The Most Important Question For Every Investor
One of the hardest parts about dividend investing is knowing what to look for when analyzing a company, especially if you’ve never done it before.
It can be intimidating! At least, that’s how I felt as a brand new investor a few years ago — and only recently do I feel like I’ve begun to find my groove.
It’s true that your investment journey will be a constant learning experience, and it will be a ceaseless series of trial and error. That’s just the name of the game.
But like any other game, the longer you play it, the better you will get.
Having said that, based on my experience so far, I think the best place to start when researching a new company is by asking yourself this very important question: Do you actually understand it?
Putting money into something you can’t wrap your head around is a recipe for disaster, and it’s a lesson I’ve had to learn the hard way.
I’ve invested in companies that were way beyond my level of comprehension (i.e. CRSP, SPCE, and BYND back in the day). In some instances, only due to good luck, I managed to make it out alive.
In others, it didn’t work out in my favor…but it was an essential lesson to learn: always stay within your circle of competence, as Warren and Charlie would say.
It’s not just about knowing the numbers (though that is important) – it’s about understanding the qualitative aspects of the company.
Ask yourself, do you genuinely understand the business model and how the company makes money? Do you understand what makes them different (for better or for worse) from their competitors? Based on that, do you feel confident about their long-term potential?
If you can feel good about the answers to those sort of questions, then great. That’s a fantastic first step.
But if you come to find that the company is too far over your head, then it probably belongs in your “too hard” pile — another helpful idea taken from the Berkshire Boys.
This concept of only investing in what you know is why I feel comfortable having companies like PG and SBUX as the largest holdings in my portfolio. As a frequent consumer of their products, I’m pretty familiar with both of these businesses, and feel confident that they’ll be good long-term investments that will continue to pay steady and growing dividends.
This is my approach moving forward, and it should have been my approach from the start. I’m getting a better feel for the boundaries of my circle of competence, and any company I choose to own from here on out has to be within it — including the three I have on my watchlist here.
Having said that, it takes some time to know what you don’t know. As mentioned earlier, investing is a constant learning experience, and it’s a life-long game that you can play for the rest of your life.
Along the way, not only will you learn about finance and accounting, as well as different companies and industries, but you will also learn a lot about yourself…and it all starts with that one simple question: do I understand this?
With that in mind, I want to hear from you: Do you own any companies that you think might be outside of your circle of competence? Write to me here and let me know.
And a big thank you to the 16 readers who responded to last week's newsletter. You all rock, and I loved reading about all of your investing journeys so far! 🙌
Dividend Investing Democratized
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In the few years that I've been investing, I've found that unbiased stock research is hard to come by. You've probably experienced this too, which is why I think you'll find Ticker Nerd to be a breath of fresh air.
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IN MY PORTFOLIO 📈
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ICYMI 🎥
Why Your Dividend Snowball EXPLODES After $100k 🚀
Building wealth with dividend investing, in general, is a long and tedious climb uphill, but reaching that first $100k specifically is a struggle.
However, if you can grind your way to that first $100k, everything after comes a lot easier. In this video, we'll talk about why that is, and how long it might take you to reach six-figures in your own dividend investing journey.
CAREFULLY CURATED 🔍
📺 10 Dividend Investing Tips To Live By - I give a lot of credit to PPC Ian for getting me into dividend investing. There are few people who motivate me on this journey more than him, and in this video he shares 10 timeless dividend investing tips to live by. This is actually one of his older videos, but it’s a gem, and is definitely worth a watch.
🎧 The Dividend Death Star - This episode of the One Penny At A Time podcast features Darth Dividend, and is a truly fantastic listen. Both Harris and Darth are good friends of mine, so I enjoyed the conversation in general, but I was particularly interested in the part where Darth shared his investing origin story.
📚 Some Reasons To Reconsider Your Starbucks Position - You know how much I love my Starbucks (both the coffee and the stock), but still, I remain open to the possibility that I could be wrong about it as an investment. With that said, this is one of the most in-depth articles on the company I've ever read from a Seeking Alpha contributor. In it, he covers both sides of the story, and presents what I think is an objective and sobering take on the company.
SINCE YOU ASKED 💬
"Hey Ryne, what is your favorite dividend position recently?"
- @ClaytonAmburgy | YouTube
What a fun question!
As of late, I've been buying JNJ the most. With that said, though, I have my eye on some really cool companies right now.
VICI, V, and ROL are all on my watchlist, and I'd be really excited to add at least one of these to the portfolio. Of the three, VICI may be the most attractively valued, but I still think I'd make money on both V and ROL if I bought today and just held onto them for dear life.
We'll see what happens.
Have a question? Ask me here to see it featured in an upcoming newsletter.
DREAMING OF MORE DIVIDENDS? 💰
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