Freedom Fund Update – May 2013

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 a traditional 40-year career to purchase goods I don’t need to impress neighbors I don’t care about. This journey is all about freedom and flexibility. One day the dividend income this portfolio generates will fully replace my day job’s income and my time will be completely my own. What could you possibly want to own more than your time?

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It’s important to keep in mind that while updating the overall value of my portfolio is important for historical reference and for purposes of keeping track of total return, my main focus is on the rising dividend income stream the Fund provides.

Another fantastic month here for the Freedom Fund. I really believe that the key to building wealth over the long-term is to ignore the noise (consumer confidence reports, the latest political arguments coming out of Washington, pretty much whatever was on the 11 o’clock news) and focus on the things you can control. I can control my ability to limit my expenses, thereby increasing the amount of fresh capital I have to invest in high quality businesses. I can control my ability to stay dedicated to a plan. I can control my ability to reinvest my dividends and I can control where my funds go by fundamentally analyzing companies and focusing on which ones are attractively valued no matter the broader market’s valuation.

The past month was a busy one for the Freedom Fund. I initiated a position in Air Products & Chemicals, Inc (APD) and also initiated a position in BHP Billition PLC (BBL). I also added to my position with Wells Fargo & Co (WFC). It was a very active month and I wouldn’t have it any other way. Some investors are waiting for a broad market pullback which may or may not occur. I’ll simply continue focusing on high quality businesses and building my dividend income stream that will only give me more capital in the future to reinvest if we do get that elusive pullback.

The current market value of the Freedom Fund stands at $110,508.00. This is a nice increase of 7.2% over last month’s published value of $103,131.12. The increase was mostly due to the aforementioned equity purchases, with the remainder being capital gains and dividends.

I’m extremely excited for what the next few months bring. Some are trying to predict trends, while I simply try to stick with what’s worked over the last century or so. I’ll continue building the Fund by investing my hard earned capital into equity positions with the highest quality companies I can find that are trading for attractive valuations. The market can go up by 10% or it can decline by 15%, but my focus remains on the dividend income my investments provide.

I’m currently invested in 32 companies. This is an increase from last month due to the two new positions I initiated as discussed above.

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 on 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. 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 APD, BBL, WFC

Thanks for reading.

Photo Credit: Vichaya Kiatying-Angsulee/FreeDigitalPhotos.net

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27 Comments

  1. Nice purchases over the month. I’m surprised I didn’t see an updated purchase when cat hit 80 like you said you wanted. I added to my cat at 80 and I added to oxy at 80 and I just bought Cisco today at 20.45. Cisco is a pretty abnormal purchase for me as I hate tech and they’ve only had a dividend for about 2 and a half years now but I see an awful lot of value in csco trading at single digit fpe, they have $10 per share in just cash, and their entry yield is at 3.3%. Also the reason I’m giving them a pass is because in their most recent earnings call the CEO spent a fair amount of time explaining how important a strong dividend policy is and in the future the expect to pay at least 50% to share holders. All made me a believer!

  2. Took2Summit,

    I thought about CAT strongly at $80. I went through the same internal tug-of-war when IBM fell below $190. Both looked like great purchases. The thing is that I was already fairly aggressive with capital deployment this month and didn’t want to drain the reserves too far. I could have bought both and drained the reserves dry, but I wasn’t overly compelled to do so. While both seemed like great purchases (especially looking back on it now that they’ve both rebounded), they weren’t steals to the point where I felt comfortable dipping into the cash so heavily. I hope that makes sense?

    CSCO is on my watchlist. Like you, I’m also very weary of tech. But I do think the internet is going to be a bigger, better part of our everyday lives in the future across many more applications (I see that firsthand in the auto industry), and CSCO offers some of the tools behind that growth. So I am watching it. Some aspects of the business are above my capability to understand, and that’s really what keeps me on the sidelines for now. Further research is required, but fundamentally this business looks sound.

    Thanks for stopping by. I’m definitely with you on some of those ideas.

    Best wishes!

  3. Hi DM,

    Great update, thanks. Completely agree on the points made re ignoring the noise. If you invest for 20-30 years it doesn’t really matter too much, if PNG or JNJ go up/down a couple of bucks. However, I have a question on diversification.

    Within a market environment with a high correlation between almost everything – at least most sectors – I wonder, if one would not be better off just focussing on say 5-6 high quality names from different sectors such as energy, consumer staples, tobacco etc.? Or to put it differently, I wonder what the advantage of a 32 names portfolio is vs. a concentrated one. At least, if you are convinced that shops like MCD, PG, JNJ and XOM will still be around & kicking in 50 years time.

    All the best,
    D

  4. Congratulations on the growth of your freedom fund! This month has been has been a really good one for stocks with the market hitting new highs. The only problem is that value is getting harder and harder to find. I grabbed BBL and some more APD this month as well. I’m currently eying CVX. There’s another one or two companies that I am considering, but I need to do some research before I get excited.

  5. 110.508 USD$ is an amazing amount! Congratulations, Jason!!
    Your freedom fund is growing very fast – and I think this is a great kick every month.
    What happens with the portfolio? What happens mit the single shares? What happens with my new purchases?

    My own portfolio has a current market value from EUR 10,650.39.

    But I´m working hard to increase the portfolio amount!
    The target at the end of 2013 is EUR 20,000.00.

    Best regards!

    Onassis

  6. Awesome job DM! You are making tremendous progress towards your goals. I can’t wait to see what the next 3, 5, and 10 years hold for you.

    I doubled down in OKS and KMI this past month. Hard to not look at price, but OKS crapped the bed dropping $5 from when I purchased. Oh well! Not in it for the price per share, although a 10% drop would have snagged me a couple more shares!

  7. DM,

    Nice work man. You’re portfolio is starting to really take off. Here, I’m trying to catch you but you’re stepping on the gas of your race car and losing me.

    You’ll be at financial independence in no time my friend. Keep up the good work!

  8. I see you changed your freedom fund description to “freedom from a traditional 40-year career”. Either you are liking your job or your boss is reading your blog.

    Have you checked out VMI and CSL?

    Keep up the good work and congratulations!

  9. D,

    Thanks for dropping by.

    Great question there on diversification. How I look at stock diversification is not so much sector diversification as much as income diversification. So, my portfolio is a tree with 32 branches each producing bountiful dividend fruit right? That means if one branch were to die off (dividends cut or significantly reduced) I’ll still have 31 branches producing fruit…which would probably still be more than enough for me to live on. Contrast that to a tree with 5-6 branches and if one branch dies off you might be starving.

    If your goal is to truly live off your dividend income then the more sources of income the better, in my view. This somewhat mitigates the risk of dividend reductions/eliminations.

    I hope that helps!

    Best regards.

  10. MFIJ,

    I’m completely with you. The values are definitely getting very difficult to find, and this come from an investor that doesn’t really concentrate on the broad market valuation. I still see some value in the energy, financial and tech sectors. But even those values are fairly scant and really don’t offer much of a margin of safety. One can simply pay up for quality here, hoard cash for the possibility of a market pullback or continue to find the best value/quality relationship you possibly can. The last choice is where I’m currently at, but the first choice is sometimes on the table as it was earlier in the year when I was buying KO and JNJ.

    Best wishes!

  11. Onassis,

    You’re doing great over there! It felt like just yesterday I was at $15k and now here I am in the six-figures. It happens quick if you stay focused on what you can control and stick to buying high quality businesses that reward you as a shareholder.

    Keep up the great work.

    Take care!

  12. w2r,

    Thanks for the continued support!

    I can’t wait to see what the next few years hold as well. I’m very, very excited for not only myself, but many of you readers. We’re all growing together. It’s really fascinating and fantastic.

    Yeah I seen OKS and OKE had a bit of a hit recently. I’ve looked at OKE before and the entry yield was too low for me, but after the recent dip and recent dividend growth has brought it back into my wheelhouse.

    Don’t worry about the drops. Worry about the operations of the business and the rising payouts you’re receiving. In those regards, you’ll be singing songs of joy! 🙂

    Best wishes.

  13. Kraig,

    Hey buddy, you’re doing fantastic over there. You’ve got your pedal to the metal just like me. This is definitely a race we’re both winning! 🙂

    Besides, you’re younger than me. By the time you hit my age you’ll be blowing me away!

    I hope we hit FI quickly. I’ll be celebrating by going to the beach on a Monday morning. Hard to get a “case of the Mondays” when you’re chilling on the sand! 🙂

    Looking forward to meeting you in a couple weeks!

    Best regards.

  14. Anonymous,

    Haha. I see someone noticed that. Shhh…my little secret, right? Per your comment, the latter could be true.

    I haven’t taken a look at those companies before, but just running the tickers on a quick screener shows yields that are way too low for me. I don’t mind occasionally dipping below 2%, but the cases are to be very, very special and far between.

    Thanks for the support and warm wishes. I do appreciate it and I wish you the same!

    Take care.

  15. It’s great to see these updates. In months like these, when you have a ~7K uptick in the size of your Freedom Fund, is when I tell myself “DM is gonna retire WAY before he’s 40 years old”.

    Btw, I thought it was very interesting that you got approached by TLC’s “Extreme Cheapskates”, and I think you made the right decision. Their main objective seems to be to create something that is a spectacle for viewers, not necessarily to create something that is accurate and educational (it has been a long while since TLC was The Learning Channel).

  16. Spoonman,

    Thanks so much! I hope you’re right!! I don’t know if I’ve got 10 more years in me to continue doing what I’m currently doing.

    Yeah, the TLC thing was interesting. I think I made the right choice too. That’s not at all the message I’m trying to convey. If I was looking for publicity implicitly or trying to get a name for myself it would be a great idea to do a show like that. Inspiring others, however, is done in a much different manner. And that’s what I’m here for. Besides, I’m not an ‘extreme cheapskate’ (whatever that really means) anyway. I live a rather high quality of life, but simply on a much smaller scale than most do.

    Thanks again for stopping by! I’m looking forward to seeing what FI looks for you.

    Best regards.

  17. That is an very interesting answer, Jason!

    Benjamin Graham said: Put only 5 up to 15 papers in your portfolio.

    In my personal opinion, it is also reassuring to share the risk to 30 papers rather than 15 papers.
    The maximum yield can be lower, as if you set only all your money to the top 10 companies.

    But that’s a personal matter of opinion, which prevails in personal one: Maximum yield and a small uncertainty in the background or maximum security and a slightly lower yield.

    Best wishes

    Onassis

  18. You are making some great progress. I also recently picked up some APD and WFC. I’m with you on the market pullback. Whether that happens or not I’m going to continue to “ignore the noise” and make regular investments into high-quality companies that present what I believe is the best value at the time.

    Keep up the good work!

  19. Congratulations on hitting the 110 mark! It seems just like yesterday you were at 100. My portfolio recently hit 30 and I was pretty excited about that. We have been lucky with the upward trend of the stock market lately. But, like you, I am more interested in the income. I think it definitely helps to have a plan. If you set a goal to invest XX dollars a month you get to a point where you don’t even miss it. I have definitely enjoyed reading your blog, DM, as it is my favorite. Best of luck to you!

    Paige

  20. AAI,

    Great minds do think alike. I’m completely with you on the purchases of APD and WFC. Both are great businesses trading at attractive prices relative both to the overall market and their own respective intrinsic values. Great buys!

    Yep, I’ll just keep the headphones on and my itchy finger on the trigger!

    Keep up the great work!

    Best regards.

  21. Paige,

    Thanks for the very kind words! It means so much to me to have readers like you stop by and really enjoy the content. That’s what this blog exists for.

    Congratulations on the $30k mark! That’s fantastic. Believe me, the progress happens very quickly. I had a bit of an advantage over you in that I started investing in a stock market that had significantly lower broader valuations than where it stands today. Regardless, however, if I were starting today I’d do the same thing all over again!

    The key is definitely to have a plan and to stay consistent. Stick to your plan because if you fail to plan you plan to fail. Imagine where you want to be 5 years from now and reverse engineer how you would have gotten there from where you’re at now. Back the numbers up and you’ll know exactly what you have to do. Keep it up!

    Best wishes.

  22. Second Half,

    Thanks for stopping by!

    Sounds like a really interesting plan you have there. Moving to Europe sounds great. Life is only lived once. Make the most of it!

    I hear you on the bank stocks. I’ve admitted many times that I lack the ability to fully analyze a bank stock and everything they have on the books. I am relying on management to a degree, as well as past results. Bank stocks can be tricky and there is more risk there than most other stocks, but I think a few large, really high quality bank stocks have a place in my portfolio. We’ll see how they turn out!

    Best of luck to you as you near your retirement in a few years!

    Take care.

  23. I really like your approach and discipline. I am a little older (46) but plan on retiring by no later than 50 when I can spend time with my two boys who will be high school age by then. We actually plan to to move to Europe then so we can have a different experience but I will be there for them.

    I own most of the stocks in you Freedom Fund, but I won’t invest in any bank stocks, because quite frankly I don’t understand what is on their books. I also won’t overpay for even great companies. The market has had a nice little ride the last few months which has made it more difficult to deploy capital stratigically. I DRIP all my stock holdings because it saves transaction costs. I have enough funds invested that conservative options trading (covered calls) has provided a nice boost to the normal dividend distributions.

    As you accumulate more wealth, it actually becomes easier to manage by opening the options market. Good luck!

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