Ask the Experts
Some of the things I was going to write in this series seem less important now that I have reviewed my list. One of the resources I have used to learn more about different aspects of investing is the Fidelity Community. This group is made up of new investors and several investors who have been around the block for a while. I don’t know any of these individuals in person, but I recognize their usernames. The group includes flexydad, eniac, lucky737, beachbumnbrazil, dickoncapecod, retireinvest125, bogiegolfer, and brains. Their ideas and suggestions are as unique and helpful as their clever names.
The Question for the Experts
I asked the community to weigh in and offer their top “Do Not Do This” recommendation, and their top “Do This” recommendation. Some of them did as asked, and some just could not help themselves and gave me twelve. To avoid overwhelming you, let me share some of these pieces of wisdom so that you can learn from those who have blazed an investing trail before you.
The Experts Caution You to Not Do These Seven Things
Don’t deviate from your plan unless you decide to change your plan because of new things you have learned. If you are using an advisor, ask them what the plan is, and why it is the plan. Then tell them you don’t want them to make changes without consulting with you. I can tell you horror stories about investors who did not hold their advisors accountable, including a family member and at least three friends.
Don’t second-guess your decisions in the short-term. Your decision should be based on due diligence.
Don’t buy Master Limited Partnership stocks (MLP’s) in an IRA account unless you understand K-1 tax implications. Don’t buy MLPs in a taxable account unless you are ready to deal with delays in filing or complexities with those tax forms. One clue that you are dealing with an MLP is the name of the investment. If the name ends in “L.P.” it is a Limited Partnership. Taxes are different for MLPs. For example, MMP Magellan Midstream Partners, L.P. is a MLP. So is WES Western Midstream Partners, LP.
Examples of many MLPs can be found at this location: MLP LINK
Don’t sell during a bear market unless one of your non-negotiable sell rules would be violated. Bear markets provide buying opportunities. If you are forced to sell in a bear market, then you probably did not have a good investment plan.
Don’t buy a dividend investment with a ridiculously high payout ratio in most investment types. However, this rule may not apply to REITs, BDCs, and utilities.
Don’t buy on dividend yield. Yield is the least important piece of the data you can learn about an investment. For example, anytime the yield is above 3-4%, dig deeper or ask someone with more knowledge about the investment you are considering. For example, BDN Brandywine Realty Trust has a yield of 12.16%. Don’t take the bait. The REIT has fallen in value by over 55% YTD. Shares that some investors bought at $14 are now worth $6.25. That is a fool’s way to grow income.
Don’t buy an investment without a selling strategy. Investors are notorious for buying bad investments. They are even more notorious for holding onto bad investments when it becomes even more obvious that the investment is junk. One way to do this is to set up rules for when and why you will sell. This includes rules for an investment that is falling in value, and one that is rising in value. For example, if I buy an investment in March, and it rises 20% in the next two months, it may be time to sell some or all of that investment. Don’t be greedy.
The Experts Encourage You to Do These Things
Have an investment plan that is built around your goal statement. If you have an advisor, know enough about investing to give them direction about your desires. So, for example, if you believe my approach of dividend growth is a good approach, instruct your advisor to show you dividend growth ETFs, mutual funds, and stocks.
Monitor your investment portfolio at least monthly. Read your statement. Look for things you don’t understand. Ask questions. Verify that your chickens are continuing to lay consistent “grade A” eggs or that they are laying more eggs, or that their eggs are getting bigger. Another way of saying this is to expect growing dividends if you select dividend growth investments.
Always reinvest dividends unless you need the cash. Dividends paid that sit idle for too long are not going to grow your egg-laying chicken flock.
Always buy quality. Ignore the price of the stock. That is the least important metric. It is better to buy one share of a quality company’s stock that costs $100 per share than ten shares of a mediocre company’s stock for $10 per share. Let me repeat this another way: don’t think you can buy 1,000 shares of a $1 stock and think you got a good deal. What you really got was a stock that no one else wanted and that is likely to be high risk and worthless.
Use Fidelity’s monthly statement to review your dividend results at least quarterly. It would be better if you did this monthly.
Consider saving a download of your account activity at least monthly. Of course, it helps if you know how to use Excel to do this. Consider learning how to use Excel (or another spreadsheet app), the workbench that most good investors can use, to look at their positions and their account activities.
Use a good tool outside of what your broker provides. I prefer Seeking Alpha and Stock Rover. For example, if your broker recommends this mutual fund: TAVFX Third Avenue Value Fund Institutional Class Inst, do you know what to look for before you agree that you want it in your portfolio? Does it pay a dividend? What is the expense ratio? What are the top ten investments? How has this fund performed for the last ten years? How has it performed YTD in comparison with the S&P 500? What percentage of your total investment dollars is in the top ten investments? How many stocks are in the fund? What is the focus of the fund. Become an educated investor even if you have your advisor doing the work for you.
Always know your total expenses and fees. Then ask yourself, “Am I getting what I am paying for?” Grade your financial advisor based on results, not their excuses or “reasons” for what they did or did not do. Again, I have seen friends being charged $5,000 per year for an expert’s advice, and the expert did less than a day’s work for that $5,000. In fact, many advisors do a poor job of following up with their clients. If you pay for quality, then demand quality.
Will This Series Ever End?
This series won’t go on indefinitely, but I think I want to wrap this up by next Monday. However, I welcome suggestions and may do a couple more posts if there is interest.
What Might You Do?
As you look at the expert advice, which ones do you need to write down and then read anytime you are going to buy an investment. Do you have rules for what you will buy? Do you have rules for what you will sell and why you will sell? Do you have a plan?
A Reminder from King Solomon (ESV)
Solomon says the same thing over and over again in the book of Proverbs. Don’t miss this.
Proverbs 12:15 “The way of a fool is right in his own eyes, but a wise man listens to advice.”
Proverbs 13:10 “By insolence comes nothing but strife, but with those who take advice is wisdom.”
Proverbs 19:20 “Listen to advice and accept instruction, that you may gain wisdom in the future.”
Really good advice Wayne.
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Love the simple do’s and don’ts here.
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