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Changed The Way I Invest
on December 2, 2014
I bought this book a year ago, and read it at the same time I read "Get Rich with Dividends" by Marc Lichtenfeld. I have not read anything that impacted my life so much since I read David Allen's "Getting Things Done" in the 1990s - and that book saved my sanity (if not my job)
Richard's book begins with the reasons to invest for income rather than capital gains. If I ran across this concept before, it did not click. This book made a compelling argument for me, including such things as dividends paid are real (income and other items reported may not be - for a number of reasons), cash kept by a company rather than paid as dividends can easily be misused (HP's recent purchase of Autonomy comes to mind), the compounding power of reinvested dividends - even (or maybe especially) when the price of the company paying the dividends is depressed, and his statement that even if I had found Microsoft or Walmart at the right time, I would have sold long before they made me rich. There's more, but you get the idea.
I have read a few other books that are based on dividends being real (or not lying or whatever), but this book and Marc's book mentioned above are the ones that I have found that advocate choosing a good income paying security, then holding on through good times and bad as long as the payments are received, which results in compounding of income. The others use dividend payments in their valuation process, but advise selling if a security is determined to be overvalued - which is not something I was all that good at figuring out anyway.
This book makes a number of suggestions of specific ETFs and other investments, though it never really lays out how to find a good, dividend paying investment yourself other than diversification and low expenses. The author considers individual stocks too risky, though the examples of magic compounding he gives come from individual stocks. I understand his perspective, though I do not really share it. Finding good, dividend-paying investments is the basis of Marc's book listed above.
I still pay attention to business news (I am a CPA, though I do taxes - it is the way I am wired), but I no longer fear the market downturn. As long as I select well initially, more dividend paying shares are being added to my holdings even if the market is down.. I no longer fear being fooled by the randomness or decimated by the black swan of Nicholas Taleb (whose books I also highly recommend). I find stocks that have paid stable or increasing dividends for the last 25+ years and let them go. I remember 1987 (vaguely), the 2000 or 2001 tech bubble, and the 2008 mortgage crisis. I never had a strategy to deal with them - now I do.
To be fair to myself, investing this way was not really possible for me in the past. When I saved for retirement through my plan at work, I was given a very few mutual funds to choose from and only allowed to change my investments once or twice a year (to teach me the value of investing I was told). But with discount brokers willing to reinvest dividends without charge, and with more liberal employer plans, I can do it now.
I still have some funds that I use to try other ideas (trading or whatever), but most of my money is in stocks which have paid a stable, if not increasing, dividend for years. It is going to stay that way.