Dividend Growth Investments for September 18th

Good Morning,

I wanted to let you know that I added to two existing holdings in my retirement account today. I have been adding to these companies over the past year or so, since initiating a position in them. They are close to fully valued, but I also want to have a close to a full position into them as well. It is also a little harder to find good values today, which probably means that I need to spend more time going through my checklists and screens for the next months edition of this buying spree.

My investing is about margin of safety. It comes from security selection all the way down to portfolio construction.

In general, I try to be diversified. I do not want to have more than a 2% - 3% allocation to a single security, at cost. In the concept of this portfolio I am wriing about, where I invest about $1,000/month every month, this means that I would not want to invest more than $2,000 per position. 

If I invest $2,000 in a single security, the most I could lose is $2,000(minus any dividends I received, which I may have allocated elsewhere).  The most I could make is virtually unlimited. You are not going to be right on every decision you make. But if I am right 40% - 60% of the time, the wins would outweight the losses.

I believe in diversification, after my entry criteria are met. That focuses my portfolio on good businesses with some durable competitive advantages. As a group, I expect them to prosper over time. But we all know that things can change, and the world is unpredictable in many ways. Hence, I am not going to pretend that I know exactly which business will do best. That's impossible to tell in advance. Hence why I do not try to focus on my best ideas, or concentrate in them, because it is very hard to tell today what the best ideas are going to be from 2024 to 2044. I believe in humility, and designing systems and processes in place where I don't need to make predictions to make money. In the event I am wrong, I am protected by multiple layers of redundancies. In the event I am right, I let winners run and they take care of me. 

Fun fact, one often worries about companies that do not perform as well. But if amount invested there is limited in a diversified portfolio, these are not going to be events that bankrupt a portfolio. But the companies that keep executing, and doing well and adapting and thriving seldom really give you much headache. I often think about that.

I do tend to build positions slowly and over time to get to that amount however. Not every company would get to that amount either.

I also like to invest in multiple companies per month, rather than just a single one. That's because there are always several good values. It's good to have exposure to each one of them, and build positions there. Each company offers a unique sets of opportunities, possibilities and business models. Having exposure to several models is better than one.

Different companies also offer the chance to earn good returns at different prices and different times. For example, if I liked Visa at 20 times forward earnings, that may have offered a better return posibility than Visa at 35 times forward earnings. If Visa is at 35 times forward earnings, I would invest my money into another opportunity, that may be a better value today.

I believe in diversifying accross companies, industries and even geographies. I also believe in diversifying over time.

In my case, when I initiate a new position for this portfolio, I start with about $100 or so and then keep building until the position reaches $500 - $1,000.  I do check the story as I keep building that position however. If I see certain things that happen along the way, such as lack of dividend increases, or overvaluation or deteriorating financials, I would stop buildign a new position until the entry metrics improve. If they don't, I will patiently wait until they do. I would not sell, but I would also not add anything else either. I would give management the maximum room to right the ship. I do not manage businesses, hence I do not have the need to micromanage them. If they can't right the ship, my loss is limited to smaller amount I invested. So if my exit criteria is met (dividend cut or acquisition), I sell one second later. 

If my exit criteria is not met, I would keep holding on to a stock for as long as possible. That could mean holding a stock for decades.

I take this margin of safety principle quite literally.

Anywho, I added to these two companies today: