Monday, January 14, 2019

Starting off on a high. Dividend growth stocks from "Dividend Growth Whisperer" trounce the market in Q4, 2018.

In my new book, Dividend Growth Whisperer, published October 2018, I list 17 dividend growth stocks. While 3 months is a silly period to consider the performance of an (investment) portfolio, just to amuse myself today, I looked at how the portfolio performed during the fourth quarter of 2018.

The portfolio in the book outperformed.

While the market lost 13.55 percent during the fourth quarter -- as measured by Vanguard's S&P 500 mutual fund, VFINX -- the portfolio in my new book lost - "only" - 8.48 percent, a performance 507 basis points ahead of the market. While this degree of loss is a Pyrrhic victory, it is a decent start, considering the blind panic that infected the market at times during the fourth quarter of 2018 -- when far too many people seemed to run out of their Oreo's.

Quite interestingly, and encouragingly, 14 of the 17 stocks profiled in my new book beat the market over this period, a testament to the high quality of the stocks and the portfolio in general.

And while beating the market is not that big a deal for stodgy stocks (many utilities, for instance), these stocks are not stodgy stocks. They share characteristics that should allow them to perform better than the market over the long term -- at least, that's the theory, and that's why I picked them!

If they do what the stocks in my first book, Investing in Dividend Growth Stocks, have done they should outperform the market in bad times (falling less) and good times (rising more) -- a favorable market trait of extreme rarity. Net, over a long period, 5 to 10 years, they should handily outperform the market. At least, that's the theory....

(Even if all this does not come to pass, I believe they should do quite all right. I believe that my dividend growth stocks -- the portfolios in both books -- should beat 90 percent of all funds over a long period, except in very rare instances: rabid markets or long-term performance off a starting atrocious bear period. The portfolio in Investing in Dividend Growth Stocks has done very well, for instance. Quoting from the Amazon page:

"In 2017, the average stock in the book's portfolio returned 23.2 percent, yet again outperforming the market, which returned 21.7 percent, making it ten years out of the last eleven that the portfolio has beaten the market. [It beat the market again in 2018, so that's eleven of the last twelve years that the portfolio has beaten the market.] The portfolio very likely remains the best general purpose diversified portfolio in the market, besting the vast majority of diversified mutual funds, with the best, or among the best, 10-year records to 2017. Over the last eleven years, $1.0 million invested in the portfolio, dividends reinvested, has vaulted to $4.4 million at the end of 2017, ahead of the market by a not too insignificant $2 million -- and with much less risk, meaning as well, for instance, that you are much more likely to hold onto these stocks and actually realize these returns. Such is the benefit to long-term investors of picking these wonderful companies correctly, that is, intelligently.")


Many investors fail to appreciate the damage severely bad returns do to a portfolio. For instance, while the book portfolio did beat the market by 507 basis points, it actually is 641 basis points ahead of the market in terms of the returns needed to get back to par -- the book portfolio needs a return of 9.26 percent to get back to par while the market needs a return of 15.67 percent to do the same. That's a considerable victory for the good guys.

Another way to look at all this is to consider the amount of time needed to get these returns. At a market average of 9.5 percent a year, the book portfolio needs a little less than a year. The market however would need 1.60 years. So, in a sense, we are 7+ months ahead of the market -- and really considerably more, perhaps 9+ months to a year, since typically dividend growth portfolios outperform the market. Not a bad start.

You only have a finite time horizon in which to invest so time is indeed money.


Game on.



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