As the author of this site, I thought readers might be interested in my personal investing history and how I eventually came to be a dividend growth investor. I have always been interested in investing in the stock market but I wasn’t always sure of the best way to pick stocks. Over the past 13 years, since making my first trade in the stock market, I have tried many different investing methods and strategies before finally adapting to my current strategy of investing in dividend growth companies.
The year was 2000 and I was a junior or senior in high school when I opened my first brokerage account. Online brokers were becoming more common and I somehow convinced my parents to loan me the minimum amount of money needed to open a brokerage account. The amount was a mere $500 but to me, still in high school, this seemed like a fortune. I had ideas that I was going to take that initial $500 and turn it into millions as I traded my way to riches in the stock market. Unfortunately, I really had no clue what I was doing. I thought the stock market was where people got rich. Other then that, I knew nothing else about the market. I hadn’t read a single book, hadn’t taken a single class and really had no idea how to invest. All I knew was what I read on the stock message boards prevalent all over the internet at the time.
So I convinced my parents to give me the investment capital and I hit the message board looking for the next great stock. There were a couple problems with this strategy. One, I really didn’t have a strategy and had no knowledge of how the stock market worked. Other then reading some message boards and picking a couple stocks that seemed to have peoples interest, I didn’t have a plan. The second issue was my small capital. I was making trades with a couple hundred dollars and paying what would amount to 20% commissions on such a small trade. I had no idea the concept of how commissions would eventually eat up my entire investment capital if I made too many trades.
So I would read the message boards, buy a couple stocks and watch as they either went up or down. A couple went up but most went down. For the ones that went up, I would sell but for some reason would have less money then when I started. Well that’s because I paid too much in commissions. For the stocks that went down I would declare them losers, sell and look for something else. Eventually I had hardly any money left and decided that I wasn’t going to make it rich in the stock market. I quit and moved on to other hobbies. But I still had the interest. I still had hopes that one day I could make it rich in the stock market.
I shelved the investing idea for the next 5 or 6 years. I went to college and got degrees in accounting and finance. My interest in investing started growing and I began reading and studying different books on personal finance and investing. Unfortunately I was broke in those years and it would have been impossible for me to open up another brokerage account and begin investing. Perhaps this was a good thing, because even though I had read a lot more about investing, I still really didn’t know what I was doing.
So it wasn’t until I started my first job after college when I decided I had some money and could get back into the investing game. Once again I thought of the riches I would obtain through stocks. I had read a few investment books and decided I was going to be like Warren Buffet and Benjamin Graham, value investors. This time I thought I knew what I was doing. Unfortunately for me, it turns out I still had no clue. I would look for companies that I believed were “undervalued.” I still wasn’t doing proper research. I would see a low P/E ratio and would jump in without reading any financial reports or doing my due diligence. I also still had a short term mindset and would check stock prices daily to help make my decisions of buying and selling. If a stock dropped to much I would sell and realize the loss. If a stock went up I would most likely sell and take a small gain. The net difference in my selling always ended up negative and I was losing money.
Soon I got the idea of selling covered call options. Selling covered call options can generate a little income while holding the underlying stock. I found a stock cheap enough where I could buy a couple hundred shares and began selling two call options each month on the position. Unfortunately the stock price kept falling. So while I was bringing in a tiny amount of income on the options, I was losing more money on the stock position. Eventually the stock I had used for this strategy went so low that options weren’t worth trading and I sold the stock to realize big losses. So if you are keeping score, so far I have tried a couple different strategies and always end up a net loser.
My “value investing” and covered call option strategy wasn’t working for me. Not necessarily because those strategies don’t work, but more likely because I didn’t know what I was doing and wasn’t doing the proper research. I needed to find a better way to invest but fate had other plans for me. Shortly around this time frame I became engaged and married. My wife and I had other plans with our money more important then trading in stocks. We wanted to save an emergency fund, buy a house and pay off our car loans. So I quit trading stocks and focused on other financial goals. But my heart was still in investing and I knew that one day I would give it another shot.
I still read multiple books on getting rich in the stock market and one idea I came across was trend trading. The idea behind trend trading is that you purchase stocks that are in strong up trends and use technical analysis to tell you when to buy and sell. I liked the idea and the books I read sounded like this was a winning strategy. I actually had some success starting out with this strategy. Was it luck? I don’t know. I certainly wasn’t doing any research. I was just looking for stocks that had been going up near their 52 week highs and jumping in when the technicals told me to. Some of these companies I didn’t even have a clue what they did or how they made their money. It didn’t matter. And this strategy was making me money. But not for long. Eventually the market started going down and so did most of my trades. I realized my winning trades were probably more luck then anything.
At this point I made the decision stocks weren’t for me. I was going to have to find some other way to invest my money.
Since I had decided investing in individual stocks wasn’t really for me, but we were at a point in our life where we wanted to invest to build future wealth, my wife and I began investing in mutual funds. Mutual funds pull together money from many different investors and invest their money in things such as stocks, bonds and derivatives for the investors. A share of a mutual fund is like owning a portion of each security the mutual fund holds. They offer diversification and professional investors handling the money. For me, with little success picking individual investments, this seemed the way to go. So we picked a few different mutual funds, some trading stocks and others trading bonds. Now we began building wealth with a monthly savings plan by investing our money in the mutual funds.
While mutual funds may have their downside, some have high expenses and oftentimes the returns don’t beat the S&P 500, I feel they do provide a lot of benefit to investors. For people who want to build wealth without all the research needed to pick individual stocks and bonds, mutual funds can be a good choice. Mutual funds give good diversification as well as professional money management. For many people I believe this is a good way to go.
However, I still had the investing bug. I wanted more control. I wanted to pick the stocks and decide what companies to invest in. I kept reading books and websites about different investing strategies. Eventually I came across an investing method that made perfect sense.
The Final Round
Dividend growth stock investing. Investing in blue chip stocks of companies I have heard of, companies who dominate their industry and pay out part of their earnings to shareholders in the form of dividends. These are fairly stable companies that offer the ability to build wealth not only through price appreciation but by reinvesting the dividends that the companies are paying out. The goal of dividend growth stock investing made perfect sense to me. Invest in dividend paying companies with the idea that eventually you will earn enough dividend income to cover all your expenses. At this time you will be financially independent.
No longer was I picking stocks of companies I had never heard of. No longer was I failing to do the proper research. I currently analyze the stock before making a purchase and read through the companies annual reports and financials. I do the proper research and am investing in companies that I believe in for the long term. I believe that I have now found one of the best investment strategies for building wealth. I have been investing in dividend growth stocks for a couple years now and am happy with the results. Many of the companies I own have increased their dividend payments. My dividend income has been rising because of those increases and because of my additional investments. While I believe mutual funds are the way to go if you don’t want to do the research yourself, I am a do it yourself kind of person. I enjoy investing to much to let someone else do it for me. Therefore I have converted to dividend growth stocks as my investment of choice. I still use mutual funds to get a small exposure to bonds since I personally don’t want to analyze bonds. But for stocks I look for dividend growth. Through dividend growth investing I will reach my financial independence goals.