Friday 10 April 2015

Who is Dividend Simpleton?

Some of you might have already summed up who I am and what I have set out to achieve. Yes, I am a recent graduate with a long road of working life to go along, as well as saving up rigorously in order to generate enough capital to invest into income generating assets.

Taken from:

As much as I would like to talk about my recent successes in investing, I have my failures to look back upon and to reflect constantly in order to improve myself every day. It is only through our mistakes that we can pick ourselves up again, reflect and reshape our strategies to take on the next further knocks in life once again. I will talk about my failures in another post perhaps.

I had set myself a target to achieve at least $1k of passive income by the time I reach the age of 30 years. Based on a passive generation yield of an average 5%, I should be able to achieve $1k of passive income if I have accumulated at least $240k of invested capital.

This is actually a challenging target to achieve, given that I am only earning a take home amount of about $2k per month, assuming I don't get any pay raises as a conservative estimate, I would only accumulate $120k in 5 years, by which I would be already behind my target.

So if that is the case, then how would Dividend Simpleton achieve his target? I am not making calculations based on this, but I would be banking various factors to make the cut. 

The power of compounding is a strong one and it must not be underestimated. To achieve this, it is only possible if one finds undervalued income generating assets and invest through a longer term horizon, investing more capital if it remains undervalued and shows sustainable income generation ability. Dividend yielding blue chips will form part of this strategy as long as I can pay a fair price yet achieve a reasonable income. As Warren Buffett famously said, "it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

To help to boost the pace of capital growth, I would allocate some of my capital to invest into companies with strong share price movement at slightly undervalued to fair value which I would not consider to be great entry prices for a long term horizon, but suitable to tap on at the point in time of good company sentiments. Once either my target price or stop loss price is achieved, that would mean the end of the investment. Some people call this trading, but it has a longer holding period depending how how long it takes to hit either my target price or my stop loss. Because of its relatively speculative nature, I will only allocate a comparatively smaller portion of my capital into this.

At this point, I would like to emphasize that everyone has a different way to growing their wealth and by all means, choose the path that is most comfortable as well as having the best chance of succeeding. No one method is a foolproof way to success, and one strategy that might have worked may not work for another circumstance. So there is a need to keep up to date with company financial results and reports, to minimise potential pitfalls should the company show the danger signs. Thus, it is also important to have a basic understanding of some financial/valuation ratios for comparison to understand the health of the company.

All this need time to prepare, so don't rush. Patience and discipline is key to your success. If you don't have it, then the stock market is no different from your regular casino.

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