I received this email from a supporter/follower, Mick Z, who said: “Love your ideas but mate, not making anything on your shares”. This got me thinking how many of us have different ideas about making money on stocks.
Undoubtedly, my team and I have come up with some great investing ideas over the past five years since we started the Switzer Super Report (that’s why Mick likes them) but Mick’s view on my Switzer Dividend Growth Fund (SWTZ) shows me that people like him might need a refresher course on how to invest.
Of course, there are very different ways to invest to build wealth — short-term gutsy day trading; timing the market; time in the market; buying quality companies when they dip, being diversified, not being diversified, going long dividend stocks, etc. There can be a combination of many of these strategies but I need to put SWTZ into its right perspective for Mick and wealth-builders like him.
There have been a lot of investors who have held the four banks and Telstra as their prime, and even only, stocks play. Many of these are in these stocks for the dividends. We created SWTZ to give those who don’t know the other reliable dividend-paying stocks out there a chance to get a more diversified group of dividend payers in their portfolio. So, let’s compare how SWTZ has done since February 24 this year (when it listed) to the four big banks and Telstra, to see if an investor would be better or worse off.
On listing day, SWTZ came on at $2.50. It has been over $2.61. If Mick was a sharp, short-term trader, he could have pocketed a 4.4% capital gain, if he timed it right. We have paid two dividends, which have not been big but the September and December quarters are more healthy dividend-deliverers, so it’s all ahead of someone like Mick, who’s still long SWTZ.
The SWTZ ‘unit price’ on Friday was $2.49. A couple of weeks ago I bought more at $2.47. So Mick, I’ve made some money lately to partly offset the small capital loss we’ve endured since listing.
But how have the famous dividends payers gone? And let’s imagine Mick put $100,000 into those five stocks since February 24. How would Mick have fared?
Telstra has gone from $4.82 to $3.90. The CBA was $83.48 and is now $79.00, while its arch rival, Westpac, has gone from $34.17 to $32.21. Meanwhile, NAB was $32.09 and is now $30.87, while ANZ started my testing period at $31.17 but now has slipped to $30.01.
Let’s imagine Mick put $20,000 in each of these historically great dividend payers. Let’s see what capital he has lost.
For Telstra, he roughly had 4,149 shares and lost $3,817. With CBA, he could have bought 239 and lost $1,070. With Westpac, he bought 585 shares but dropped $1,146. The NAB shares he bought numbered 623, so he surrendered $760, while the ANZ buy gave him 641 shares on which he lost $743. (These have been roughly rounded for convenience.)
His total loss was $7,536. On a total outlay of roughly $20,000, that’s around 7% because he was exposed to five of the best dividend payers in the history of stocks in this country.
On the other hand, SWTZ is down one lousy cent on $2.50 (the listing price). That’s a 0.4% loss in capital, so on this comparison we haven’t made Mick much money but he hasn’t lost as much as he would have if he’d played a game that many Aussies play by buying the big four banks and Telstra.
Of course, Mick would’ve received dividends from our five favourite stocks and he would with SWTZ but I think my point is made: having a diversified group of dividend payers is sound thinking. And as the market has gone virtually sideways since SWTZ listed, its unit price makes perfect sense.
We created SWTZ to give investors greater exposure to 30-40 reliable dividend payers but, of course, we would’ve had exposure to the best five in the dividend space, which also have had a big impact on the overall index.
The recent stats say the index did a bit better than SWTZ but we should pay a higher dividend over the course of the year because that’s out bias, on top of our secondary goal to add capital gain as well.
The day before we listed, the S&P/ASX 200 Index was at 5784.7 and is now at 5747.1, so it too has slipped over the period. If Mick wanted to make money, he would’ve had to have picked individual stocks, or an ETF for the German Dax Index, or maybe an ETF for S&P 500, which is up from 2363 to where it is now at 2425, which is only a 2.6% gain.
Let’s face it Mick, we’ve gone through a subdued trading period since SWTZ saw the light of day and it has done OK considering it’s not meant to be a Ferrari that can go fast but can crash and burn if not driven correctly.
SWTZ is a Mercedes that will get you to where you’re going, safely, without beating any land-speed records.
That said, if our market can break out of this stubborn trading range from 5665 and 5800, then Mick should make some money from my shares. SWTZ was born with the Index at 5874.7, so it hasn’t been an easy time to bring up a new market ‘baby’.
Obviously, I think that investors like Mick, if he’s not a thrill seeker, should/could use SWTZ as a base or a core holding to ensure that a fair chunk of his capital’s return is going to average 5-6% plus franking credits. Then he can shoot for some alpha results with the kind of shares that you can make some big gains with but, on the flipside, he might have to cop a loss or two if things don’t work out.
Anyone who bought Domino’s, Bellamy’s, Ardent Leisure and even Blackmores knows what I’m talking about.
Yep, even with a good company such as Blackmores, one year ago it was $160 for a share and it’s now $92.97! In December 2015, it was a $217 stock but before that, in December 2014, it was a $35 stock!
This has been a Ferrari stock. SWTZ is more like a Mercedes, which will keep delivering pretty solid, safe dividends plus franking credits, year in year out, even when the overall market crashes, because that’s what it’s designed to do.
And it even has the ability to put some of the best dividend payers to shame at times.
I believe history will be borne out and our S&P/ASX 200 Index will conform to what the past predicts and eventually pass the all-time high of 6828.70, reached in November 2007. And when that happens, the nice old Merc called SWTZ will have made Mick some nice money.
If you need to see where we came from and where we’ve got to while I preached the value of being long stocks since late 2008, then have a look at the chart below and have faith!
Anyone who has believed my market story since late 2008, that stocks would rebound after the crash, has seen a nice return, as the chart above shows.
It hasn’t risen as fast as we’d like but a slowing China, the ending of the mining boom, a dollar that went as high as 110 US cents and too much political instability haven’t helped the stock market.
That said, I think SWTZ will deliver what it was designed to deliver over the long-term — consistently good dividends along with franking credits and some nice capital gain when our stock market defies gravity.
Thanks for making me set you straight Mick!
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