I’m sure this isn’t the first time that you’ve seen my use this phrase…and I’m certain it won’t be the last…but when I look at the markets, and inspect my various watch lists for attractive buying opportunities, I repeat this mantra in my head, over and over again:
“Take what the market gives you.”
I say this as someone who is nearly always trying to put capital to work.
I consider myself to be a long-term investor. I consider myself to be a dividend growth investor. I consider myself to be a value investor. I consider myself to be a fairly disciplined buy-and-hold investor. And, at the end of the day when I attempt to reconcile all of these ideas into a singular harmonious mindset, I consider myself to be a collector.
Simply put, my goal in the market is to collect – or accumulate – as many shares of high quality blue chip dividend growth stocks that I can.
Every share that I add to my portfolio (or, collection, if you will) adds another dividend payment to my passive income stream.
And, due to the long-term, buy-and-hold, dividend growth approach that I’ve adopted, not only do these shares generate passive income in the present…but, I expect for them to generate reliably increasing dividends far into the future (obviously, there will be unforeseen disruptions here, but that’s what regular due diligence and portfolio maintenance are for).
Every share that I accumulate accelerates the compounding process that I’m focused on when it comes to reaching a comfortable retirement. In short, every share that I collect is one step closer to financial freedom.
This is why I’m content to ignore macro headlines and instead, focus on consistently adding shares to my portfolio.
Every month, I selectively re-invest my dividend income, to ensure that I’m fueling the organic compounding process of my passive income stream (annual dividend raises provided to me by the management teams of the wonderful companies that I own + regular re-investment of those dividends).
Furthermore, every month I do my best to live below my means so that I have savings available to invest in the markets.
My wife and I allocate a very large portion of our disposable income into our portfolios because of our dream of early retirement. Yes, we could use these funds to shower ourselves with gifts in the present; however, the way I see it, a reliable growing dividend is the gift that keeps on giving.
And therefore, not only are we content to “take what the market gives us” and consistently pour money into our brokerage accounts, but we’re completely satisfied to do so.
When I used the word “content” in the title of this piece, I hesitated.
For some reason, in contemporary times, the word “content” often carries a negative connotation.
Oftentimes, people frown when they say it. These days, saying that you’re content with someone is construed as being akin to “settling”.
However, that’s not the case…
A quick Google search of “content definition” shows that content is an adjective which means to be “in a state of peaceful happiness.”
A state of peaceful happiness…that’s something that investors are striving for, right?
Nowadays, we live in a society where instant gratification is the expectation.
Not only do we expect gratification right away, but we often expect excellence…perfection, even.
Unfortunately, perfection is rarely possible and this mindset ends up leading towards dissatisfaction.
For some, these unrealistic expectations result in distress. For others, it can be even worse…with a sense of impending doom developing. And, this can be a difficult cycle to escape from, with disappointment and remorse perpetuating poor decisions focused on unachievable goals in the short-term.
To me, the resolution here is to adopt a long-term mindset.
It takes time to fix problems. Financially speaking, it takes time to generate wealth.
I know that this isn’t what most people want to hear. Patience is a virtue, but it doesn’t necessarily come easily to most of us. But, it’s possible to overcome the fatalistic idea that our financial situations are destined to be disappointing by focusing on the long-term compounding opportunities that the stock market provides.
Yes, this involves delayed gratification, but what if I told you that every $500.00 you put to work in the market today could grow into a $5,000.00 sum in 25 years?
This implies that if you put $500.00 to work no a monthly basis (something that I assume is achievable for most by cutting back on superfluous spending, picking up extra hours at work, starting a side hustle, etc) that $6,000 that you invested this year would be worth $60,000.00 in 25 year’s worth of time.
And obviously, the larger initial sums that we’re talking about investing in their theoretical situation, the larger the potential long-term values (after decades of compounding) will be.
Well, to achieve this level of success in the markets (essentially 10x-ing your money over a 25-year period), all you have to do is generate a 9.65% compound annual growth rate (which is essentially in-line with the long-term growth trajectory of the U.S. stock market).
Obviously, the past doesn’t predict the future and the markets may not generate 9.65% annual returns over the next 25 years; however, I believe that investors who are disciplined about buying high quality stocks at discounted valuations are very likely to achieve (and even exceed) this level of portfolio growth.
With regard to that instant gratification mindset, many investors that I speak to (especially those who are younger) appear to turn their noses up at the notion of 10% annual growth. But, as for me, I’d much rather place bets on relatively low risk blue chips that pay me reliably increasing dividend than attempt to swing for the fences, or board a rocketship “to the moon”, as wallstreetbets redditors are known for saying, with highly speculative growth stocks, crypto bets, or worse, meme stocks.
Here’s the deal…when sluggers swing for the fence, then oftentimes strike out. And, as we’ve seen in recent months, even the most compelling rocket ships have the potential to crash and burn.
There is absolutely nothing wrong with a 10% CAGR. And frankly, I think that can be viewed as a baseline type of total return outlook over the long-term – in other words…disciplined investors can do even better by focusing on both quality and value and, getting back to the namesake of this piece, taking what the market gives them.
High quality companies tend to see their share price head higher over the long-term because of the reliable fundamental growth that they generate over long periods of time. When you buy shares of these blue chips at a discount, not only do you benefit from the ongoing fundamental growth, but also multiple expansion via mean version, which is a powerful force that can push share prices even higher. And, obviously when we’re talking about dividend growth stocks, we can stack the dividend yields on top of the share price appreciation that fundamental growth + multiple expansion generates, resulting in a triple threat attack at the goal of financial freedom (sorry for switching from baseball to basketball with my sports metaphors, but I did just finish up watching the Final Four games; congratulations to all the Jayhawk and Tar Heel fans out there).
No matter how strong the first tinges of FOMO (the fear of missing out; or, greed, for short) might be, I’ve seen far too many success stories associated with value investing to fall prey to those urges.
Is the dividend growth investing strategy that I adhere to going to make me filthy rich overnight? Most surely not. However, the fact of the matter is, get rich schemes don’t work. And, while it’s true that I could attempt to accelerate my journey towards riches by taking on more risk in the near-term, that strategy doesn’t mesh well with my personal level of intestinal fortitude.
I wish all the luck in the world to those who’re willing to take on excess risk while attempting to speed up the compounding process (I never wish ill will on anyone in the markets); however, you won’t see me making any drastic changes to my portfolio management strategy anytime soon because of the confidence that I have in dividend growth stocks.
A quick glance at the long-term share price chart of the greatest companies in the world make it clear that simply buying and holding blue chips is a successful strategy in the market.
Yes, there is some survivor-bias involved there; however, for every stock like Kodak or K-Mart that has fallen off its its blue chip pedestal there are numerous others who have continued to compete, to adapt, and to evolve over the years and decades, continually providing strong gains and shareholder returns to investors.
So, if you’re someone who has a sort of pessimistic fatalistic view of their financial future, I hope this piece might serve as a first hopeful stepping stone on your journey towards financial prosperity.
Or, if you’re someone who is already well on your way to financial freedom, but needed a little pick-me-up throughout the recent market volatility that we’ve witnessed throughout 2022…well, I hope this piece was refreshing and provided a bit of solace.
Getting rich in the markets doesn’t have to be completed. I argue that there is elegant simplicity to the dividend growth strategy, all based upon the power of compound interest (which is a force that I want on my side over the long-term). To me, doing well in the markets requires a little bit of knowledge and a whole lot of patience and discipline. Oh, and of course, time.
If you’re someone with all 4 of those resources (and virtues) and you’re interested in the area of the market that I’m most intrigued by right now, then please consider signing up for The Intelligent Dividend Investor newsletter service.
In the April edition of the IDI newsletter I will be highlighting an industry that I believe has become irrationally cheap. It’s an area of the market where I’ve been putting my personal funds to use. And, it’s an area of the market that I’m increasing exposure to within the IDI portfolio.
This article is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned or recommended. It does not guarantee that securities mentioned in this newsletter will produce profits or that they will equal past performance. Additionally, we are not an investment advisor and do not offer securities or tax advice. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. Nicholas Ward, contributors and staff members of Wide Moat Research may hold positions in some or all of the stocks listed.
Nicholas Ward is a research analyst who currently writes for Seeking Alpha, The Dividend Kings, iREIT, and Forbes Real Estate Investor. Before that, he was Founder and Editor-in-Chief of The Dividend Growth Club, as well as the Income Minded Millennial. Nicholas has also contributed to Sure Dividend, Investing Daily, and The Street, where he covered stocks in Jim Cramer's Action Alerts PLUS Portfolio.
Nicholas holds a bachelor of arts from The University of Virginia, where he studied English and studio art. Prior to transitioning into the financial industry, he managed a vineyard in the foothills of the Blue Ridge Mountains.
