There’s no ‘right’ way to success. Success in business and investing tends to come in different forms. Sooner or later you’ll understand yourself well enough to know what your investment style is. Sticking to that particular investment style over the long run is one of the best ways to generate and sustain wealth.
If your chosen style is long-term, value-based dividend investing like we promote on this site, you will need a particular set of skills to achieve the results you seek. Dividend investors are a rare breed in this world of big data and high frequency trading. It’s not a sexy style of investing. For a dividend investor, the here and now counts for just as much as the promise of a bright future. By taking the yield on a stock today and estimating its future growth, you can secure your financial freedom and create wealth over the long haul.
More people are turning to dividend investing than ever before. With interest rates at record lows and a lacklustre real estate market, retirees and income seeker simply have nowhere to turn. Dividends have been a life-saver over this past century as companies pay out hefty sums and use the rest of the cash to expand their business and create capital appreciation through the stock price.
If you identify as a dividend investor who’s got an eye on all monthly dividend stocks, here are ten skills you’ll need to make this strategy work:
Learning simply doesn’t end with high school or college. Investors need to absorb and analyze as much data as they can find. Warren Buffett once said that the reason he was such a great investor was because he reads nearly all the time. He called the phenomenon compound knowledge and believed that learning about the world should never really end. This absorption of knowledge will only come to you if you’re naturally curious or develop a skill for reading and learning all the time.
Dividend investors must be laser-focused on the value of a company. Buying a stock when it’s trading below its intrinsic value is the core philosophy of value-based dividend investors. Which is why dividend investors should probably take a course on dividend discount or discounted cash flow methods used in professional financial circles to arrive at the value of a company before investing.
Dividend investors need a healthy dose of realism and skepticism. The capital markets are a crowded space with millions of actors who all have different objectives. Sometimes some deals seem a bit too good to be true and that’s usually because they are. Some companies and investment trends tend to sneak up out of nowhere and catch the whole market’s attention. Back in the late-1990’s, tech stocks were all the rage. In the early 2000’s, everyone seemed to believe Enron was the world’s best organization run by the world’s smartest professionals. By the mid-2000’s everyone was investing in real estate because it seemed to be an asset class that could only appreciate over time. All these trends ended in absolute disaster. Any dividend investor who remained skeptical and kept focus on all monthly dividend stocks during these boom-bust cycles would have preserved capital.
Being a contrarian is very similar to being a skeptic. However, while skeptics look at everything pragmatically, contrarians are willing to make an independent bet that goes against conventional wisdom. In other words, they put their money where their mouth is and aim to create immense profits by proving the market wrong. Contrarians can be looking at all monthly dividend stocks that are out of favor in the market. If the pharmaceutical and metals sector has had a bad time, the market prices of their stocks will be depressed to an unreasonable degree. This presents an opportunity for contrarian investors willing to do the research and place their bets. At the moment, the American retail sector could be fertile grounds for a contrarian bet.
Thanks to the internet, data is now everywhere. Public companies need to release data immediately so that everyone in the market can take advantage of it. As a dividend investor you may find it difficult to obtain data that’s proprietary or unique. Which is why you need to analyse the data better than anyone else to be able to gain an edge. Picking through corporate governance issues, understanding the tax system to be pick out loopholes, and figuring out accounting tricks that may be at play are all crucial skills for dividend investors.
Creating a strategy is multiple times more important than setting a goal. Planning and discipline are crucial skills for dividend investors who may have to experience some dramatic events in global capital markets. Your portfolio needs a planned structure that will allow it to withstand bear markets and flourish in bull ones. You also need parameters for diversification, debt, and return expectations. In other words, you need to set yourself some rules and stick to them. This will enable you to manage your portfolio wisely and create wealth in a systematic way over time.
Dividend investors are value seekers. And value seekers need to be patient with their convictions. If you’ve done your research, looked through all monthly dividend stocks, and bought a company while its stock price was beaten down, you may need to wait for the market to realize you’re right. Don’t lose patience with a great company if it doesn’t show results right away. If you’re confident about your analysis and have the ability to bear paper losses for a few years, stick to your bets no matter what. With dividends and earnings coming in you will be rewarded sooner or later.
One of the most crucial skills any investor needs is objectivity. Retail investors often get too emotional about their investments and this leads to mistakes based on psychological biases. Don’t fall prey to the Dunning-Kruger effect. Read up about clustering, bandwagon, anchoring, and confirmation biases to make sure you aren’t falling prey to any of them. The best way to avoid a bias is to develop a scientific method of picking and selling stocks and sticking to it with discipline. Creating rules and investing based on set parameters will help you eliminate bias in the stock selection process.
Dividend income seeker needs to be persistent with their investments. All monthly dividend stocks face difficult business conditions sooner or later. The market tends to ebb and flow. There’s a high chance of making a mistake or investing at the wrong time. The best investors know how to learn from their mistakes and improve on their strategy.
Consistent and perpetual learning is only possible if the investor isn’t put off by sudden and unexpected failures. Some of the best investors on the planet have suffered dramatic losses in their holdings when they first started. From George Soros to Carl Icahn, some of the wealthiest investors have lost a ton of money on some foolish investments. The reason they’re successful is because they picked themselves up and continued investing. Dividend investors should aim to do the same.
Finally, investing is all about knowing business. Picking a stock from a universe of all monthly dividend stocks is like going into business with new partners. You get a stake in the company and part of the profits. So, it is essential that you understand the company’s products and services. You also need a keen sense for what sells and what is likely to make a lot of money in the long run. This commercial sense may be your most valuable asset as an investor.
Dividend investors are a different breed. These investors focus on income as well as growth. A stock that pays a regular and growing dividend is keeping a promise to look after its shareholders. This is the sort of conviction that attracts dividend investors.
To be successful, dividend investors need to do more than just pick out all monthly dividend stocks. They need to be patient, curious, determined to go against the grain, analytic, and pragmatic. With all these skills dividend investors can create a solid dividend portfolio that guarantees financial freedom over the long term.