email to friend

The Frugal Investor
      Anchor Bay Capital's monthly eNewsletter

Vol. 1, Issue 6 • March 2010 • Baby Boomer Version

I have been investing in stocks since 1987, and over the years I have fine-tuned my investment strategy to focus mainly on quality “yield stocks” – dividend paying stocks that have consistently increased their payments over time, and whose dividends appear safe (reasonable payout ratio relative to earnings and cash flows). In this newsletter I will share my thoughts on investing in a portfolio of these stocks, a strategy that has served my clients well over the years. I hope that this newsletter will serve as an inspiration for my readers and that it would change their financial lives for the better.

Since the publication of my first book, “The Frugal Investor” I have received quite a bit of feedback from investors regarding topics I covered in the book and articles I have written in this newsletter. My main source of ideas for improvement has always been with critical comments, whether constructive or not. With the understanding that it is impossible to please everyone, I have remained focused on the investment strategy that is the embodiment of my core investment principles: dividend growth investing. I remain convicted that this strategy is a superior investment strategy for investors in all stages of life.

One common criticism is from investors with short term focus. In early 2008 the biggest problem for U.S. stocks was the weakening of the U.S. dollar and rising oil prices. Critics opined that the days of a conservative strategy of owning large U.S. companies that pay dividends were over and demanded investments in “the next big thing” -- commodity-rich developing countries selling natural resources at inflated prices. The oil bubble popped in 2008 and many countries, including Russia, were hit hard. The lack of diversification in their economies left them vulnerable.

In late 2008 and early 2009 investors were constantly bombarded with negative stories about “the end of buy and hold” and the “death of dividend investing” after a record number of dividend cuts occurred. It is difficult to separate the short term noise from the longer term trends in the economy, industry or a particular business. The truth is that in order to be successful in investing one should stick to a prudent, well-though-out and carefully implemented investment strategy through thick and thin rather than blindly switching from one temporary strategy to another in a vain attempt to find a successful strategy for the market’s next leg up or down in the market. Thinking too often could cause investors to deviate from their plans and suffer financially as a result. Famous speculator Jesse Livermore once said “Money is made by sitting, not by thinking. It is uncommon to find men who are both right and sit tight as well.”

The firs few months of the recovery that began in March 2009 were characterized by bears speculating about a double-dip recession, nationalization of major banks, and other potential problems for the economy and capital markets. Now that the rally has taken hold, with stocks having repeatedly hit new 52-week highs, investor psychology has now shifted – investors have regained their risk appetite in a perceived environment of global economic recovery, and the risk of missing out on a continuing rally seems to be a larger factor than downside risk at the moment.

My strategy in this environment, as always, is to continue to dollar cost average my way into a diversified portfolio of stocks each month and to reinvest dividends selectively.

Sincerely,







Scott Spiering
Principal