I don’t think I’m the only investor who falls into this category. Or maybe I’m just too willing to openly admit my shortcomings.
Over the years, I have proved that I can be an incredibly undisciplined investor.
While I always have included dividend growth stocks in my portfolio, I have ventured off into most every other area. More often that not, it didn’t work out well. It didn’t work out well because, most of the time, I saw initial success.
That initial success led to overconfidence that ultimately did me in.
There have been times when initial failure contributed to things not working out so well. Not because I failed, but because I refused to accept failure. It used to be that when I failed – or just wasn’t all that good at doing something – I became obsessed.
I had to prove to myself, to the people who are actually good at what I was trying to do, and to the world, that I could do it.
Thankfully, I have come to learn that there’s something psychologically off about not being able to accept failure or not being good at something. There’s also something dysfunctional about allowing success to take you in too far, too fast.
The strongest people I know recognize their limitations. They choose to operate within them, focusing on being as good as they can be at the things they’re good at in the first place.
This doesn’t mean you don’t try to improve in deficient areas. It just means you don’t go all-in on these things simply to prove something to yourself or somebody else.
It took me a long time to figure it out, but I’m glad I finally did.
Being able to accept failure and move on to something you have a better chance of being good at is one of the most important qualities a person can develop.
It might be the most important factor to be a successful investor.
In the shell of a nut, it’s called discipline. Or, at least, it’s one critical component of being an overall disciplined person and investor.
As a kid, I loved investing, buying mutual funds a family friend recommended and getting into dividend reinvestment plans offered directly by companies via Computershare. But at the turn of the last decade, I upped the ante.
Little did I know investing would become a major component of my life for a better part of that decade and will remain a focal point for the foreseeable future.
I forget the exact order of events, but sometime around 2010-2011, I went hardcore into the stock market.
I discovered a day trading chatroom run by Seeking Alpha contributor Robert Weinstein. Bob hasn’t contributed in a while, but he should. He knows his stuff. Plus, I taught him how to be a good writer. Or, at least better, because he would admit himself, he wasn’t very good.
One of the many things Bob was, and is, good at is day trading. He’s a numbers guy, with a reliable system he has tested, back-tested, tested, and back-tested again. He doesn’t deviate from the system. It’s all just numbers and signals to him. When the signal says buy, he buys. When it says sell, he sells. And he only does it on stocks his system tells him to buy and sell.
Of course, I thought I could be a day trader too.
Long story, short, I sucked.
Thankfully, I didn’t lose too much money. However, I was on that path until Bob stepped in.
Bob told me, in plain terms, that most people fail at day trading. He said he had seen dozens come into his chat room for a few days, never to be heard from again. He told me the odds indicated I would fail too. And, as someone who had seen success trading, he believed those odds would play out in my case.
Bob also told me I was a good writer and, if I was smart, I would focus on writing about stocks, rather than trading them.
My friend saved me from myself.
From there, we went on to have an unofficial arrangement.
Bob taught me about options (something I have been able to making money writing about and using in conjunction with my long-term investment portfolio). And I helped Bob with his writing.
Our partnership worked.
I don’t have a heartwarming story to go along with my other market-related failures. I’ll just say that stock picking doesn’t suit me.
It’s not that I’m not good at it. I have picked my share of winners. It’s just that I don’t know how to manage it. I don’t know how to pick growth stocks and determine when to buy, when to sell, when to take profits, when to get greedy, and when, most importantly, to not get too greedy.
For me, putting together a portfolio of stocks I simply think will go up doesn’t work. There are no parameters. Of course, I could create parameters, just as Bob uses signals and indicators to day trade. But I’m not good at that either. There are way too many moving parts.
Many investors are great at some form of this. Some pick stocks without a system and do well. Others do so within a system – based on one or more sets of metrics – and do well. Millions of others probably fall somewhere in between.
However, for every person who can successfully manage a portfolio of stocks on the primary basis of them going up – as in, they have to go up, a lot, for the portfolio to be a success – I unscientifically bet I can find one or more people who cannot do this successfully. In fact, of these people, I venture most fail miserably, even if they’re not willing to accept or admit it.
My success lies in the simple fact that I needed to find a way to be better disciplined. Actually, to be wholly and completely disciplined. Because even dipping my toes in undisciplined waters eventually leads me to trouble.
A key reason I lacked discipline in investing was that I was impatient. So I set out to work on that.
I worked on that part of myself in big and small ways. Everything from putting off rewards I actually deserved for far longer than necessary to finding the longest line at the grocery store and standing in it, needlessly.
These types of actions not only made me a more patient person (over time), they taught me about the value of time.
I used to think waiting around was a waste of time. Time I should be spent bathing in exponential upside and endless success. However, standing in line for an extra 5-10 minutes at the grocery store, as but one example, often ends up being time well, if not better, spent.
I have conversations with people I otherwise would not have had the opportunity to talk to.
More often than not, I have conversations with myself. This is when the ideas start to flow. I come up with more article ideas during down time – in line or on a walk – than I do when I’m banging my head against the wall with the express purpose of coming up with article ideas.
It’s difficult for the dividend growth investor to explain why he or she so ardently adheres to dividend growth investing.
I hope my path proves instructive.
Dividend growth investing provides what might be the most straightforward to way to achieve discipline in investing. However, it requires patience.
Life happens in and out of the dividend growth investor’s portfolio just as it does for anybody else. Stocks go up, stocks go down. We make good decisions. We make poor decisions. We hold a dead stock for too long. We let go of others too soon on what turns out unfounded fear.
That said, we can always look to the dividend.
For every Boeing (BA) or Disney (DIS), there are dozens of stocks you’re not going to be wrong about if you use the quality, stability, and growth of the dividend as your main deciding factor to buy and hold a stock. This statement, by and large, has history on its side.
I don’t have to provide a chart with a list of dividend aristocrats alongside stocks on the path to one day become dividend aristocrats. I’ll save that for another article.
In a world with no guarantees, reinvesting dividends over time provides the closest thing you’re going to get to a guarantee in investing. One way (through cultivating an income stream) or another (share price appreciation) – or via a mix of both – you’re going to build wealth. That’s the only thing that’s real.
It’s as foolproof as it gets.
I don’t have to worry about taking profits off the table or selling before the bubble (which, for the record, I don’t think actually exists) bursts.
I identify companies I believe in that pay strong dividends. I buy them once, then again and again. I hold them, reinvesting the dividends. And, over time, I see my patience and discipline pay off. If the company’s long-term story goes south, I sell and put the proceeds into another company still headed in the right direction.
Here’s the thing – just as Bob saved me from day trading and myself, dividend growth investing saves me from reverting back to something I’m not very good at. It provides a relatively easy-to-follow system that’s straightforward, even a bit boring, but still fun to execute (especially when the dividends start rolling in).
I worry less about losing money. And I actually lose money less by methodically following DGI. On-paper losses barely phase me because I know they don’t stop the dividend reinvestment train. In fact, lower stock prices make it powerful over the long run.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.