BAM.A:CC - How My Portfolio Is Holding Up Against The Bear Market

Summary

• Write a list of everything that is both possible and necessary to know to invest money.
• Take no action, and consider no information, unless directly related to the aforementioned list.
• My personal experience as an investment minimalist.

By now, we're all probably starting to suspect (if not accept) that none of us can consistently predict stock prices. We don't know any better than the Federal Reserve when inflation will abate or how high interest rates must go - and neither does anyone else. And if any of us knew which stock would rally and when, she certainly wouldn't tell the rest of us. And yet so much of our attention is riveted to guesses about the unknowable. I suppose that it must be entertaining (to some of us, at least), but life being what it is, that which is most entertaining is so rarely the most sensible thing to do.

Have you ever attempted to write down the key elements of the most "sensible" investment approach? I recently did and was stunned at how little paper was required. In the process, I've come to define a "sensible" investment approach as one based exclusively on the things that you both can and must know, and that strips away and ignores literally everything else. Think of it as investment minimalism. For example, you and I can and do know that if you use income to buy more income producing assets, your income shall grow at a compound rate over time. We also can and do know that result shall transpire i rrespective of stock prices - rendering future stock prices not only unknowable but also irrelevant to the goal of income growth. The "sensible" investment approach would be to ignore stock prices and by extension, any and all information and prognostication related thereto.

Did you know that a friend recently asked me what is my preferred price/ earnings multiple for buying a stock. It's no accident that I don't have one. The reason why is because I can and do know that the law of averages is far more reliable than any ability I might have to distinguish a stock's value from its price. For example, earlier this year I bought shares of Citibank ( C ) and the price has dropped since then. Maybe I overpaid. But I am still buying shares of C today and since the stock price is so much lower, maybe this time I am underpaying. Not only that, I plan to keep buying C in the future and so based on the law of averages, my overpayments and underpayments will probably cancel out over time. That's why I don't have to look at the price/ earnings multiple or any other data in order to buy C at the right price and like cleaning up my room, if I don't have to, it seems perfectly sensible not to.

Investment minimalism may or may not sound great to you on paper, but I certainly couldn't call it "sensible" unless it consistently produces adequate results over a reasonably long period of time. So let me start by summarizing my entire investment approach. First , I buy a diverse portfolio of companies with high credit ratings or no debt, high profit margins, industry-leading products or services, and a history of steady and rising dividends. The reason why I chose these criteria is because my investment goal is to compound my portfolio income by reinvesting dividends and in order to do that, there is one crucial ingredient. I must actually GET those dividends in the first place (which seems less likely with heavily indebted companies with razor-thin margins and spotty dividend payment histories). Any and all data relating to the "Actually Get The Money In Your Hands" rule is well worth my time and attention (unlike most of what I actually spend time looking at).

Second , I hold the stock for the long-term, try to mostly ignore corporate news and stock prices, and reinvest dividends often. To incentivize myself to reinvest dividends, I've found that I sometimes need to make the process more entertaining by playing investment games such as the one I call "PIG racing" (where "P.I.G." stands for "portfolio income growth"). Now, if you've ever wanted to train your houseplant to play video games, PIG racing could be just about the right pace. All you need is a spreadsheet with ticker symbols, number of shares and dividend per share so you can calculate your starting portfolio income. Then as you add more shares and as companies announce dividend increases, you update your spreadsheet and watch your income go galloping ahead at speeds that any typical houseplant would find exhilarating.

The third and most important step in my investment process is to avoid doing anything that isn't directly related to the first and second step. That includes forecasting bull and bear markets, watching charts, or listening to experts who'd like to tell me what to do and charge me for the privilege. In my case, this third step is by far more difficult than the other two.

How has minimalist investing worked for me? The honest answer is "well.... so so." According to GoogleFinance.com, my portfolio has a 39.48% capital gain over the past 5 years, plus an annual dividend yield of close to 3% (for a total return of 9.53% per year). That compares to a 40.81% capital gain for the Vanguard Total Market Index ( VTI ) with its 1.67% annual dividend yield (for a total annual return of 8.55%). That extra 1% annual return isn't great but is what I'd call "adequate."

Investing is unlike most other situations in life - aspiring for adequacy is the ideal recipe for success and happiness.

Obviously I couldn't have known five years ago that the results would turn out as they did, and it would be absurd to pretend that I know any better today what the next five years might bring. But thankfully such knowledge is as unnecessary as it is unattainable. What I knew then (and know now) is that commercial ETFs charge fees, leave me unable to selectively loss-harvest positions (as I recently did with my shares of 3M ( MMM ) and Brookfield Asset Management ( BAM )), and offer less insight into my exact month-to-month income. Such provides a sufficient basis to continue what I've been doing (and to continue to not do what I haven't been doing) unless and until my portfolio delivers inadequate returns.

What do I own and in what proportions do I own it? Feel free to see for yourself in the chart below.

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