I happened to come across an interview with Kevin O’Leary (of Shark Tank fame) on YouTube, and started to jot down some of his comments on investing and personal finance.
O’Leary is an advocate of investing in cash flow paying (dividends or interest) securities, as opposed to growth stocks that pay no dividends. One main point he made was that over the last 40 years, more than 70% of the market’s returns came from dividends. I did a bit of Googling to verify this and got some additional information on dividends:
- Morgan Stanley’s research showed that from 1930-2012, dividends accounted for 41.8% of S&P 500’s total return.
- The percentage goes as high as 71.1% in the 1970s to as low as 12.9% in the 1990s.
- S&P 500’s dividend yield average 3.9% over the last 80 years, 3.05% over the last 50 years, and 2.21% over the last 25 years.
- Aside: moneychimp has a nice calculator that shows the stock market return every year with and without the effects of dividends and inflation.
- In bull markets, dividend yields go down, and the percentage of total return coming from dividends also go down.
- In research where dividend-paying stocks are grouped into quintiles/deciles, generally the higher the dividend yield
- The higher the total return
- The lower the volatility
- The better the performance during a market drawdown
- Conversely, the worse the performance during a recovery of a market drawdown
- Usually the quintile/decile with the highest yield is not the best performer (the quintile/decile with the 2nd-highest yield usually is), because they tend to contain companies with unsustainable yields.
O’Leary recently set up a number of ETFs that invest in dividend-paying stocks across different counties, along with currency-hedged versions. The basic three are
- O’Shares FTSE US Quality Dividend ETF (OUSA)
- O’Shares FTSE Europe Quality Dividend ETF (OEUR)
- O’Shares FTSE Asia Pacific Quality Dividend ETF (OASI)
My notes are Kevin O’Leary’s points are below.
- Always save a third of your paycheck
- Invest it in stable stocks or bonds that pay dividends or interest
- Don’t spend on things you don’t need
- Every time you are about to buy something, ask yourself “If I invest this money instead, would it be there for me in 20 years and spinning interest?”
- When you spend money, you kill it, it becomes ghost money.
- Spend the interest, never the principal
- Never have more than 5% of your portfolio in any one stock, ever.
- Don’t have more than 20% of your portfolio in any one sector (e.g. energy)
- People fall in love with companies, and when the correction occurs which invariably it does, they lose a huge amount of money.
- Insist on dividends
- Never buy anything that doesn’t pay a dividend or interest.
- Over the last 40 years (1975-2015), 71% of the market’s returns came from dividends.
- Asset allocate
- Use your age as the percentage of your portfolio that should be in bonds.
- Bonds provide stability to the portfolio
- Don’t be greedy
- When you start stretching for really high returns, that’s when you get hurt.
- Don’t invest in anything that you don’t understand
- Has a 5% allocation to gold
- 2.5% on physical gold
- 2.5% on GLD
- Rebalance every quarter to maintain the 5% weighting.
- Works as a stabilizer to the portfolio, an insurance policy.
- Own gold, never own the miners, because the mining companies have not been able to manage their costs.
- If you are domiciled in the country where you pay taxes, have 50% of your cash in that currency.
- O’Leary diversifies to other currencies: U.S. dollars (20%), Swiss frances, Euros
- Just own a basket of currencies, nobody can make money in FX trading.