

  30. Joe,

    Great job! You’re a frugal champion, my friend. Awesome stuff. You definitely put me to shame in some of those areas.

    I already have some frugal transportation ideas lined up, and I promise I won’t disappoint you. I’m sticking to the plan and seeing this through till the end.

    Take care!

  31. Compounding Income,

    I hear you, believe me. I remember one of the first things I did when I inherited money when I was 21 was to go out and buy a Corvette. That says all you need to know. I’ve owned many cars in my life, including a Mustang with custom side pipes, a Firebird and a custom lowered S-10. I love cars, and that’s probably one of the reasons I ended up working around them.

    However, working around cars has shown me how expensive they are to buy, drive and maintain. I love the convenience of having a nice ride (or even a ride at all), but certainly do not love the costs involved.

    I’m not anti-car by any means, and for many of they are necessary. It’s just important to calculate the costs and figure out how they impact your long-term plans. You have done this and you’re okay with working for the car, and that’s really great. That’s what’s important. Figuring out the things in life worth working for, and working for them. That’s really what it’s all about.

    I think valuation in our personal lives (objects, time, work) is just as important as it is in our investments.

    Take care!

  32. This is an exciting time to be investing in. Although the Freedom Fund took a hit and is down this month, that’s probably a good indicator on how beat up the market is at the moment. In other words, it’s a good time to buy!

    Can’t wait to see what you decide to purchase in November. I noticed you decided to exit out of Total, as the holding no longer fit your underlying dividend growth strategy.

    I’ve been having the same thought as it pertains to RIG and EXC in my portfolio. At some point, I may also have to make the move and swap these holdings out. EXC has been dragged down even further since there are now rumors of a potential dividend cut in the next 6 months, should its markets remain sluggish. It may need to reduce/cut the dividend to maintain its credit rating. This would basically be a kiss of death for a dividend stock.

    In general, I think buying is easier than selling. In an ideal world, we would be able to implement a buy and hold forever strategy. But in reality, a buy and monitor is necessary.

    Take care!

  33. FI Fighter,

    I agree, and I’m actually glad the value of the Fund went down this month. As you state, it means it’s a good time to buy!

    I hear you on some of your holdings. I also buy and monitor. I don’t sell often, but if a company’s fundamentals erode (as TEF’s fundamentals did) then I view that as a signal to due extra diligence. There are many, many companies that are publicly traded and fit a dividend growth strategy. No need to try to make a square peg fit a round hole. I never “sell” myself on a company. If it’s not for me, then I just move on to something else. EXC never fit my strategy, so I can understand your doubt on it.

    Best wishes!

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