Tuesday, September 8, 2020

Cut yourself some slack


Pretty much everywhere you look at the moment there seems to be dividend investors either licking their new reset wounds or burying their heads deep in the sand and denying it's all happening. 

Or that other statement that the cut is "for the good of the company" and will be right back up there in a decade or so, like you're somehow working there, leaning on the photocopier talking to a colleague rather than an investor.

At DD4L we've been through the gambit of these emotions quite extensively for the past few months. The issue we quickly realized was that we were taking the resets personally, or at least our investing ego was. There was even a guilt attachment to the outcome, like it was all our fault. The shame of it, what were we thinking? Morons.

Investing ego is a part of your persona that when you find a stock to invest in it then stakes it's reputation on the success or failure of that particular company. Much like following or becoming involved in any particular sporting team the emotional attachment leads to a feeling of internal disappointment or joy at the success or failure of your decision making.

Read all that back to yourself a few times and you start to see the futility of the entire exercise, I promise you. Ego is crazy when you think about how it operates.

Fact is you could have done a mountain of research on WELL and never in a million years could you have predicted that they would reset their dividend in order to free up cash to buy back their stock. Push comes to shove that was the first time they even hinted to not being dividend investor friendly.

Same with VTR, Deb Cafaro even went on CNBC and swore categorically that the dividend was safe, (not that we watch the program, just saw a clip.) couple of quarters later and the cut happens.

As for Westrock they make cardboard boxes and packaging for crying out loud, the cornerstone of the Covid mail order stay at home and order online or "get a six pack beer package from the off-licence while the bars are shut" economy and they still cut. Yeesh!

Same story with numerous others. RDS.B and BP to name but a few, most even had reasonable balance sheets so you had a decent idea when carrying out the research that they could weather a recession pretty well.

Yet when it came to it you still found yourself wrong. Then took it personally or tried to rationalize away that it was good for the company longer term, you and a whole host of other burned dividend investors, yours truly included.

Fact is this is the reason we set out to accumulate over 100 stocks, now down to 159 post-Covid. 

It's because within the exact same industry you can't predict how one particular CEO is going to respond to a crisis like Covid versus another, or how their particular part of the same industry reacts totally different to other like-companies. Case in point look at Ivan Kaufman over at Arbor Realty, the company is an mREIT with a high yield but so is NRZ, so is NLY but all these businesses are run differently by different human beings and one size doesn't fit all. When the FED intervened in all their businesses you had no idea how each would be affected, and that it would come down to non-Agency versus Agency debt. Picking the winner was a crap shoot and you just weren't to know back in early 2020.

You do now though, and that's experience. As an investor you will get burned at times, it goes with the territory that you can't expect to be correct 100% of the time. Again this is why you keep a lofty number of stocks in your portfolio with smaller principal invested, in direct contrast to pretty much every piece of advice out there that suggests keeping to 5 diversified companies. Yikes!

So where did this investing ego originate and if it's so detrimental how can we stop it and just roll with the gut punches?

This involves more of a fundamental mindset change, the issue is we have all been instilled from birth by our parents, teachers, fellow humans with an instinctive need to be the best, better than all our peers at whatever we turn our hand to and investing is no different. So when we see our investments take a cut something internally tells us we got it wrong, we're no longer winners and it hurts our pride/ego accordingly.

The solution is to simply accept that you can't be the best and you will make mistakes and learn to be ok with it. Think about Buffett's airlines investments or Icahn's losses with Hertz bankruptcy, these two alone took losses in the millions and they are professional investors with a lifetime of experience each as opposed to yours and my amateur sunday league status. All we can do is work to the balance sheet information staring us in the face, do our own due diligence and make our best gut call. 

Guess what sometimes a Covid will come along and kick us in the pants, thankfully they don't happen often though but when they do we just need to be thankful for the learning experience from mistakes that we will never repeat again. That is all. 

No more guilt trips, enough already.

In conclusion, if you want to beat yourself up that you picked a bunch of dividend stocks that got a reset pounding that you could never in a million years have predicted feel free to beat yourself up, drip hot candle wax on yourself, rock the gimp mask...whatever floats your boat, by all means have at it.

But none of it makes any sense, not a single jot...

Unless of course it was so damn obvious it was ridiculous, like they were running up huge debts to keep paying a dividend they obviously couldn't really afford in which case you're a silly goose or just crazy fast and loose with your money.

Still no need to beat yourself up though just learn from the experience, cut your losses and refocus on quality diversified names, all you can do. Oh and retain your sense of fun and thirst for knowledge and experience as an investor.

Love to all,

DD4L


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