Saturday, April 19, 2014

Chatter Around the World - 40

Chatter Around the World is a weekly link update of economics, investing, dividends and personal finance articles that have caught my eye. In these weekly updates, I also capture my blog updates and news related to my holdings.


New Blog Posts

Let dive into the links that caught my attention this week.

Thursday, April 17, 2014

Plagiarism

Markos Wunram is a plagiarist. The German blogger at Finanzielle Freiheit mit Dividenden, Markos Wunram, has recently decided to lift content from this blog and republish without permission. 

I posted an article earlier this week entitled Companies Die, which discussed that companies go through a life-cycle of birth, growth, sustained maturity and death - and listed some details on the history of some famous companies that went bankrupt. The article was published Apr 14, 2014 and Mr. Wunram has decided that he could just recirculate the article (posted on his site on Apr 15, 2014) without permission. 

His article is available here, but just in case he decides to change the link, here's a screenshot of his article  next to mine (original post is in German - and translated by Google Chrome).





The E-Mail Exchange
I first sent a mail indicating that the content on his site is in violation and needs to be taken down. And his reply states that I am mistaken :O The nerve of this guy! 

I decided to give him a second chance to take it down at the threat of exposure to the rest of the community - but his claim is that since the article is translated to German, the text does not match 100% to what is in my post and there is no violation. 


Hmmm by that measure, maybe I'll return the favor to him by taking all the content from his site and translating to English. Or maybe I'll take every piece of literature ever written and add some filler words, some extra articles or adjectives - so that it doesn't match 100% and claim that its mine.

A Plague
Plagiarism is a plague that stifles creativity. It should be shunned by the whole community and such behavior should not be tolerated. I have tried to have my content removed from his website and have failed. How does one deal with such thievery? Any suggestions are welcome.


Wednesday, April 16, 2014

Kinder Morgan Inc (KMI) Dividend Increase

Kinder Morgan Inc (KMI) announced a 2.44% increase in its cash dividend. The quarterly cash dividend will increase from $0.41 to $0.42 per share and payable to on May 16, 2014 to shareholders on record as of Apr 30, 2014. The amount represents an increase of 11 percent from the first quarter of 2013 cash dividend amount. The annual dividend rate goes up from $1.64 to $1.68.

Kinder Morgan reported that the cash available to pay dividends rose to $573M, up 12% from a year ago and remains on track to meet or exceed its published annual budget of $1.78B in cash available to pay dividends. More dividend increases in 2014 are expected as KMI expects to declare dividends of $1.72 per share for 2014, an 8 percent increase over its 2013 declared dividend of $1.60 per share.



My portfolio consists of 60 shares of KMI, which increases my annual dividends from $98.40 to $100.80. My position in KMI was initiated when it was at a higher price, so my YOC is slightly lower than current yield. With this increase, my YOC is 4.68%.

My First Stock Investments

A trip down memory lane is in order on the event of this anniversary of my first stock trade. Some of my earliest trades did not work out so well, so I figured I'll share my experience so that the readers may learn and avoid similar mistakes. One of my favorite quotes from John Bogle is "Learn everyday, but especially from the experiences of others. It's cheaper!" So, with that in mind, here's my story of how my first couple of stock trades played out.

I started saving and investing in 2007, but since I was new in the gameand did not know how to evaluate companies or what to look for in annual reports, I decided to start with mutual funds. As was the craze in those days, I picked funds that were hot - funds focused on China, India, and Brazil. Eventually I would sell them after a couple of years for a minimal gain.

But this story is more about my first stock investments. In 2008, while the financial turmoil was already underway, I decided that I would start buying individual stocks of companies. The S&P 500 was down about 7% since Jan 1st and about 9% down from a year earlier.

S&P 500: Apr 2007-Apr 2008

The first companies I picked were banking firms! I opened and funded my brand-spanking new investment account with $1,000 and could not wait to get started. I performed the following three trades in three days.
  1. Apr 16, 2008 (six years to this day) - Washington Mutual Inc - a savings bank holding company, which was the largest savings and loan association in the US. I bought 25 shares at $11.04 each for a total of investment of $276. The company would eventually go bankrupt on Sep 25, 2008.
  2. Apr 17, 2008 - Wachovia - was the fourth largest bank holding company in the US based on total assets. I bought 10 shares at $25.35 totaling $253.5. After the tremendous collapse, the company was eventually absorbed by Wells Fargo (WFC) and I got 1 share of WFC in exchange. I still own this share as part of my WFC holding.
  3. Apr 18, 2008 - Merrill Lynch - the world's largest brokerage firm. I bought 8 shares at $47.95 each totaling $383.60. The company, under distress, was absorbed by Bank of America Corp (BAC)  on Sep 14 2008 and I got 6 BAC shares in exchange. I held this for a long time and eventually sold it at a loss. 
So, all in all, terrible investment decisions. I was caught up in the noise from the media and based my decision by listening to the so-called "experts" in the field. Moreover, these were companies that had the reputation and had been around for over 100 years, so my thinking was that they would weather the crisis just fine and come out on top. I could never imagine that these companies would die. But I learned a valuable lesson during the process. As luck would have it, the start of my investing career during the financial crisis made me a skeptic and I decided to learn and understand a company's business model, due my due diligence and research my evaluation before investing in any firm.

It took me a year or so after that when I started realizing the power of dividends and even there, I learned lessons the hard-way - going for the high yield stocks and  funds. After a lot of trial-and-error, I finally found my way to dividend growth stocks and found that this mechanism worked and stuck with it. I now use a combination of dividend growth stocks, high income stocks and funds and index funds for my complete portfolio.

Why Dividend Stocks?
Even though my learning curve was far from ideal, I realized that a majority of the investment philosophy out there was the traditional buy-low-sell-high, which works in theory, but is nearly impossible for anyone to time the market right. I decided that this performance-chasing was not going to work for me and turned to the concept of dividend stocks and passive income to fund my retirement. Dividend growth investors choose stocks in strong companies and participate as business owners staying invested while sharing the profits on a periodic basis; instead of active trading stocks in growth-focused companies where profits are unrealized until the investment is exited. 
By subscribing to this mechanism, I am not trying to beat the market each month, quarter or year. My goal is to increase my cash flow and generate enough passive income to achieve financial independence. By following this method, I have grown my passive income by leaps and bounds over the last five years. My progress so far is shown in the chart below.

Annual Passive Income Progress

What was your first investment? How did you end up choosing your current investment philosophy? Share your story below in the comments section.

Full Disclosure: I am long WFC. My full list of holdings can be found here.


Monday, April 14, 2014

Companies Die

Companies, just like human beings, follow a life-cycle. When boiled down to a rudimentary level, we can think of companies going through the phases of being born, growing through periods of childhood and adolescence, maturity after reaching adulthood and finally death.

A look at history
I recently looked up the oldest companies in the world. The oldest company on record is Kongo Gumi, a Japanese construction company that was founded in 578 CE  (that's over 14 centuries ago!). The company was absorbed by a larger construction corporation (Takamatsu Corporation) just seven years ago after staying in the family for 40 generations!! The name, Kongo Gumi, however, survives as a subsidiary  of this construction group. Interestingly, a majority of the oldest surviving companies are Japanese - and 89.4% of all companies with more than 100 years of history are businesses employ fewer than 300 people.

The Dutch East India Company, or Verenigde Oostindische Compagnie, was one of the largest companies in the world founded in 1602. This was the first company in the world to trade shares in a public exchange, which eventually led to the creation of Amsterdam Stock Exchange. The company eventually went bankrupt in 1800. 

The first company to trade on the New York Stock Exchange in 1792 was The Bank of New York, founded in 1784 and still exists and publicly trades today. The company merged with Mellon Corp in 2007 and is now called The Bank of New York Mellon Corp (BK).

Dividends
The first ever dividend paid in the US was by a company called Citigroup (C), founded in 1812 and paid its first dividend in 1813. Unfortunately, Citigroup has lost its dividend paying streak and the title for the longest consecutive dividend paying streak goes to York Water (YORW), which has been paying dividends since 1816 (a 198-year streak!).

The oldest consecutive dividend paying company in Canada is Bank of Montreal (BMO), which has paid dividends since 1829, with The Bank of Nova Scotia (BNS) a close second that started paying dividends in 1832.

Companies die
The banking sector was hot and lucrative business in the 19th century and still continues to be. However, investors should be vigilant and monitor their investments while staying invested - as large corporations with a long history can go bankrupt and dissolve. The recent financial crisis provides us with plenty of examples of such events: 
  • Bear Stearns (1923-2008) was a global investment bank and securities trading and brokerage firm, which was absorbed by JPMorgan Chase (JPM).
  • Lehman Brothers (1850-2008) was the fourth largest investment bank in the US that went bankrupt in 2008.
  • Wachovia (1879-2008) was the fourth largest bank holding by total assets in the US, was absorbed by Wells Fargo (WFC).
  • Washington Mutual (1889-2008) was the largest savings and loan association in US that collapsed in 2008.

Stay Vigilant
Companies go through a life cycle of birth, growth, sustained maturity and death. Even if a company has had a great history and performed well in the past, investors should always stay vigilant on the future outlook and consider if the business model of a company is sustainable. The old adage buy and hold forever really should say buy and closely monitor. The new global economy, current environment and the connected world has made it easier than ever to start a new company. Whether a company will survive and thrive is a whole other story.

Disclosure: Long BNS, WFC. My full list of holdings can be found here.