How do we decide what to invest in?
Once in a while I read a suggestion that I feel is logical is to look some of the biggest and most successful mutual funds. What are their major holdings? If we take look at some funds that focus on dividends, we can find those companies that have the confidence of the fund’s analysts who choose based on (what we hope is) solid financial criteria.
However this method, which highlight large holdings of funds, does not take into consideration whether these companies are a good buy now. Their stock prices may have increased substantially since the fund purchased that stock, and therefore you may be overpaying if you take the plunge at current prices.
According to current SEC rules, mutual funds have up to 60 days after the end of each quarter to report their holdings. So even if you get the latest hot-off-the-press data, it is by definition at least 60 days old. And many mutual funds have a high turnover–namely, hey buy and sell frequently. So what is reported 60 days after a quarter ends, may no longer be held by the fund by the time you read it.
Amother suggestion is to view the list of top ten holdings for a fund from their website, which is often updated monthly. The same caution applies–the fund could have sold by the time you read the list (or even added to their portfolio).
One could also compile history of a fund’s top ten holdings by saving these lists and comparing with the current list. But this sounds like work which I would like to avoid. I retired for a reason.
Not being a financial analyst by trade, I would hesitate to initiate my own financial analysis of large companies. I don’t believe I have the skills or the temperament to sift through mountains of financial data, and be able to come to any significant conclusions. I would also need to know how to compare companies with other companies by their financial statements. While not impossible for some, for me it would be like taking a new job, or trying to start a new career.
Since my goal is income, and I am thereby a dividend investor, I have a different view compared to most investors. I do not aim to buy now and sell later. I buy now to get income. As a result, I look for consistent and growing dividends.
I do read online articles about investing, although it is don’t make any moves based on reading one article. To follow a crowd online is a path to quick losses. I read online to get a sense of economic and business conditions, but do not run to invest because someone extols some company. Other times I read to get a more in depth perspective on an individual company.
Not every dividend-paying company is a candidate for me. Sluggish dividends, dividends that are often cut, dividends that don’t grow… all of these are a turn-off. In addition, some industries do not inspire confidence, or do not meet my comfort level. Such as private prisons, tobacco, defense, and so on. Some industrial companies are included, some are not, depending. Logic is personal. I am not a machine.
So I have chosen companies to invest in based on some personal and hopefully otherwise logical ideas. Some of the major companies in the U.S., although there are plenty I have not invested in. I choose to not be overly invested in any one company or industry. I like to think I am a fan of diversification.
How do you choose what to invest in? Let me know here.
The storage jar illustrated is from the Chalcolithic period in Central Iran, 4000–3600 BCE. Courtesy Metropolitan Museum of Art.
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