All investors have weaknesses that prevent them from achieving their long term goals. Some like to chase hot technology stocks while others tend to use excessive leverage in order to magnify their expected risks and returns. My biggest weakness as a dividend investor is that I am easily attracted by higher yielding instruments stocks, bonds and mutual funds.
In our society of instant gratification where you can get movies on demand and skip through commercials on your Tivo when watching your favorite TV show most investors don’t feel like waiting for one or two decades before achieving a double digit yield on cost. Most investors want to achieve above average returns, and they want to achieve them fast. It is very easy to open a brokerage account and actively trade stocks, options, futures and commodities. With the computerization of markets commission costs have decreased thus significantly decreasing the cost of entry for new market participants.
Many forget that markets are a reflection of what our lives are in general. It takes years of learning, investment and commitment before one can become a good doctor, lawyer and accountant. So why should a small investment in a stock or trading system bring a significant return right away? It’s not rational to expect that. Many will remind me that lottery winners make a great return on their investment when they hit the jackpot. The truth however is that this easy money is usually given away, gambled away or spent in its entirety.
In order for me to overcome my weakness, I have chosen for myself a system for picking stocks based off several parameters such as price earnings, dividend payout, minimum yield, history consistent dividend increases and solid dividend growth. I am always reminding myself that a stock has an above average current yield for two reasons- either the stock has lost a lot of ground or the dividend is unsustainable and will be cut pretty soon. This happened with many of the wall street banks this year such as WB, FITB, KEY, C as well as with giants like GM.
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