I suppose it’s human nature. After a particularly successful run, investors are unable to contain themselves. They are compelled to boast how their portfolio “beat the market” — referring to either the S&P 500, Dow Jones Industrial Average, or NASDAQ Composite Index.
I prefer to keep quiet and keep on with my business — income investing. My approach might beat the “market” one year. The “market” might beat my approach the next.
The broader-market measures are composed of many investments that fail to adhere to my investment criteria and mandate. The criteria are composed of variables that most ensure sustainable high-yield income or dividend growth. The mandate is to build wealth with investments that adhere to the criteria.
Because my investment style involves a different level of risk acceptance compared to the broader market, comparisons are meaningless. Many non-income paying investments such as Google (NASDAQ: GOOG), Facebook (NASDAQ: FB), Amazon.com (NASDAQ: AMZN), and even Berkshire Hathaway (NYSE: BRK.a) are passed over because they lack a basic variable — income.
What’s more, comparisons to the “market” are usually based on straight price appreciation. Income is ignored. The table is tilted toward high-growth stocks, at least for today.
Investment styles are cyclical. Google, Facebook, Amazon.com, and other fast-growth companies can display impressive pyrotechnics. But the impressive pyrotechnics can be tethered to daunting risk. Yes, you can experience a spectacular display of price performance, but like with pyrotechnics, the display can be ephemeral.
A personal anecdote amplifies my point.
Back in the late 1990s, when internet stocks were rocketing at full throttle, a colleague of mine found it impossible to contain his enthusiasm. He insisted to let the world know about his good fortune.
My colleague had invested in JDS Uniphase, possibly the hottest of all internet stocks at the time. In six months, JDS shares had increased fivefold. They peaked at over $1,100 in March 2000. My colleague frequently updated me on JDS’s remarkable assent.
But then, the updates came less frequently. JDS had rolled over. By the end of 2000, its shares descended to $330. By the end of 2001, they traded down to $70. My colleague’s updates diminished to nothing. Single-digit quotes and a reverse stock split were in JDS’s future.
I don’t anticipate a similar fate for Google et al., but you never know. If I have learned anything over my investing career, it’s to maintain equanimity and remained focused. After all, it’s not personal.
In some years, my conservative, value-driven income investing strategy will beat the “market;” in others, it won’t. What matters is if the income investing strategy can build wealth over time. Investing is a marathon, not a sprint. The goal is to grow the portfolio (build wealth) to ensure a higher ability to consume in the future.
My experience has convinced me that sound income investing can reliably build wealth. A representative sampling of long-term High Yield Wealth recommendations reveals how a conservative, low-risk income investing strategy can reliably build wealth, whether it beats “the market” in any particular year.
|Reference Purchase Date||Reference Purchase Price||Market Price||Income Received||Total
|Ares Capital Corp.||Feb. 11, 2011||$17.29||$17.51||$11.52||67.69%|
|Gladstone Commercial Corp.||Sept. 5, 2012||$17.95||$19.53||$8.50||56.2%|
|Altria Group||Sept. 11, 2011||$27.26||$59.11||$14.18||168.9%|
|Cisco Systems||April 8, 2014||$22.70||47.73||$4.60||130.05%|
Ares Capital Corp. (NASDAQ: ARCC) and Gladstone Commercial Corp. (NASDAQ: GOOOD) are high-yield investments. Ares Capital’s dividend yields 8.9%, Gladstone Commercial’s yields 7.5%. Immediate income is the primary draw. Price appreciation is a secondary consideration.
Altria Group (NYSE: MO) and Cisco Systems (NASDAQ: CSCO) are dividend growers. Long-term annual dividend growth and share-price appreciation are the primary draw. Altria Group and Cisco Systems have delivered on both accounts. Their respective dividends have grown over the years, as has their respective share price.
No investment strategy – mine included – will beat the “market” every year. My strategy will fall out of favor, and performance will lag.
But that’s OK. The distant horizon is my focus. Faith and experience have proven to me that an intelligent income investing strategy will get me there with more wealth than when the journey started.