December Sale

Winter break now!  Work has wrapped up for the year and now I am about to head home to visit my family.  I hope you all have a safe and Happy Holidays!

As I had eluded to in my November Highlights,  I have contemplating selling several of my investments.   I haven’t done enough analysis to make decisions on all of the positions I listed, with the exception of one.

My sale

I decided to sell ARCP over the last few weeks.  I have watched the drama unfolding and have decided that the investment is not worth the risk associated with it.  I made several mistakes while researching and buying this investment:

  1. I projected the success of O onto ARCP’s future
  2. Reached for yield

O has an impressive track records.  They have raised the dividend for several decades through boom and bust.  As I researched ARCP, I felt like I could be getting into an “O” type investment at the early stages where the initial dividend increases would be higher than they will be when the company reaches O’s maturity level.  I feel like the triple net lease REIT space is great for investments, but ARCP proved too opaque for my research.  Truth be told, of all the positions in my portfolio, ARCP has bothered me the most, even on the day I bought it for the first of two times.  That in and of itself should probably have told me not to bother with it, but I did.

If you have an reservations with your research, do more research.

In the end this will be a tax loss and a lesson learned for me.  I sold the position on Thursday at 8:28 per share.  I will loose about 162 dollars of income and I am pushed back below my previous milestone, but the proceeds from the sale will be reinvested and should add an additional 50 dollars to my income.  A temporary set back of 110 dollars or so.  I received around 200 dollars in dividends from this investment, for a total loss of 400.

Sailing down memory lane

Ahh reaching for yield, I’ve committed this sin before.  Years ago I bought an investment called Paragon Shipping (PRGN). Shipping was in a golden age in early 2007.  Spot prices were high and shipyards were stuffed with orders! Unicorns and rainbows were around every corner, the DOW was almost at 14k.  Paragon was adding capacity to its fleet and the fleet was locked into long term leases at high rates!  What could go wrong?

PRGN had something like a 8% dividend.  Not crazy, but once the market crashed, the Baltic Dry Index went from over 10k to 1k in less than year.  PRGN crashed and so I bought more and more and reinvested dividends.  Dividends of 20%! When all was said and done, I lost somewhere in the neighborhood of 5k (and some of it in a ROTH account).  The total loss was probably 80-90% of invested capital.  Easily my worst “investment” of all time.

Ironically, I was researching on how to become a dividend investor at the time.  This was the first time O came on my radar, but it’s yield at the time was to “low”.  Sigh… I supposed one of the first mistakes a dividend investor makes is focusing on yield over ensuring that dividend is safe and sustainable over decades.  Put O and PRGN on the same chart and see how that turned out.

The Fear or Missing out or FOMO

Why did I hold onto PRGN for so long?  Even though hindsight is 20/20, it does appear that things were bad enough that I should have considered getting out of PRGN (or never getting in).  The main driver in holding onto the stock (and adding to it), was the fear that once I sold, it would go up and all the money I lost would have been recovered. If I sold, I was locking in losses and loosing money, but if I bought more now, my gains would be even better (and it would have to go up less to be in the black!).   Or that is probably how my thought process went.  I was pretty good about telling myself the recovery was right around the corner!

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” – Warren Buffet

Right?  I was definitely being greedy, but I was also being an idiot.  At the time, I don’t think I had enough knowledge about both PRGN and the shipping industry in general to be making those purchases. I also had bad timing, but I’ve had good timing too, so that evens out.  I like this quote from Warren Buffet, but I think there is a caveat of knowing what your doing, which I did not at the time.

Why would I sell an investment?

Over the last few months, I have been pondering whether or not I should sell some of my slower growing dividend growth stocks.  This would put companies like T (~2.1%), VZ (3.4%) and SYY(3.4%) into that bucket.   I will be examining over the next few weeks and will hopefully put a coherent post together about why I would choose to sell one of those positions.

A small purchase

I hadn’t expected to make a purchase this month, as I am saving up funds for my ROTH come January 2nd. However, I have accumulated enough funds in my Loyal3 account (52 to be exact) and decided to buy some MCD with it.  That will execute on Monday ( I put it in to late on Friday).


No one wants to make mistakes, but if you can learn from them, then they aren’t all bad.  I would rather make this mistake with a small investment now, than make a large investment in the future and have my income setback much future.

Take ar!

Disclaimer: Long MCD, O, T, VZ, SYY

Dividend Growth Future Estimates

I have never really thought about what my 10 year plan looks like.  Considering I make my decisions based on the long term implications, this is rather odd.  It took me over three years to find the right house.  I went through 3 or 4 realtors and even then it took me almost a year to find a house I wanted to buy.  I didn’t want to go to college, but went and focused heavily on my studies.  It was my job after all, I probably spent around 40-50 hours a week studying when I was not in class.  I wanted to do well, so that I could get a good job, which I believed I would need for the next 40 years.

When I started investing, the plan was to get rich.  Which as a plan lacks detail and is lazy, but I got caught up in the market euphoria and dropped the ball for a few years.  Once I began dividend growth investing more than two years ago, I began to plan somewhat.  I created a spreadsheet that mapped out expected dividends over the next 30 years with a yearly cash contribution I felt was sustainable (given the randomness of life).

Until recently I have not sat down and asked myself the question:

Where do you want to go?

To do this day, I honestly can’t answer that.  I don’t know.  I think I would like to have enough side income to take a position that allows me to be outside more.  I say this, but I am rather risk averse and don’t make many changes.   This may be many years away, in the mean time, I created a spreadsheet that helps me map out my expected future income.

The formula…

Lets start with an example, suppose you start with the following parameters:

Parameter Value Notes
Yearly Dividends 1000 Dividends paid in a 12 month period.
Yield 3.5% Average yield of your portfolio.
Dividend Growth 8% Overall dividend growth rate.

Simplifying assumptions I use in the formula:

  • Reinvest all dividends at the end of year at average rate.
  • Forward dividends are adjusted at the end of the year.
  • Additional funds are invested once per year when dividends are, assuming the “Average Portfolio Yield”.

After year one, reinvesting :

Fwd Dividends

= (Current Yearly Dividends + Dividends received * avg. rate)*(1+Dividend growth rate)

= (1000 + 35*.035)*(1+.08)

= (1000 + 1.23)* 1.08

= 1081.33

After one year, your dividends would have gone from$ 1000 to $1081.33.  Similarly, for year two, you would use $1081.33 as your “Current Yearly Dividends” and compute the same formula.

Suppose you are adding $1000 to your investment at the average portfolio yield or 3.5%.  This would add an additional $35 to your income.  This value would be added to what was computed to simulate the investment at the beginning of the next year. Your year two starting 12 month dividends would be $1116.33 after investing an additional $1000 earned in year one.

Do you recognize this formula?  With the exception of adding additional funds, this formula is for annual compounding.


I made some basic assumptions that simplifies the calculation:

  • It doesn’t take into account reinvesting dividends as soon as your able.
  • It doesn’t take new money added to your account throughout the year.

Both of these issues will affects your overall estimates in a given year.  Suppose you earned $10000 dividends/year and we reinvest quarterly vs once at the end of the year.

For annual compounding, your 12 month forward dividends will be 10350 after one year. If no additional capital, but the dividend income is reinvested.

Quarterly compounding will do the following each quarter. Note, the “12 Month FWD Dividends” column is what your income will be at the end of the quarter.
Quarter Quarterly Dividends 12 month FWD Dividends
Q0 0 10000
Q1 2500 10087.50
Q2 2521.88 10175.76
Q3 2543.95 10264.84
Q4 2566.21 10354.66

At the end, the difference is small ($4.66), however it is something to remember when compounding annually vs quarterly. For my purposes, annual compounding will provide a floor to my dividend income estimates, assuming I am able to make the additional assumptions (extra capital, average growth rate and after yield of 3.5%) reality.

My 10 year growth estimates

Here is the first 10 years of projected dividends of my portfolio assuming 8% growth, 3.5% average yield and 10200 additional yearly deposits.

Expected Year Date Passed Milestone
0 6/1/2012 0
1 1/1/2013 2,100.00
2 4/1/2014 2,497.84
3 9/1/2014 2,942.17
4 2/1/2014 3,438.44
5 6/1/2014 3,992.69
6 6/1/2015 4,822.07
7 6/1/2016 5,748.37
8 6/1/2017 6,782.93
9 6/1/2018 7,938.38
10 6/1/2019 9,228.87
11 6/1/2020 10,670.16
12 6/1/2021 12,279.89
13 6/1/2022 14,077.74
14 6/1/2023 16,085.68
15 6/1/2024 18,328.29

In 10 years from my last milestone (6/1/2014), I want to have $18,328.29 additional yearly income. I think this is achievable, at least for now. I have included a longer version of this chart on my Progress page.

Wrapping up

That is were I hope to be heading.  The market is fairly interesting right now.  There are several quality companies approaching my buy targets and with my recent purchases of XOM and CVX,  I am patiently waiting to add additional shares of other companies I expressed interest in purchasing a week ago.

What do you think? Do my estimates seem crazy or mis-calculated?

Disclaimer: Long CVX, XOM.

Is “follow your passion” good advice?

I am not particularly fond of the idea of following your passion.  I feel like the idea in and of itself, indicates that everything will work out if you do something you like.  I think there is more to it than just doing something you like.

I would say that I am an individual who gravitates towards things that I am good at or because they are hard.  I earned a Math degree in college because I didn’t feel like changing my major (apathy).  Once that I finished that, I realized employers didn’t think I had to skills to work in software, so I went to grad school and picked up a Computer Science masters.  I am good at both, but I wouldn’t say I am passionate about either.  I enjoy solving puzzles and get as much enjoyment out of writing a computer program as I do painting a wall.  I am a fixer/builder by nature so I suppose this makes sense in context.

Attempting to follow my passion

After I left college, I assumed that I was going to be getting my dream job.  I really enjoyed programming and was hired as a computer programmer!  At first I was pretty happy, but as with all jobs there is always going to something that is a bummer about it.   I spent a lot of time worrying about what sucked and lamenting the lack of awesomeness about it.

I didn’t like it, but didn’t know why exactly.  As time moved on, my opinion has flipped, I enjoy it very much and thinking of doing anything else is fairly hard.  The transition just kind of happened.  Recently, I stumbled across a book that gave me a new perspective on what may have caused my frame of mind to change.

An interesting book!

I was perusing the web recently and I came across a blog called, The Art of Manliness, it’s basically a blog about being a man.  I found it when I was looking for reviews of the best brand of Reel Lawn Mower (mower with spinning blades).  Being several months ago, I promptly placed it in my RSS Feed and would read an article here and there.  Eventually, I came across a post that contained a link to the book, So Good They Can’t Ignore You: Why Skills Trump Passion in the Quest for Work You Love. (Look it up on Amazon (non-affiliate) or get it from the library like I did!).  I think it is worth a read, even if you disagree!

The idea behind the book is that the advice of “follow your passion”, is the worst advice that you can possibly give to someone or follow yourself.  The author, Cal Newport, then goes through a series of individuals in order to demonstrate why he believes this type of advice is bad and what common traits other individuals had that enabled them to find a job(calling is probably a better word here) they became passionate about (or very happy with).  Like any good engineer, he provided a problem and then the solution he felt got these people to where they wanted to be.

These steps include:

  1. Career Capital (Build a valuable skill set)
  2. Control
  3. Mission

The author believes that you must first create “Career Capital”, that is a skill set that is valuable and hard to come by.  Career Capital also includes demonstrating the skills to employers/whomever is applicable to it. Next, once you have acquired enough Career Capital, you are able to have more control over your work life.  This can mean anything from creating your own schedule, being autonomous, etc.  Finally, it is important to have a mission to work towards, which is hard to determine.  Most of the individuals took small steps which eventually lead them to where they didn’t know they wanted to be.

How this applied to me

After reading this book and reflecting on my own work life, I can see some of the parallels.

I got a Master’s Degree in Computer science.  After the first few years, I switched positions in my company to move over to a position that required more cutting edge technologies (that I didn’t know) and invested time outside of work to learn these skills.  This was kind of like a spider web, as I learned more about those skills, I began to pick up others that were related.

As my reputation grew at work, I was able to use the skills I learned outside of work to pitch new functionality to the customers.  This gave me enough control to effectively write my own ticket and use whatever tools I wanted (as long as I can provide a good reason why).  This is a big deal to me, because I get bored if I am not constantly pushing the envelope a little bit.

The two paragraphs above have happened repeatedly throughout my career, neither has led to a water shed event that has entered into my dream job.  However, I have opened various opportunities in my company and I could probably find jobs elsewhere if I was looking.

I am not 100% sure what my mission is though.   I have never thought about this before.  Something to chew on!  None of my goals (or future life) is linked to work, aside from the income it provides to fund those activities.  Maybe my mission is to be very successful at work so I can be successful at retirement 😉

Is following passion bad advice?

Disclaimer: Each individual is different.

For me, trying to follow my passion didn’t work.  I view work as something that needs to be done, so working is probably not a situation where following my passion will give me much of a “bump”.  I am not trying to rag on those who prefer to follow their passion.  There are people out there who are doing exactly what they loved and always loved.  The book includes some of those people, but demonstrates that their journey was far more deliberate than simply doing something they liked.

How about for investing?

Investing is very much like work for me.  I am not particularly passionate about investing, it is something that needs to be done.  I have  a mission ( 😉 ), in that I want to achieve financial freedom and be able to assist my siblings and retire maybe a little earlier.  This is a deliberate act of educating myself (reading company news, financials, conference calls etc) and being frugal enough to get ahead a little each month.

I am putting it together one dollar (or brick) at a time.  After all, I am builder so this is right up my alley.


What do you think?  Have you followed a similar path to doing something you love?


My Financial Journey

Looking back on the years, the following is how I managed to save money/invest.  I originally meant for this to be a list, but it turned into a story.

My journey was a combination of good/bad choices, good luck and good timing.  Some of which was out of my control, some not.

I was in debt after leaving college at the end of 2005.  This is probably not a surprise to many people, but I managed to miss the large tuition increases that began in the early 2000s.  Freshman starting when I was a senior paid significantly more than me.  The amount of debt was relatively low (25k) considering I earned both a masters (Computer Science) and bachelors (Applied Math) degree.

I began working as a Software Engineer in January 2006.  The job market during 2005-2006 was much stronger than it is today and that field was(is) growing rapidly.  Having a desirable degree made it easy for me to find a job that pays well.  This wasn’t the case at first, I actually had to continue with a Masters after getting my Bachelors because not many people in the software industry had heard of my degree (Applied Mathematical Sciences, what a mouthful).

Once I began working, my paycheck was larger than any I had received.  Since I had spent the previous 5 years as a poor college student, I was well equipped to not spend money.  Initially, I set 10% of my paycheck aside in my company sponsored 401k.  I didn’t max it, but I had some debt to pay off.  Two months into my career disaster struck.

Well more of a mini disaster.  The car that served me well throughout college was wrecked beyond repair in an ice storm in February 2006.  Fortunately, while I was waiting for a tow truck, a city truck drove by and sanded where I crashed.  The damage to the car was substantial and the cost to repair it was much higher than it was worth.  At the time, I was still building my emergency fund (from 0) and did not have any cash set aside for this type of emergency.

I ended up buying a car that was cheapish.  I spent about 14k after all costs associated with the purchase.  For the most part, I was pretty content to making the payments on both my car and student debt, while saving any extra money I had.  That was until I met one of my friends.

It was at the end of 2006 that I met a good friend who was very knowledgeable about personal finance.  He was a follower of Dave Ramsey, a financial guru, I had never heard off.  I was pretty oblivious to all of the financial ideas.  My goal was to spend less than I earned, but I didn’t really have any negative feelings about having debt.  That changed after meeting him.  After building my emergency fund, I began to aggressively pay off both my student and car loans.  From the end of 2006, it took me about 2 years to pay off both loans.

All the while, my paycheck grew and I got a promotion.  Each time my paycheck increased, I raised my 401k contribution.  It was more money I never had, so I never missed it.  My spending stays pretty level from year to year, so this approach worked well for me.

Here I was, three years into my career debt free and with a high savings rate.  Stepping back a bit, my investing career started at the top of the market in 2007.  I didn’t invest a lot, but I got caught up in the market euphoria at the time. Housing is never going down! Hindsight is always 20/20 and if I had started two years earlier, the result might have ended the same, but I would have been able to pat myself on the back for picking a stock that went up.  Keep in mind I wasn’t investing.

Now I had several goals in mind:

  • Buy a house
  • Become a millionaire!

That was really about it.  I had never thought of financial freedom in the sense that I would stop working and live off investments.  I just figured I would work till I was old, which I am okay with because I enjoy Software Engineering, well more the puzzle aspect of it (which is why my other hobbies fitness/nutrition/investing seem to be puzzles).  As far as I was concerned, I was financially free.  I had a good job and more money than I needed.

This bring us to the end of 2008 and through 2009.  I was debt free, contributing to my 401k, saving for a house and starting to invest.  Having zero financial background, I surfed the internet for ways to pick stocks, talking to friends and even my Grampa!  I ended up getting into a news letter service where, for a fee, they would do the research and tell you when to buy/sell.  It took me a few years, but in the end I realized that the only people who make money with these services are the guys collecting the fees.  I took a beating throughout this time frame in the market, and gave up for the most part.  I had a portfolio and would buy based on the recommendations of the service, but I started to put less and less money into investments.

In 2009, I decided I wanted a new car.  I had gotten into bike riding and wanted a car that would make it easy for me to take my bike to the various places.  After searching for six months, I found it and ended up spending 27k on my second vehicle.  I’m a low mileage driver and my previous car was in great condition, so I was able to get about 6k for it and then I pitched in 3k. For a total loan value of about 19k.  After a few months of paying my loan, my aversion to debt and hatred of monthly payments caused me to raid my house fund and pay the car off.

At the start of 2010, I was back to square zero with the house fund, tired of “investing” and debt free (again).  I maxed my contributions to my 401k, where I was actually making money and decided to focus after tax money back into the house fund.   I still purchased stocks here and there, but put very little new money in.  After the beating I had taken in the market, my house fund would be in a “high” yield savings account.  I didn’t want to risk it, which is a good thing to do. I try to keep money I may need in the next 3-5 years as cash.

Jumping to the middle of 2012.  I can’t remember exactly what snapped, but I remember being tired of my poor performance in my own investing. By that time, I had made a few good “picks”, but still didn’t find consistent performance.   I had reached a point with my house fund where I could lower the contributions and have enough for the down payment by the time that I reached mid 2013.

At this point, I began to read several blogs, revisit my life goals and decided I didn’t want to work forever.  My Grampa was also dying at this time, needless to say, my conversations with him were foremost on my mind.  We spoke at length on how he invested and why.   He loved the safety of dividends from both stocks and municipal bonds.  He loved the tax free interest of munis.  He had never made much money, but his investment strategy(40k+ per year), a modest pension and social security/medicare enabled him to do everything he wanted.

At that point I changed my strategy to dividend growth investing.  I want to be able to have a secure retirement income stream.  Social Security won’t be what it is today and I have no pension.  I believe dividend growth investing will get me to that point.

Well, I have been somewhat vague on other aspects of my spending.  I had originally intended this to be a list instead of a story, but I will discuss more about what exactly I did to achieve the savings rate I do in the near future.

Thank you for reading.