Very nice series TJ. Being an absolute return investor who doesn’t need to worry about benchmarks is very liberating. I actually have a tab in my spreadsheet where I calculate the look-through share of the free cash flows for each of my holdings as well as the dividends. Among many things, it helps me stay focused on where the dividends will be coming from, especially important for a holding like BRKB that pays no dividend but builds its dividend paying capacity every year.
Love this framing. Market outcomes and business outcomes are two different games, and most investors only watch the first one. Dividends come from products sold to real customers, so they keep landing in your account no matter what a Target Date Fund did last month. Watch the business, full stop.
I really enjoyed this series TJ. Such a great reminder to focus on what really matters as an investor, the free cash flow and dividends, so that we can build a portfolio that can weather the volatility the market shows everyday. Great job!
In my opinion ignoring stock momentum is hazardous to your wealth. Take ISRG, profits and sales are increasing but the Price to Earnings ratio rose to unsustainable levels and the stock has retraced 40% - Ouch! From my review of Compounding articles drops like this are being glossed over. More attention needs to be paid "to stop buying falling knives" and wait until the uptrend resumes before buying. And if your stock has dropped 15% sell and wait it out until the uptrend has resumed.
That's just not the game we play at Compounding Dividends. The goal is to benefit from the growing stream of cash we get from owning great businesses over long time periods.
Selling because the price falls and buying because the price has gone up may work if you're looking to trade, but we're not.
We think of our stocks and their quoted prices like Warren Buffett's farm from his 2013 letter:
"It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings – and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his – and those prices varied widely over short periods of time depending on his mental state – how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming."
We're not going to buy or sell based on what number we think the neighbor might yell out tomorrow. Most of the time, we just let management go on farming.
In my opinion this substack is ignoring when the fundamentals of the stock change for the worse. When the stock drops 15% something may have changed and I would be asking why and not just whimsically believe it is on sale. The Compounding Quality portfolio is only showing profits on 1/3 of the portfolio and another 1/3 are down more than 20% when the markets are near all time highs.
Fundamentals changing and prices changing are two different things. If there are specific stocks in the Compounding Quality portfolio that you want to discuss, post about them in the Community. That's what it's there for! Questions, debates, and learning from each other.
Very nice series TJ. Being an absolute return investor who doesn’t need to worry about benchmarks is very liberating. I actually have a tab in my spreadsheet where I calculate the look-through share of the free cash flows for each of my holdings as well as the dividends. Among many things, it helps me stay focused on where the dividends will be coming from, especially important for a holding like BRKB that pays no dividend but builds its dividend paying capacity every year.
Always watch the business, not the stock!
Love this framing. Market outcomes and business outcomes are two different games, and most investors only watch the first one. Dividends come from products sold to real customers, so they keep landing in your account no matter what a Target Date Fund did last month. Watch the business, full stop.
Thanks Dave. I think dividends are the only absolute tie to the idea that a stock is partial ownership of a real company.
I really enjoyed this series TJ. Such a great reminder to focus on what really matters as an investor, the free cash flow and dividends, so that we can build a portfolio that can weather the volatility the market shows everyday. Great job!
In my opinion ignoring stock momentum is hazardous to your wealth. Take ISRG, profits and sales are increasing but the Price to Earnings ratio rose to unsustainable levels and the stock has retraced 40% - Ouch! From my review of Compounding articles drops like this are being glossed over. More attention needs to be paid "to stop buying falling knives" and wait until the uptrend resumes before buying. And if your stock has dropped 15% sell and wait it out until the uptrend has resumed.
That's just not the game we play at Compounding Dividends. The goal is to benefit from the growing stream of cash we get from owning great businesses over long time periods.
Selling because the price falls and buying because the price has gone up may work if you're looking to trade, but we're not.
We think of our stocks and their quoted prices like Warren Buffett's farm from his 2013 letter:
"It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations placed on their holdings – and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his – and those prices varied widely over short periods of time depending on his mental state – how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming."
We're not going to buy or sell based on what number we think the neighbor might yell out tomorrow. Most of the time, we just let management go on farming.
In my opinion this substack is ignoring when the fundamentals of the stock change for the worse. When the stock drops 15% something may have changed and I would be asking why and not just whimsically believe it is on sale. The Compounding Quality portfolio is only showing profits on 1/3 of the portfolio and another 1/3 are down more than 20% when the markets are near all time highs.
Fundamentals changing and prices changing are two different things. If there are specific stocks in the Compounding Quality portfolio that you want to discuss, post about them in the Community. That's what it's there for! Questions, debates, and learning from each other.