Childhood investing

My personal interest in investing started back in the 90s. I was 14 or 15 years old and earned some money delivering papers. Saving money was a hobby of mine, but I was always greedy to make more money (the easy way of course!).

Stock markets were bullish back then and I remember my father got a tip from an uncle (or someone else related). He told me about Antonov, a Russian company that builds airplanes. They had developed some kind of unique gearshifting mechanism. Of course the stockprice of Antonov would explode if this product hit  the markets. Without thinking about underlying business fundamentals I invested $200. I didn't think about the costs, probably costing me 10% of the transaction value back then. Needless to say the stock lost a lot of ground for different reasons. I refrained from investing for a few years.

The Magic Formula

About 3 years ago I read different books about investing. 'The Little Book That Beats The Market' by Joel Greenblatt was one of them. I remember I was in awe: could it really be so simple?! I constructed a portfolio of 5 MagicFormula stocks and left them for 1 year. The results were disastrous.... again. I picked two ForProfit-eduction stocks in this portfolio, but this sector got hit hard during 2011-2012. I sold all my shares.

Index investing

After this little venture I started reading about index investing a few months later. This investing approach  sounded relatively easy to me. Just buy a well diversified index fund with low costs and you'll be fine. Especially with dollar cost averaging and monthly deposits it's a useful strategy for starters because you receive instant diversification. I followed this strategy for over a year and I still think it's great strategy to accumulate some money.

Enter Dividend Growth Investing

However, I was still not very thrilled by the though that bearish markets could whipe out 20-30-40% or more of my networth. Until I realised that with sturdy, dividend paying companies this volatility didn't matter! As long as the dividends are robust (and growing!) it is of no relevance what the underlying stock price is. The cashflow still continues!

Another advantage of dividend growth investing is you invest in individuel companies which are fairly valued if you do your job. With index investing you buy a lot of companies with varying price/earning valuations, some of which may not be really good investments at that price.


  1. Well said, Dividend Dream. Its always interesting to read what path investors take to settle on a certain investing methodology. I think most dividend growth investors have a similar experience where they have lost money in the past and realize the power of dividends and how owning blue chip dividend paying stocks can protect ones portfolio.
    However, I am not completely against the idea of index investing and think it provides with a good complementary value to ones portfolio. I have a certain portion of my portfolio (and all of my wife's portfolio) dedicated to index investing.

    Btw, thanks for adding me to your blogroll on the right. I will be adding you as well. Happy investing!

  2. Yeah I am definitely not implying there's is no space for an index fund in someone's stock portfolio. It offers instant diversification which is a good thing, especially for relatively small portfolio's. It's just that I would like to have more control over what the companies are I would invest it and at what prices.

  3. I noticed that many people make the same exact mistake, myself included, when looking at dividend stocks. Volatility really doesn't matter - sort of. It matters in a way that it actually offers a great opportunity to add more shares for cheap and in 99% of the time dividend growth stocks recover over time while you are collecting dividends. People do not see it that way and underestimate dividend stocks!
    You have great stocks in your portfolio (well at least by judging the US listed stocks).

    1. Hi Martin, thanks for stopping by and taking the time to comment. Volatility does not matter, however that's more easily said than done. I think DGI has really helped me to understand this better.

  4. The Magic Formula could work, but it requires sticking it out through possibly years of underperformance and extensive diversification: Joel Greenblatt has 896 holdings in his Gotham Asset Management portfolio. Index investing saves time. DGI is not bad, but be careful to keep payout ratio low, or growth would suffer and dividend could prove illusional. Also, don't forget about taxes. Double taxation of dividend diminishes return.