All right. Welcome back, everybody.
I hope everyone's having a good week.
I just want to do a quick video and check in.
See how everyone's doing. It's been a busy week.
I mean, just this last Monday morning, it feels like it's been
a long time, but just this last Monday morning, I posted my most
recent upload. And it was the often ignored
truth about bonds. And in this video I went over
and I explained I wasn't trying to advocate for bonds or say
that everybody needs them in their portfolio.
I just wanted to create a little bit more awareness about the
role that they play. And I think it's especially
useful and weeks like this week that we've been having.
If I look at this, the S&P 500 is gone down about one point
seven percent in the past five Market days.
So it's gone down quite a bit. So I'm going to be talking about
that. I know a lot of people are new
to the stock market, they're entering in and now they're in
the red. And so I'm going to be going
over that in just talking about a few things that you might want
to look at other things is I've had maybe over 200 comments on
this past video. I mean it's hundreds and
hundreds is All is probably a couple dozen emails.
And so, in this video what I wanted to do for the main part
of it was just go through pick a few of the questions that I
thought were interesting and answer those.
So I'll be doing that for the majority of the video and then
there was one news item. I'm going to hit on on the end
which was Carl Icahn suing Occidental Petroleum.
That's one of my Holdings. He's a shareholder of the
company as well as me. He owns a little bit more of it,
but he's suing because he doesn't like this deal that
Warren Buffett's doing and he doesn't like the situation.
I just wanted to mention that at the end of the video, I'll go
over it. All right.
So first, let's jump into this week and see how things are
going my portfolios down 1.75 percent.
That's a little bit more in the S&P 500 mostly because real
estate and utilities have been hit pretty hard this week.
I mean I've been through this so many times, real estate has so
much money to go in and out of it all the time that it gets a
little old, it just money flows into it.
Money flows out of it. And in the meantime, the
important thing is whether these companies are doing well,
whether they continue, To pay their dividends.
That's really what matters if I look at this from week to week.
And I'm always concerned about the market going down, or I'm
happy when the market goes up. That's not how I do this
portfolio. I've said over and over again
that I do not really care or Focus about the capital
appreciation. This Top Line market gains is
capital appreciation. The bottom line is earn
dividends from the past month I've earned $122 in dividends
that's the past 30 days market gains.
Hazard down $759. Now a lot of people say well how
can you not care about capital appreciation?
Right isn't that a big part of the portfolio?
Sure I think capital appreciation will eventually
follow the level of income. A portfolio puts out.
So if I continually if I go to my chart here I'm tracking my
dividends here. If I continually increase the
amount that my portfolio pays out, I believe there will be a
trend of capital appreciation, that follows that.
But I think the capital appreciation is a lot more
Jagged than this. This line of just increasing my
dividend payments and the reason why is because if you look at
the news, I mean, every little thing that happens Trump talking
about terrifying Mexico were or the issues with the trade, war
with China or all these different things going on.
Every little thing seems to affect the market and scare
people, One Direction or the other.
Now, it's hard to keep track of and frankly, I don't think you
should try to keep track of all the little changes in the
market, but I do think that this is a good thing for people
entering the market that are brand new to it.
And I know that's a little bit counterintuitive because if you
just enter the market and you see yourself losing money, right
at the start, you might be thinking, how is that?
Possibly a good thing, but I think it is and the reason why
it gives you a good gauge of your risk tolerance.
It's the same type of thing where you can read about
surfing, you know, you can read about that in text books all
day, but you do not experience it until you actually go out on
the waves. And that's what it's like,
filling the market, go down a little bit.
This dip 1.7% isn't a whole lot. The market could go.
Down 10% or 20%. And so, what you have to do is
you have to look at your portfolio, see how your
portfolio did with this downturn and adjust your risk based on
that. So, if you look at this
portfolio and you go, wow, this went down a lot, you know, a lot
more than I'm comfortable, with for this type of downturn.
That means you might want to bump up this section right here.
This section that's in the green.
If this downturn was a little bit more than you're expecting
or it makes you uncomfortable, you're not happy with it.
That type of thing you might Be better suited, bumping bonds up
to 40 percent or 30 percent, right, adjusting your risk based
off of what's going on with the market.
And so, a lot of people everybody has different risk
tolerances if you were fine with this and this doesn't bother you
at all. And you're just buying more
shares right now as it's going down and you're excited about
it, then you might want to lower your amount of bonds.
So it just depends on the person, depends on what you're
doing. My portfolio, went down 1.75
percent in the past week. If I go to the month view, it's
down. 1.7% And percent. So a little bit less for the
overall month, if I go to the month of the S&P 500, it's down
4.8%. So, even though my portfolio
went down a little bit more than S&P 500, just this week for the
month view, it went down less than half as much, so it's still
a lot more conservative than S&P, 500 over a little bit
longer period of time. But regardless, I really do
think if you're just getting in the market, now's the time to
figure out your risk tolerance. Figure it out guys.
If you have Lower risk tolerance if you're going wow I am
stressing about the amount of money I'm losing already and you
just enter the market and only have a couple thousand dollars
in it. Imagine if you have a hundred
thousand dollars and you lose five thousand in a day or 10,000
a day. This is the time to figure out
your risk tolerance. Adjust it.
If you have bonds you can control risk a little bit by
upping the amount of bonds you have.
You can control Risk by lowering the amount of the things that
are really volatile. You have Tech over here.
That went down 7% Industrials went downstairs. 6%.
The bonds are the ones that you probably can adjust risk the
most by. I just think it's a good time to
do that. We'll see where the market goes.
One thing I have been thinking about doing in my bonds pie, I
have these different Holdings and I think they're all great.
I really like lqd but I've been thinking about adding another
one called be n DX. And that it's vanguard's total
international bond Market ETF. And the reason why is I read a
article about how this is a currency hedge and it's a really
good International hedge against the US currency or inflation or
anything like that to happens as well as it pays a decent yield
3% and it's heavily Diversified, it has a lot of assets under
management. So it's really a liquid and
Vanguard always has a low expense ratio so I've been
considering adding this one to my bonds pie, but I haven't made
up my mind on that. It's It's something I look at
into other changes to my portfolio.
I will mention because I know a lot of people are following my
portfolio. You'll notice some of the actual
and Target our little bit adjusted.
So I started off with real estate.
When I only had like I say only, I mean it's all relative but
when I had like five or ten thousand I started off with 33%
real estate and as I've been gaining more and more money,
I've been slowly lowering my exposure to real estate.
What I did was I put it so that the targets at 25% and then I
Added in percentages, to all these ones to adjust for it.
And I just want to, I was really Overexposed.
You know, I had a really large amount of real estate and I want
to balance out the portfolio a little bit more so that I have
these other sectors a little bit more exposure to these other
sectors. So, other than those changes to
portfolio, not too much has gone on.
I mean, with this type of week, yeah, we went down, we'll see
what happens. Nobody can see the future with
it. The big thing, I pay attention
to like I said, is this income? I want this to continue to go
up. Up the thing that concerns me is
when companies cut their dividends that's what I hate to
see. I don't really care to see, this
doesn't bother me. In fact if this happens and
companies are doing great and they're not cutting their
dividends, that's great, we get a better deal on the companies
were buying but if this happens and it's an actual indicator of
something serious going on and companies cut their Dividends
are struggling to survive. That's when things actually
become a problem, right? So, right now, I'm not really
too concerned about this, but anyway, let's move on to some
questions. Alrighty, so you can write in.
It's a the emails Joseph Carlson show.
Gmail.com, Joseph Carlson show at gmail.com and I'll throw up.
The first question is from Amelia, she says, is a new
investor being able to get some dividends rolling in and
starting out as a little rough. Especially when the Mark is on a
decline is increasing our contributions to our portfolio.
The only way to offset that loss or do we ride the wave and trust
that our investments will pull us through if we continually
contribute normally whether it's weekly monthly excetera, thank
you. Okay.
So yeah. I mean, it is dividend investing
starting off as rough to begin with, because your Dividends are
so small to begin with. There's not a whole lot of
compounding that happens right at the start.
It takes a lot to get the ball rolling.
Now, as far as the question part of it, where they were she says
is increasing our contributions to our portfolio.
The only way to offset the loss. That's one way, that's not the
only way. If you're concerned about the
market, going down this past week, it's gone down 1.7%.
If we actually let me go over to A graph here.
So if I go to the one month, In the past month, it's gone down
about 4.8%. If we zoom out to six months,
Past six months gone down, just point to 6%.
Then if we go a year to date, the market is up 10.8%.
Almost 11%. Now along this timeline, it
totally depends on where you just started investing.
So, if you started investing long care, you've made money.
If you started investing along care, you've lost money and you
can't really do anything to control for that.
A lot of that is just luck of when you start investing, most
of the companies, my Folio or S&P 500, Blue Chip companies, so
they're going to follow the S&P 500 pretty closely.
Now, as far as mitigating the losses or what to do in the
downturns, if you bought solid companies that you're really
comfortable with owning for the next 10 or 20 years, you can't
be looking at a one month time period.
You have to understand these companies.
They're prepared to go through recessions and downturns.
They're prepared for that and they've done it before.
Most of the companies, I own, they went through 2009, the
worst Financial recession we've ever had and Survived it.
And so there's no reason to suggest they won't be able to
survive the next one. It's whether you can survive.
It is the real question. I think most companies I own
will probably do. Okay.
Some of them might fall off but a lot of them will do okay?
And so it's, whether you can survive the downturn and keep
invested during that time. One thing you can do, you can
dollar cost average in. Like you're saying keep
investing during a downturn, but I really think it's a time to
just pick your risk tolerance. You have to figure out your risk
tolerance if this is a lot to handle, Like this past week or
the past few weeks of it going down 4%.
Again, if we look at this graph, year-to-date it's up 11% there's
nothing to stop this Market from going down 11%.
So if you look at it and you would be destroyed, if it went
down, 11% increase the amount of fixed income, you have increase
the amount of bonds that you have, by investor grade bonds
treasury bonds and you know, International bonds and those
type of things to help help soften those blows.
So you can just pick a More conservative portfolio,
allocation, there's nothing wrong with that if you feel more
comfortable with that. Okay, so the next question is a
good one. She says hi Joseph.
I would like to know where m 1 Finance gets its income if it's
not from transactions. I assume some of it is from the
cache on the account that is below $10.
I like your conservative sensible approach to investing.
Thank you. Okay.
So, how does M1 make money right?
There are free broker, they don't charge anything for
transactions. And there's no like hidden fees
anywhere either. And that was one of the biggest
questions I had. When I signed up for him on
finances, how on Earth they made money?
And I did a lot of research on it and there is A really
sensible answer to it. So one thing is most even
traditional Brokers they don't make most of their money on
transaction fees, they make maybe like from 30, you know, 20
to 40 percent of it on transaction fees.
Now those transaction fees are going down and down because
Brokers like M1 are pushing the whole industry to reduce the
amount of transaction fees are charging, but where they do make
their money. There's lots of ways that
Brokers monetize, your money. The cash on the account is one
way, I don't think M1 makes, Literally a lot of money that
way because anything over ten dollars can be invested.
So I don't think they have tons of money sitting as cash, but
that's definitely one way that they make money.
Another way is called lending shares, which there's other
Brokers that allow for short selling win mm1, Finance lens,
your shares to short sellers, they charge interest on that an
M1 Finance Pockets. The interest that they charge
that helps pay for em on finance, so you don't get the
interest on your lended shares and one Finance, does they?
A monetize your shares that way, it doesn't affect you.
Although like lending shares is a totally common practice that
every broker virtually does. So that's one way to make money
is lending shares another's. Cash on account.
Another selling order flows, they make money that way as
well. Another one is M1 Finance has m
1 bar 0, which is a way that you can get margin on your account
and you pay interest fee on. That's like a 4.25 percent
interest on margin. So that's like a fifth way they
make money and then another way that they're going to make money
is They're coming out with M1 spend which is their banking
functionality and then they have a premium version coming out.
That's a yearly membership that gives you a bunch of perks, high
yield savings account or high-yield checking account all
these different things and that's called M1 plus and that's
going to be like I don't know it's like 50 or 100 bucks a year
or something like that to get all these extra perks.
They're not changing the price of the whole base investing
system so that will always be free but they have I mean right
there that's like five or six different ways that they can
monetize so they have a lot of ways of making money.
These aren't one of them that they want to pursue and I think
the whole industry is going to move more towards that way, a
lot of traditional Brokers that were charging fees or
drastically reducing them. Okay so the next question is
from Brad. He says, can you please explain
in a video? Why companies and S&P 500
especially like Amazon do not pay dividends.
So this is a this is kind of a question about why companies
return value to shareholders in different ways.
There's different ways companies can return value to
Shareholders. They can either give part of the
cash flow that they're generating through dividends or
they can try to increase their overall company's growth and
standing and market capitalization through
expansion. Now, there's some companies that
I think it's great. They pay dividends those are the
ones I bet invest in their companies that have excess
amount of cash flow, more than necessary to reinvest in
themselves and expand what they do at that excess cash flow, is
they return value to their shareholders by dispersing?
Some of that cash flow to the investors to us.
Those are dividends now, there's other companies like Amazon and
Amazon has such a smart team. They have so many smart people
working there, and they're expanding into so many different
Industries all at once that they need 100% of their cash to be
able to fuel that growth. And they're thinking, well, we
don't need to return value to shareholders through cash
because if you can return value to shareholders by rapidly
expanding into many, as many different Industries as we can,
and that's the goal behind it. It's a different strategy.
They're they're both successful. There's some people that do
growth companies and there can be a lot of success.
That way there's people that do Dividend strategy and there can
be a lot of success. That way there's different
benefits and pros and cons to each of them.
But you have to look at what's the best way of company can
return value to it shareholder, for some companies that's paying
dividends for some, it's growing.
Amazon is one of the companies that has decided it can return
more value to its shareholders by reinvesting in itself.
And Going rather than sharing some of its cash degenerates.
Okay, so I'll do one more question.
I have another like six lined up, but this could go on for
another hour for let it. So, I'll answer the others in
another video. This last one is from Dillon.
He says, doesn't growth of a stock and Trend matter.
You always talk about how you don't care about capital
appreciation. But if a stock takes a 15 to 20
percent loss in a year, and you're given is 2 to 3%.
Doesn't it kind of take away from return on investment
curious on your take on this. Thanks man.
All right Dylan. So that's a good question.
I have said before, I'd it's not that I don't care about capital
appreciation. It's that I don't use it as a
gauge of how my portfolios doing because capital appreciation.
I mean it's decided on investor sentiment at least in the short
term investor sentiment and emotion plays a huge role on
capital appreciation. Investor's just moving their
money in and out of a company investors decide capital
appreciation. The company decides the dividend
Do you see the difference there, investors and external Force are
deciding the capital of the company.
While internally, the company itself is deciding the dividend.
So what I'm doing is saying, I'd rather focus on the thing that
the company is actually deciding, they're the ones that
have the balance sheet, they're the ones that are deciding how
much of a dividend they pay. They don't decide how much their
company is worth by capital appreciation.
That's investors. I think investors are much more
finicky. A much, much more emotional than
the executive team at these different companies that still
Over the balance sheets. So what I'm saying is that I
focus on the balance sheets, I focus on the dividends that are
reflection of that. Now, we can go to your example,
specifically, for company loses 20% of its value and it's paying
like a 3% dividend. What does that do to the
dividend yield? When a company goes down in
value. But it's paying a, you know, it
was paying a 3% dividend that yield increases and what happens
when a company, a good company pays a high dividend that
attracts more. Is in one more investors.
Buy into a company that drives up the price of the share, which
increases the capital appreciation.
So, dividends do increase the capital appreciation over time.
If a company is able to sustainably increase the
dividend over time, the capital appreciation will follow because
investors they seek yield at. They want to find yield and when
companies are able to provide that investors will follow, now
there's some companies that will have a high yield and investors
still go. No way I'm in put my money in
that, you know, you might have GameStop As an example.
And the reason that happens is because there's things actually
going wrong with the company. There's actually decaying
fundamentals in the company and that will happen.
Whether you have capital appreciation, Focus or not.
So the people that are just growth investors.
They're going to have some companies that fall because the
fundamentals Decay. So there's nothing you can do
about that. But my strategy is not to focus
on the whims of the investors is to focus on the actual companies
that things that are decided internally and see how their
fundamentals are. I think if a company is able to
continually increase its dividend payment year over year
and keep that as a fundamental strength of the company capital
appreciation will follow because investors Will Follow That
increasing yield. So that's the basic premise of
this investing strategy. So that's all the questions I'll
do. Let's talk about the last thing
which is a news. I had a touch on this new story,
so I thought it was pretty great.
This is a follow-up to the whole Occidental Petroleum, buying
Anadarko deal. I talked about this like a week
or two ago about how Occidental Petroleum is buying another
company around the same size of them called Anadarko.
And in order to make the deal work they had to find Outside
funding and they found it with Warren Buffett and Warren
Buffett. Made out a wonderful deal for
himself where he got preferred shares and higher dividend yield
and the common shareholder. And the consensus on this was
that the common shareholder of Occidental, got kind of screwed
in the deal. They were they got the bad end
of the deal. And that showed I mean the stock
went down like 40% so I'm way down on it.
Luckily, it's a very small holding of mine.
Now this guy right here is Carl Icahn.
He's worth about 17 billion dollars, he's an active
investor. And what I didn't know is that
he is a shareholder in Occidental.
So he disclosed that he holds 1.6 billion dollars of
Occidental shares. Nearly 5% of the company.
He's not happy about this deal at all he calls it hugely
overpriced he's suing. Occidental, you know, he's
trying to get paperwork and trying to figure out what's
going on because he thinks that this deal is fundamentally
misguided. So way that he put it and then
he took a big jab at the leadership saying quote a
90-minute deal negotiation with one of History's can taste
investors. I mean like most shrewd
investors is no place to gain merger and acquisition
experience at least if you care about protecting your
stockholders he's talking about their negotiation with Warren
Buffett. He pretty much says it.
Warren Buffett took advantage of them because they're green.
They don't know what they're doing.
And Warren Buffett is a super experience with this, which is
kind of what happened. Warren Buffett really got a
great deal with this. The common shareholder did not
get a great deal with this and neither did mr.
Icahn, who owns, one point six billion dollars.
So he's Furious about it. I think he's going to try to
stir things up and you know, he's obviously doing a lawsuit.
I don't think he's going to be successful at stopping this deal
though. I think it's going to continue
to go through so we'll see what happens.
We'll see what happens but I thought it was interesting.
To mention that anyway. Well, I hope that you guys have
a good weekend. I will see you next time.