Published on February 17th by Ryan Krueger
This is a guest contribution by Ryan Krueger of investment advisory firm Krueger & Catalano. The article originally appeared on the Krueger & Catalano site here. The best way to keep up with Ryan is on Twitter.
I noticed a few things while reviewing the headline grabbing 22,000 Dow points the Stock Market traveled in only one week. I keep a diary at the conclusion of each week, when the market is closed, jotting notes down every weekend for 22 years.
All during one cup of coffee, I saw…
- My 5 & 6-year olds split a pint of chocolate ice cream.
- My 10-year old watched sports on a television.
- My 13-year old swiped an LCD screen.
- My wife opened a box from a delivery truck.
- My silver lab chewed through a Star Wars toy.
And, I put peanut butter on a bagel before I tallied the numbers below.
Nothing impressive or even interesting on this list. Beautifully boring is how I would describe some of the longest lasting companies, by design. Sure, some things change. I also have a 15-year old who needed me to fill up my car with gasoline on the bagel run, to practice for her upcoming driving test. Gulp. So, yea I know all about volatility. We can add this cyclical company and terrifying experience as well, to this list which I otherwise confined myself to one room at one time for one family.
The seven companies I noticed in less than one hour on a Sunday afternoon being devoured by my seven family members, each paid a dividend to their shareholders last week again, uninterrupted. The average pay raise for was an 8% dividend increase. These dividends have been paid and raised consistently, throughout good and bad market cycles. The average age of the companies is 126-years old, each. I used the back of an envelope and pencil to do this math, no prospectus or powerpoint needed. My experience is that the more profitable and un-crowded riddle to solve any time you hear about game-changing volatility will be what does not change.
Here is what the simple math would be for any group of companies like this starting with an average dividend yield of 3.1% and increasing that annually at an average of 8%. This mailbox money is strictly what you would be walking to your mailbox to receive in the form of a dividend payment, counting on ZERO stock price appreciation.
None of the behavior I watched while sipping that coffee was affected by the Federal Reserve. Not one of those consumers I observed is either bullish or bearish on the economy, just very loud.
So why are today’s investors particularly on edge? Because they are not shareholders any longer. Wall Street has created many monsters in their labs ever since “May Day.” Their fixed (very high) commissions were abolished on May 1, 1975.
Complex and expensive “solutions” from Wall Street put layers between investors and those underlying shares. Investors even more often robbed by their own instincts picking among them, have walked right past the simple truth that to get a pay raise… just look for a pay raise.
Shareholders have never needed a fund of any kind to help them collect dividend checks. But, they are an endangered species after an entire generation has been told (and sold) there is no good way to select stocks, so just own them all, or Frankenstein funds of them. More and more advisors also believe passive investment strategies are for best for the long-term (and golf games). Then, a funny thing happens when they get spooked. They are not very passive at all.
Long before I got this data below from my friends at Bespoke I have always found it a lot easier to crunch numbers when they were not moving. I have always ranked stocks over the weekends with all the fresh data in, after subtracting any noise and opinions out. If you have ever wished you could ignore any of the wild swings during the market trading hours, or if you are missing anything, I give you a license to steal all of that time back.
This data is astounding. One of the early entries in my blood and tear soaked diary of learning is a rule: No matter how elegant the design, occasionally check the results. If you or your fund manager has ever tried to outguess the market while it is open, print this chart out.
My experience is completely balanced by spending the first half of my career on Wall Street and fully biased after witnessing all sorts of these Frankenstein funds up close. So, I escaped. It took me time to figure out what lasts a really long time, for a lot of beautifully boring and simple reasons.
Albert Einstein said it best about the 5 levels of increasing wisdom: Smart, Intelligent, Brilliant, Genius, and… Simple.
When you own the most consistently growing dividend payers you put time on your side. Yes I am biased, by math. Mailbox math allows you to buy back the most undervalued resource -your time- to spend exactly as you wish.
The volatility crushing measurement we use around here is calculating when your annual free cash flow INTO your mailbox exceeds all expenses of needs and wants out. The next thousand points up or down will not change this simple mailbox money math.