January 24, 2024 • 26 mins
In this episode, I show you how to start dividend investing on your own.
I cover the following topics in this episode:
- Can you invest on your own?
- Our approach to investing
- What is a quality stock?
- How to know when a stock is priced low (undervalued)
- 4 attributes of a successful investor
- What happens if you don't invest on your own?
- The high cost of fees (MERs) on your investments
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Episode Transcript
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Speaker 1 (00:00):
In this episode, we're going to answer the
following questions Can youinvest on your own and how would
you do it, and what are some ofthe downsides of not investing
on your own?
Hi, my name is Kanwal Sarai andwelcome to the Simply Investing
Dividend Podcast.
In this episode, we're going tocover the following four topics
(00:25):
Number one can you invest onyour own?
Number two we're going to lookat our approach to dividend
investing.
Number three we'll look at thefour attributes of a successful
investor.
And finally, number four we'lllook at what happens if you
don't invest by yourself.
(00:45):
Let's get started with our veryfirst question Can you invest
on your own?
And the answer is simply yes.
This isn't rocket science.
You don't have to have a degreein economics, finance or
accounting.
Investing on your own is reallyquite simple and it doesn't
(01:08):
take a whole lot of time.
That's another thing that mostpeople think that you have to
spend hours and hours and hoursof research into figuring out
what stocks to buy and when tosell them, and the fact is
simply, it is not true.
You don't need to spend so muchtime, and our goal here is to
keep it simple and I tell peopleit's so simple that a
(01:32):
nine-year-old could do it, and Ihad both of my kids start
investing, become dividendinvestors, when they were nine
years old.
So you can start small, and itis so simple that, again, it's
not rocket science.
And so how do we keep ourapproach to dividend investing
simple?
Well, we get rid of all thefinancial jargon, and I speak in
(01:56):
plain English in my courses aswell the simply investing course
.
It's done in plain English andwe eliminate all of the
technical jargon, and then youcan see how simple investing can
really be.
And so let's move on to ournext topic in this episode,
which is our approach todividend investing, and it's
(02:17):
quite simply the ability toinvest in quality,
dividend-paying stocks whenthey're priced low.
And you can see there's threekey phrases here.
So we don't want to invest justin any stock that pays a
dividend.
We want to make sure that it'sa quality stock.
So quality has to be there, ithas to pay a dividend, and then
(02:41):
we don't want to buy it at anyprice.
We want to buy it when it'spriced low.
So those are the three keyelements of this statement, so
let's take a look at them one byone.
So we're going to start withdividends first, and then we'll
look at quality and then we willlook at priced, low or
undervalued stocks.
So a quick reminder for anyonenew to this podcast Dividends
(03:07):
are simply the company sharingits profits with you, the
shareholder.
So in this example, if a companyis paying a dividend of $1 per
share and you own a thousandshares, you will receive $1,000
for as long as you own thoseshares and as long as the
company continues to pay thedividend, the dividends are
(03:30):
deposited directly into yourtrading account as cash, so you
can spend the money if you wish,or you could reinvest it into
other stocks that pay dividends.
So now you'll see over theyears I've been practicing this
myself for more than 24 years.
I've been teaching for many,many years as well and our
(03:52):
students some of them make$1,000 a year in dividends.
Some of them make $5,000,$20,000, $60,000 or more a year
in dividend income.
So the dividend income startsoff really small in the
beginning and then it can growquite quickly as you continue to
compound and reinvest thosedividends into more stocks that
(04:16):
are paying you dividends.
Our focus as dividend investorsis always on the dividend
income and not on the stockprice.
So now let's move on.
Having said that, the key thingto remember is when you
purchase those stocks, when youinvest in those, you want to
(04:37):
make sure that they'reundervalued Afterwards.
The price can go up and downOver the long term, over the
next five, ten, fifteen, twentyyears.
Our focus and priority is onthe dividend income, but let's
go back to our statement here.
So we covered dividends.
Now we're going to look at howdo you know when a stock is
priced low, and another word forthat is undervalued.
(05:00):
So the stock, when the price islow, historically low, the
stock is considered to beundervalued, versus if the price
is too high, it's going to beovervalued.
Now, stock prices go up anddown all the time.
You can see that up on thescreen.
We have a graph here.
You can see stock prices go upand down.
Even on any given day, thestock price will go up and down.
(05:24):
Now, the key here is to investwhen the price is historically
low or undervalued.
And why is that?
Because when the stock price islow, you're going to be able to
buy more shares for the sameamount of investment.
Let's say you were going toinvest five thousand dollars
into a company.
So if the shares are tendollars a share, you're going to
(05:46):
be able to buy more, versus ifthe shares were trading at
ninety five dollars a share.
So the more shares you own, themore you can make in dividend
income, because the dividendsare paid Based on the number of
shares you own and not on thestock price fluctuating.
So the quickest way to know whena stock is priced low is to
(06:08):
follow this formula that we haveup on the screen here, and it's
simply says to take a look atthe current dividend yield today
and Make sure that the currentdividend yield is Greater than
the company's 20 year averagedividend yield.
Then you know that the stock ispriced low.
So, for example, if you werelooking at a stock today and its
(06:31):
current yield was four percentand the 20 year average dividend
yield was two percent, wellthen you know four percent is
greater than two percent.
The stock is considered to bepriced low.
Now for more information andmore details on how we came up
with the formula.
How do you know when a stock ispriced high?
(06:52):
I would highly suggest andrecommend that you go back and
watch episode one, where wecover all of this in much more
greater detail.
So now we're going to move on toour last piece in the sentence
With, which is our approach toinvesting.
So we said we want to make surethat the stock is priced low,
it's undervalued.
(07:13):
We want to make sure that thecompany is paying a dividend,
the stock is paying a dividendto the shareholders.
Well then, the other piece isquality.
So how do you know that you'relooking, when you're looking at
a stock, that it's a qualitystock?
So there's a couple of thingsto check here.
Right, we're going to look atwhen we look at stocks or
companies.
We want to make sure that thecompanies are financially
(07:34):
healthy.
They have low debt.
They have very littlecompetitors.
They are virtual monopolies intheir field.
Canada is a perfect example.
Rogers, bell and Tellis prettymuch covers the entire
telecommunications market inCanada.
If you look at the five bigbanks, the largest banks in
Canada, they pretty much have avirtual monopoly in that
(07:58):
industry.
Also want to make sure that thecompanies are consistently
profitable and we want to makesure that the companies are
paying dividends and increasingthose dividends year after year
after year.
So a nice way to put all ofthis together, because all of
these things will tell us ifwe're looking at a quality
company.
(08:18):
But our goal here is to makethis simple, easy so that anyone
can apply these types of rules.
So what I've done is I'vecreated the 12 rules of simply
investing.
You can see the 12 rules up onthe screen.
These become your checklist.
So you want to make sure that acompany passes all of these
rules before you invest in it.
(08:39):
So you can't have a companythat fails one rule, maybe,
fails two or three.
No, if there's even a singlefailure, move on.
Move on to another company oranother stock.
So the rules are quite simple.
I'll go through them right now,very briefly.
Rule number one do youunderstand how the company is
(08:59):
making money?
If not, skip it, move on tosomething else.
Rule number two 20 years fromnow, will people still need its
product and services?
Rule number three does thecompany have a low-cost
competitive advantage?
Rule number four is itrecession proof?
See, we only want to invest incompanies that are recession
proof.
Rule number five is the companyprofitable?
(09:21):
Rule number six does it growits dividend?
Rule number seven can thecompany afford to pay the
dividend?
And rule number eight is thedebt less than 70%?
Rule number nine avoidcompanies with recent dividend
cuts.
Rule number ten, does it buyback its own shares?
Rule number 11, is the stockpriced low.
So we talked about that at thebeginning of this episode.
(09:42):
And then rule number 12, keepyour emotions out of investing.
So if a company passes all ofthe rules from one to ten, you
know that you have a qualitycompany in front of you.
Company passes rule number 11,then we know that the stock is
also priced low.
And then rule number 12 hasnothing to do with numbers or
(10:02):
looking at financial data, buteverything to do with you as an
investor, and we're going totalk a little bit more about
that towards the end of thisepisode.
So these 12 rules are designedto minimize your risk but
maximize your returns andspecifically the dividend income
.
We want to make sure thatincome is growing every year and
(10:24):
you're making as much money aspossible through the dividend
income.
Now some people might look atthese 12 rules and say to
themselves well, this lookscomplicated, this looks time
consuming, and I'm here to tellyou that you only need to spend
time when you're ready to invest.
(10:45):
So we're not the type ofinvestors that are investing 50,
60, 80, 90 times a year.
We're investing maybe once ayear, maybe twice a year, maybe
three or four times a year, andthat's it.
So when you have additionalfunds to invest, that's when you
would sit down and go throughthe 12 rules and determine which
(11:08):
companies you should invest in,which ones you should avoid.
So that takes a little bit oftime, but it's not like most
people think.
Well, you have to spend hoursand hours and hours every week
trying to figure out whichstocks to buy, and we make it a
lot easier in simply investingin the Simply Investing course.
I provide you with a GoogleSheet.
You can plug all the numbers inthere and we show you where to
(11:30):
get the numbers, and the GoogleSheet will highlight which
company passes all the rules,which companies fail which rule.
So it's a lot easier to narrowdown that list of stocks to
consider for investing.
So, again, it doesn't have totake a whole lot of time.
It takes a little bit of timewhen you're ready to get started
(11:52):
with investing.
Let's move on to our third topicin this episode, which is to
talk about the four attributesof a successful investor.
So I'm going to go throughthese four and think about do
you have those attributes?
Is this something that youcould learn, something that you
could gain, because, if you can,that's going to make you much
(12:12):
more successful.
So the four things to know areknowledge, investing knowledge,
have some optimism, have somepatience and have some
discipline.
So knowledge is the first one,at the top, because it's one of
the most important.
Before you invest dividendstocks or any kind of stocks,
(12:33):
you have to have knowledge aboutwhat you're investing in, and
you have to know why you'reinvesting in a stock.
How do you select dividendstocks to invest in?
And so I just showed you the 12rules.
So in the Simply Investingcourse, we cover the 12 rules in
detail, we go through the 12rules with real-life examples,
(12:54):
and so that's going to buildyour investing knowledge and,
additionally, it's going tobuild your investing confidence.
And, like I said in thebeginning, it's simple.
It's not rocket science, wedon't use any technical jargon
and we keep it simple, and sothe knowledge is going to be the
first attribute that you needto have, and this is something
(13:14):
that you can learn and it's easyto learn.
And then, after that, we talkabout optimism.
You have to be optimistic aboutthe stock market in general,
about business in general.
Now, I've been doing this forover 24 years.
I've seen firsthand the techbubble crunch.
The bubble burst in 99 in 2000.
(13:37):
The financial crunch was in2008-2009.
Then there was 9-11 and therewas other times over the last 24
years where the stock marketwas down, and during COVID,
march of 2020, we also saw thestock market crash.
But you have to know that thesethings will happen.
(14:00):
Markets go up and down.
It's all in cycles.
We can't predict when the nextcrash is going to happen and we
don't know how long it's goingto last, but these things do
happen.
But you have to be optimisticabout the future and what
history tells us is that afterevery market downturn, the stock
market rebounds and it comes upand it brings all the stock
(14:21):
prices up with it.
So you have to be optimistic,otherwise you're just going to
keep your money under a mattressat home, so that doesn't get
you very far in terms of stayingahead of inflation and growing
your investments.
So the next thing is patience.
I always tell students, ifthere's any money that you need
(14:43):
in five years or less, if it'sto put a down payment on a house
or buy a car or vacation oreducation, that money should not
go into the stock market, whichmeans it shouldn't go into
mutual funds, index funds orETFs either, because they're
just turning around and buyingstocks with your money.
So you have to have thepatience to ride out any market
(15:04):
downturns.
So this is what we're talkingabout today about investing is
investing for the long term Fiveyears or more, ten years or
more, fifteen, twenty years themore time the better.
So you have to have thepatience to ride out those
market downturns.
And then you have to have thediscipline to stick to this
approach, so you can't be adividend investor one week and
(15:27):
then turn around and be a growthinvestor another week and then
turn around and put all yourmoney in crypto and then, the
week after that, do somethingelse.
This approach, like I saidbefore, takes time, so you have
to have the discipline to stickto this approach.
I've been doing this for over24 years and there's many
investors out there that havebeen doing it for even longer
(15:50):
and that they can tell you thatpatience and discipline go hand
in hand.
The other two things that arenot up on the screen here and I
want to mention these to besuccessful over the long term as
a different investor, is twothings additional things time
and money.
So the sooner you startinvesting, the better off you'll
be, and that's why I gotstarted with the kids when they
(16:12):
were nine, and so the more timeyou have, the money has time to
grow and compound and you canreinvest those dividends.
So that's time.
The other thing is money, ofcourse.
The more money you have toinvest, the more stocks you can
buy.
The more dividend stocks thatyou buy, the more dividends you
can receive.
So if you've got both time andmoney, that's even better for
(16:37):
you.
So let's move on to our finaltopic in this episode.
Is so what happens if you don'tinvest on your own?
Because I know some people aregoing to say, even after
watching this, that it seemscomplicated, it takes a lot of
time.
I have no interest in learninghow to invest on my own.
I don't want to do it on my own.
(16:58):
I am just going to put all mymoney in mutual funds, index
funds or ETFs, or I'm going togive it to someone else to go
invest on my behalf and they'regoing to turn around and put it
into mutual funds, index fundsor ETFs.
So what's the downside to that?
So there's a couple of thingshere.
There's going to be, in general, poor returns Because, as I
(17:21):
just showed you with the 12rules of simply investing, those
are the rules that help youidentify quality companies.
Well, when you're investing ina mutual fund, in an index fund
or an ETF, not all of thosestocks today are going to have a
payout ratio that's very low.
Not all of them are going topay dividends, not all of them
(17:43):
are going to have low debt.
So because of that, you willnaturally may get poor returns
because in that pool of stocksyou have a number of stocks that
are not quality stocks.
And the same is true with lowerdividend income, because not
all those stocks in an ETF or anindex fund or a mutual fund are
(18:06):
going to be paying youdividends or are going to be
paying very little dividends.
So that also lowers yourdividend income, which is why I
prefer and what I teach is thatwe pick our own stocks, we
select our own stocks that arehigh quality, that are paying us
dividends and that are pricedlow.
So we also don't want tooverpay for those stocks.
(18:27):
And that also attributes topoor returns is when you overpay
for a stock that's alreadyovervalued and naturally your
returns are going to be lower inthe future.
And so there's higher risk.
Again, it's going to be for thesame reasons, because when you
buy a pool of stocks, a fundthat has 500 or thousands,
(18:48):
thousands of stocks in there,not all of those stocks are
going to be high quality.
So anytime you buy a stockthat's not high quality, you're
putting your money at higherrisk.
And lastly, is going to be thefees.
So with any mutual fund, indexfund or ETF, you will have to
pay fees.
The fees are deductedautomatically from your account.
(19:11):
These are MERS the managementexpense ratio because it costs
money for the company to run amutual fund, an index fund or an
ETF.
Now, the fees may seem low inthe beginning and especially if
you're only investing $500 or$1000 or even $10,000, it's
going to seem low.
(19:31):
But as you get older and youcontinue to invest over your
lifetime, the fees willcertainly add up.
You can see up on the screenhere.
I've provided you with fourdifferent examples.
In each example, the initialinvestment is $500,000.
The only difference is the fee.
So at the top we have a fee of2%, then we go down to 1%, then
(19:56):
we go down to 0.5% and then evenlower to 0.05%.
So I'm not going to read outall the numbers, they're up on
the screen so you can see it foryourself.
But let's start with thehighest MER and then the fee,
and then we'll go to the lowestfee and just to give you an idea
, so $500,000 invested over 25years where the fee is 2%,
(20:23):
you're going to spend a littleover $1.5 million in fees and
that's quite substantial.
Now I know folks will say, well, your investment would have
gone up in value anyway in 25years, and that's true, and
there's online calculators thatyou can put the numbers in and
figure out what is the value ofyour investment going to be in
(20:44):
the future.
So in all of these four cases,the investment's going to be
much higher, for sure, over 25years, but nevertheless, that
doesn't negate the fact thatyou're still paying fees,
whereas if you had your ownindividual stock portfolio, you
would not be paying these kindsof fees.
(21:07):
With dividend stocks, it's aone-time fee.
It's a commission.
It's usually $5 or $6 per trade.
On half a million dollars, youwould probably buy maybe 30
stocks and that's it, and youwould pay the commission fee to
trade and purchase those 30stocks and that's it.
That's a one-time fee, whatwe're talking about here in this
(21:29):
first example is a 2% annualfee, so it gets deducted
automatically from yourinvestment portfolio every
single year.
Now let's take a look at$500,000, where the fee is 0.05%
.
So it doesn't seem like a lot,but after 25 years, you're
(21:50):
looking at over $48,000 in fees.
After 45 years, you're lookingat over $449,000 lost to fees.
So this is incredibly huge.
That is a lot of money that youcould be keeping for yourself
(22:10):
and reinvesting it over thatmany years.
So for anybody that's interested, I would highly suggest you go
back and watch episode 38.
We cover we talk more about thefees in detail in episode 38.
So keep in mind this is whatyou're looking at.
If you don't takeresponsibility for investing on
(22:32):
your own, if you're gonnaoutsource that to someone else
or outsource that to a companyto invest on your behalf, then
you may get poor returns, youmay get a lower dividend income,
you might be putting your moneyat higher risk and you're gonna
be paying the fees.
There's no way around thosefees unless you invest by
(22:53):
yourself.
So I wanna leave you with somepositive thoughts as we close
this episode, and I'm gonnashare with you a quote from
Stephen Drozky, who wrote thisbook many years ago called the
Investment Zoo.
You can see the cover on yourscreen right now and Stephen is
(23:13):
a self-made, very successfulinvestor and in his book he says
, I quote first of all, don'tcomplicate things with a lot of
variables that you will have tokeep track of.
Keep it simple.
Avoid frequent trading.
Develop long-term rather thanshort-term policies.
(23:36):
Don't try to guess the lengthof market cycles and forget
strategies that require a lot ofknowledge or constant research.
Don't get led astray.
All kinds of companies willwant you to part with your money
.
Don't be sold.
(23:57):
Be a buyer.
The game I suggest is not verycomplicated and it works.
You can paddle your own canoewith great confidence.
Okay, end quote.
So that was a quote by StephenDrozky, who talks about the
importance of paddling your owncanoe, which what he's trying to
(24:19):
say is that you can invest onyour own successfully.
You just have to ignore all ofthe noise that's out there, and
the key is to keep it simple,and that's what we do here.
That's what I teach at SimplyInvesting is to keep it all
simple.
So I've already covered the 12rules in this episode, so I'm
(24:40):
not gonna go over them again.
For those of you that areinterested, I've put together
the Simply Investing course.
It's an online self-pacedcourse.
It consists of 10 modules.
They're video lessons that youcan watch.
Module one covers the investingbasics.
Module two covers the 12 rules.
Module three, I show you how toapply the 12 rules using the
(25:02):
Google Sheet.
Module four, we look at theinvesting platform.
Module five you learn how toplace your first stock order,
step by step.
Module six is building andtracking your portfolio.
Module seven is learning whento sell, which is just as
important as to know when to buy.
Module eight reducing your feesand risk.
(25:23):
So that's especially if youhave mutual funds, index funds
and ETFs.
Module nine is your action planto get started right away.
And module 10, I answer yourmost frequently asked questions.
And, for those of you that areinterested, I've also built the
Simply Investing platform, andthis is a web application.
(25:45):
A web app that tracks over6,000 stocks in Canada and the
US every single day, and weapply the rules to all 6,000
companies.
So when you log into theplatform, it will automatically
tell you which companies arehigh quality companies, which
ones are undervalued and whichones are overvalued.
So you can skip those for now.
(26:06):
So that's a much quicker andfaster way to get the same type
of information and data that youwould be gathering and looking
for in the course.
So if you're interested, writedown this coupon code save 10,
save10.
It's gonna save you 10% off ofour course and the Simply
(26:28):
Investing platform as well.
If you enjoyed today's episode,be sure to hit the subscribe
button.
We have a new video out everyweek.
Hit the like button as well,and for more information, take a
look at our website,simplyinvestingcom.
Thanks for watching.
In this episode, we're going to answer the
following questions Can youinvest on your own and how would
you do it, and what are some ofthe downsides of not investing
on your own?
Hi, my name is Kanwal Sarai andwelcome to the Simply Investing
Dividend Podcast.
In this episode, we're going tocover the following four topics
(00:25):
Number one can you invest onyour own?
Number two we're going to lookat our approach to dividend
investing.
Number three we'll look at thefour attributes of a successful
investor.
And finally, number four we'lllook at what happens if you
don't invest by yourself.
(00:45):
Let's get started with our veryfirst question Can you invest
on your own?
And the answer is simply yes.
This isn't rocket science.
You don't have to have a degreein economics, finance or
accounting.
Investing on your own is reallyquite simple and it doesn't
(01:08):
take a whole lot of time.
That's another thing that mostpeople think that you have to
spend hours and hours and hoursof research into figuring out
what stocks to buy and when tosell them, and the fact is
simply, it is not true.
You don't need to spend so muchtime, and our goal here is to
keep it simple and I tell peopleit's so simple that a
(01:32):
nine-year-old could do it, and Ihad both of my kids start
investing, become dividendinvestors, when they were nine
years old.
So you can start small, and itis so simple that, again, it's
not rocket science.
And so how do we keep ourapproach to dividend investing
simple?
Well, we get rid of all thefinancial jargon, and I speak in
(01:56):
plain English in my courses aswell the simply investing course
.
It's done in plain English andwe eliminate all of the
technical jargon, and then youcan see how simple investing can
really be.
And so let's move on to ournext topic in this episode,
which is our approach todividend investing, and it's
(02:17):
quite simply the ability toinvest in quality,
dividend-paying stocks whenthey're priced low.
And you can see there's threekey phrases here.
So we don't want to invest justin any stock that pays a
dividend.
We want to make sure that it'sa quality stock.
So quality has to be there, ithas to pay a dividend, and then
(02:41):
we don't want to buy it at anyprice.
We want to buy it when it'spriced low.
So those are the three keyelements of this statement, so
let's take a look at them one byone.
So we're going to start withdividends first, and then we'll
look at quality and then we willlook at priced, low or
undervalued stocks.
So a quick reminder for anyonenew to this podcast Dividends
(03:07):
are simply the company sharingits profits with you, the
shareholder.
So in this example, if a companyis paying a dividend of $1 per
share and you own a thousandshares, you will receive $1,000
for as long as you own thoseshares and as long as the
company continues to pay thedividend, the dividends are
(03:30):
deposited directly into yourtrading account as cash, so you
can spend the money if you wish,or you could reinvest it into
other stocks that pay dividends.
So now you'll see over theyears I've been practicing this
myself for more than 24 years.
I've been teaching for many,many years as well and our
(03:52):
students some of them make$1,000 a year in dividends.
Some of them make $5,000,$20,000, $60,000 or more a year
in dividend income.
So the dividend income startsoff really small in the
beginning and then it can growquite quickly as you continue to
compound and reinvest thosedividends into more stocks that
(04:16):
are paying you dividends.
Our focus as dividend investorsis always on the dividend
income and not on the stockprice.
So now let's move on.
Having said that, the key thingto remember is when you
purchase those stocks, when youinvest in those, you want to
(04:37):
make sure that they'reundervalued Afterwards.
The price can go up and downOver the long term, over the
next five, ten, fifteen, twentyyears.
Our focus and priority is onthe dividend income, but let's
go back to our statement here.
So we covered dividends.
Now we're going to look at howdo you know when a stock is
priced low, and another word forthat is undervalued.
(05:00):
So the stock, when the price islow, historically low, the
stock is considered to beundervalued, versus if the price
is too high, it's going to beovervalued.
Now, stock prices go up anddown all the time.
You can see that up on thescreen.
We have a graph here.
You can see stock prices go upand down.
Even on any given day, thestock price will go up and down.
(05:24):
Now, the key here is to investwhen the price is historically
low or undervalued.
And why is that?
Because when the stock price islow, you're going to be able to
buy more shares for the sameamount of investment.
Let's say you were going toinvest five thousand dollars
into a company.
So if the shares are tendollars a share, you're going to
(05:46):
be able to buy more, versus ifthe shares were trading at
ninety five dollars a share.
So the more shares you own, themore you can make in dividend
income, because the dividendsare paid Based on the number of
shares you own and not on thestock price fluctuating.
So the quickest way to know whena stock is priced low is to
(06:08):
follow this formula that we haveup on the screen here, and it's
simply says to take a look atthe current dividend yield today
and Make sure that the currentdividend yield is Greater than
the company's 20 year averagedividend yield.
Then you know that the stock ispriced low.
So, for example, if you werelooking at a stock today and its
(06:31):
current yield was four percentand the 20 year average dividend
yield was two percent, wellthen you know four percent is
greater than two percent.
The stock is considered to bepriced low.
Now for more information andmore details on how we came up
with the formula.
How do you know when a stock ispriced high?
(06:52):
I would highly suggest andrecommend that you go back and
watch episode one, where wecover all of this in much more
greater detail.
So now we're going to move on toour last piece in the sentence
With, which is our approach toinvesting.
So we said we want to make surethat the stock is priced low,
it's undervalued.
(07:13):
We want to make sure that thecompany is paying a dividend,
the stock is paying a dividendto the shareholders.
Well then, the other piece isquality.
So how do you know that you'relooking, when you're looking at
a stock, that it's a qualitystock?
So there's a couple of thingsto check here.
Right, we're going to look atwhen we look at stocks or
companies.
We want to make sure that thecompanies are financially
(07:34):
healthy.
They have low debt.
They have very littlecompetitors.
They are virtual monopolies intheir field.
Canada is a perfect example.
Rogers, bell and Tellis prettymuch covers the entire
telecommunications market inCanada.
If you look at the five bigbanks, the largest banks in
Canada, they pretty much have avirtual monopoly in that
(07:58):
industry.
Also want to make sure that thecompanies are consistently
profitable and we want to makesure that the companies are
paying dividends and increasingthose dividends year after year
after year.
So a nice way to put all ofthis together, because all of
these things will tell us ifwe're looking at a quality
company.
(08:18):
But our goal here is to makethis simple, easy so that anyone
can apply these types of rules.
So what I've done is I'vecreated the 12 rules of simply
investing.
You can see the 12 rules up onthe screen.
These become your checklist.
So you want to make sure that acompany passes all of these
rules before you invest in it.
(08:39):
So you can't have a companythat fails one rule, maybe,
fails two or three.
No, if there's even a singlefailure, move on.
Move on to another company oranother stock.
So the rules are quite simple.
I'll go through them right now,very briefly.
Rule number one do youunderstand how the company is
(08:59):
making money?
If not, skip it, move on tosomething else.
Rule number two 20 years fromnow, will people still need its
product and services?
Rule number three does thecompany have a low-cost
competitive advantage?
Rule number four is itrecession proof?
See, we only want to invest incompanies that are recession
proof.
Rule number five is the companyprofitable?
(09:21):
Rule number six does it growits dividend?
Rule number seven can thecompany afford to pay the
dividend?
And rule number eight is thedebt less than 70%?
Rule number nine avoidcompanies with recent dividend
cuts.
Rule number ten, does it buyback its own shares?
Rule number 11, is the stockpriced low.
So we talked about that at thebeginning of this episode.
(09:42):
And then rule number 12, keepyour emotions out of investing.
So if a company passes all ofthe rules from one to ten, you
know that you have a qualitycompany in front of you.
Company passes rule number 11,then we know that the stock is
also priced low.
And then rule number 12 hasnothing to do with numbers or
(10:02):
looking at financial data, buteverything to do with you as an
investor, and we're going totalk a little bit more about
that towards the end of thisepisode.
So these 12 rules are designedto minimize your risk but
maximize your returns andspecifically the dividend income
.
We want to make sure thatincome is growing every year and
(10:24):
you're making as much money aspossible through the dividend
income.
Now some people might look atthese 12 rules and say to
themselves well, this lookscomplicated, this looks time
consuming, and I'm here to tellyou that you only need to spend
time when you're ready to invest.
(10:45):
So we're not the type ofinvestors that are investing 50,
60, 80, 90 times a year.
We're investing maybe once ayear, maybe twice a year, maybe
three or four times a year, andthat's it.
So when you have additionalfunds to invest, that's when you
would sit down and go throughthe 12 rules and determine which
(11:08):
companies you should invest in,which ones you should avoid.
So that takes a little bit oftime, but it's not like most
people think.
Well, you have to spend hoursand hours and hours every week
trying to figure out whichstocks to buy, and we make it a
lot easier in simply investingin the Simply Investing course.
I provide you with a GoogleSheet.
You can plug all the numbers inthere and we show you where to
(11:30):
get the numbers, and the GoogleSheet will highlight which
company passes all the rules,which companies fail which rule.
So it's a lot easier to narrowdown that list of stocks to
consider for investing.
So, again, it doesn't have totake a whole lot of time.
It takes a little bit of timewhen you're ready to get started
(11:52):
with investing.
Let's move on to our third topicin this episode, which is to
talk about the four attributesof a successful investor.
So I'm going to go throughthese four and think about do
you have those attributes?
Is this something that youcould learn, something that you
could gain, because, if you can,that's going to make you much
(12:12):
more successful.
So the four things to know areknowledge, investing knowledge,
have some optimism, have somepatience and have some
discipline.
So knowledge is the first one,at the top, because it's one of
the most important.
Before you invest dividendstocks or any kind of stocks,
(12:33):
you have to have knowledge aboutwhat you're investing in, and
you have to know why you'reinvesting in a stock.
How do you select dividendstocks to invest in?
And so I just showed you the 12rules.
So in the Simply Investingcourse, we cover the 12 rules in
detail, we go through the 12rules with real-life examples,
(12:54):
and so that's going to buildyour investing knowledge and,
additionally, it's going tobuild your investing confidence.
And, like I said in thebeginning, it's simple.
It's not rocket science, wedon't use any technical jargon
and we keep it simple, and sothe knowledge is going to be the
first attribute that you needto have, and this is something
(13:14):
that you can learn and it's easyto learn.
And then, after that, we talkabout optimism.
You have to be optimistic aboutthe stock market in general,
about business in general.
Now, I've been doing this forover 24 years.
I've seen firsthand the techbubble crunch.
The bubble burst in 99 in 2000.
(13:37):
The financial crunch was in2008-2009.
Then there was 9-11 and therewas other times over the last 24
years where the stock marketwas down, and during COVID,
march of 2020, we also saw thestock market crash.
But you have to know that thesethings will happen.
(14:00):
Markets go up and down.
It's all in cycles.
We can't predict when the nextcrash is going to happen and we
don't know how long it's goingto last, but these things do
happen.
But you have to be optimisticabout the future and what
history tells us is that afterevery market downturn, the stock
market rebounds and it comes upand it brings all the stock
(14:21):
prices up with it.
So you have to be optimistic,otherwise you're just going to
keep your money under a mattressat home, so that doesn't get
you very far in terms of stayingahead of inflation and growing
your investments.
So the next thing is patience.
I always tell students, ifthere's any money that you need
(14:43):
in five years or less, if it'sto put a down payment on a house
or buy a car or vacation oreducation, that money should not
go into the stock market, whichmeans it shouldn't go into
mutual funds, index funds orETFs either, because they're
just turning around and buyingstocks with your money.
So you have to have thepatience to ride out any market
(15:04):
downturns.
So this is what we're talkingabout today about investing is
investing for the long term Fiveyears or more, ten years or
more, fifteen, twenty years themore time the better.
So you have to have thepatience to ride out those
market downturns.
And then you have to have thediscipline to stick to this
approach, so you can't be adividend investor one week and
(15:27):
then turn around and be a growthinvestor another week and then
turn around and put all yourmoney in crypto and then, the
week after that, do somethingelse.
This approach, like I saidbefore, takes time, so you have
to have the discipline to stickto this approach.
I've been doing this for over24 years and there's many
investors out there that havebeen doing it for even longer
(15:50):
and that they can tell you thatpatience and discipline go hand
in hand.
The other two things that arenot up on the screen here and I
want to mention these to besuccessful over the long term as
a different investor, is twothings additional things time
and money.
So the sooner you startinvesting, the better off you'll
be, and that's why I gotstarted with the kids when they
(16:12):
were nine, and so the more timeyou have, the money has time to
grow and compound and you canreinvest those dividends.
So that's time.
The other thing is money, ofcourse.
The more money you have toinvest, the more stocks you can
buy.
The more dividend stocks thatyou buy, the more dividends you
can receive.
So if you've got both time andmoney, that's even better for
(16:37):
you.
So let's move on to our finaltopic in this episode.
Is so what happens if you don'tinvest on your own?
Because I know some people aregoing to say, even after
watching this, that it seemscomplicated, it takes a lot of
time.
I have no interest in learninghow to invest on my own.
I don't want to do it on my own.
(16:58):
I am just going to put all mymoney in mutual funds, index
funds or ETFs, or I'm going togive it to someone else to go
invest on my behalf and they'regoing to turn around and put it
into mutual funds, index fundsor ETFs.
So what's the downside to that?
So there's a couple of thingshere.
There's going to be, in general, poor returns Because, as I
(17:21):
just showed you with the 12rules of simply investing, those
are the rules that help youidentify quality companies.
Well, when you're investing ina mutual fund, in an index fund
or an ETF, not all of thosestocks today are going to have a
payout ratio that's very low.
Not all of them are going topay dividends, not all of them
(17:43):
are going to have low debt.
So because of that, you willnaturally may get poor returns
because in that pool of stocksyou have a number of stocks that
are not quality stocks.
And the same is true with lowerdividend income, because not
all those stocks in an ETF or anindex fund or a mutual fund are
(18:06):
going to be paying youdividends or are going to be
paying very little dividends.
So that also lowers yourdividend income, which is why I
prefer and what I teach is thatwe pick our own stocks, we
select our own stocks that arehigh quality, that are paying us
dividends and that are pricedlow.
So we also don't want tooverpay for those stocks.
(18:27):
And that also attributes topoor returns is when you overpay
for a stock that's alreadyovervalued and naturally your
returns are going to be lower inthe future.
And so there's higher risk.
Again, it's going to be for thesame reasons, because when you
buy a pool of stocks, a fundthat has 500 or thousands,
(18:48):
thousands of stocks in there,not all of those stocks are
going to be high quality.
So anytime you buy a stockthat's not high quality, you're
putting your money at higherrisk.
And lastly, is going to be thefees.
So with any mutual fund, indexfund or ETF, you will have to
pay fees.
The fees are deductedautomatically from your account.
(19:11):
These are MERS the managementexpense ratio because it costs
money for the company to run amutual fund, an index fund or an
ETF.
Now, the fees may seem low inthe beginning and especially if
you're only investing $500 or$1000 or even $10,000, it's
going to seem low.
(19:31):
But as you get older and youcontinue to invest over your
lifetime, the fees willcertainly add up.
You can see up on the screenhere.
I've provided you with fourdifferent examples.
In each example, the initialinvestment is $500,000.
The only difference is the fee.
So at the top we have a fee of2%, then we go down to 1%, then
(19:56):
we go down to 0.5% and then evenlower to 0.05%.
So I'm not going to read outall the numbers, they're up on
the screen so you can see it foryourself.
But let's start with thehighest MER and then the fee,
and then we'll go to the lowestfee and just to give you an idea
, so $500,000 invested over 25years where the fee is 2%,
(20:23):
you're going to spend a littleover $1.5 million in fees and
that's quite substantial.
Now I know folks will say, well, your investment would have
gone up in value anyway in 25years, and that's true, and
there's online calculators thatyou can put the numbers in and
figure out what is the value ofyour investment going to be in
(20:44):
the future.
So in all of these four cases,the investment's going to be
much higher, for sure, over 25years, but nevertheless, that
doesn't negate the fact thatyou're still paying fees,
whereas if you had your ownindividual stock portfolio, you
would not be paying these kindsof fees.
(21:07):
With dividend stocks, it's aone-time fee.
It's a commission.
It's usually $5 or $6 per trade.
On half a million dollars, youwould probably buy maybe 30
stocks and that's it, and youwould pay the commission fee to
trade and purchase those 30stocks and that's it.
That's a one-time fee, whatwe're talking about here in this
(21:29):
first example is a 2% annualfee, so it gets deducted
automatically from yourinvestment portfolio every
single year.
Now let's take a look at$500,000, where the fee is 0.05%
.
So it doesn't seem like a lot,but after 25 years, you're
(21:50):
looking at over $48,000 in fees.
After 45 years, you're lookingat over $449,000 lost to fees.
So this is incredibly huge.
That is a lot of money that youcould be keeping for yourself
(22:10):
and reinvesting it over thatmany years.
So for anybody that's interested, I would highly suggest you go
back and watch episode 38.
We cover we talk more about thefees in detail in episode 38.
So keep in mind this is whatyou're looking at.
If you don't takeresponsibility for investing on
(22:32):
your own, if you're gonnaoutsource that to someone else
or outsource that to a companyto invest on your behalf, then
you may get poor returns, youmay get a lower dividend income,
you might be putting your moneyat higher risk and you're gonna
be paying the fees.
There's no way around thosefees unless you invest by
(22:53):
yourself.
So I wanna leave you with somepositive thoughts as we close
this episode, and I'm gonnashare with you a quote from
Stephen Drozky, who wrote thisbook many years ago called the
Investment Zoo.
You can see the cover on yourscreen right now and Stephen is
(23:13):
a self-made, very successfulinvestor and in his book he says
, I quote first of all, don'tcomplicate things with a lot of
variables that you will have tokeep track of.
Keep it simple.
Avoid frequent trading.
Develop long-term rather thanshort-term policies.
(23:36):
Don't try to guess the lengthof market cycles and forget
strategies that require a lot ofknowledge or constant research.
Don't get led astray.
All kinds of companies willwant you to part with your money
.
Don't be sold.
(23:57):
Be a buyer.
The game I suggest is not verycomplicated and it works.
You can paddle your own canoewith great confidence.
Okay, end quote.
So that was a quote by StephenDrozky, who talks about the
importance of paddling your owncanoe, which what he's trying to
(24:19):
say is that you can invest onyour own successfully.
You just have to ignore all ofthe noise that's out there, and
the key is to keep it simple,and that's what we do here.
That's what I teach at SimplyInvesting is to keep it all
simple.
So I've already covered the 12rules in this episode, so I'm
(24:40):
not gonna go over them again.
For those of you that areinterested, I've put together
the Simply Investing course.
It's an online self-pacedcourse.
It consists of 10 modules.
They're video lessons that youcan watch.
Module one covers the investingbasics.
Module two covers the 12 rules.
Module three, I show you how toapply the 12 rules using the
(25:02):
Google Sheet.
Module four, we look at theinvesting platform.
Module five you learn how toplace your first stock order,
step by step.
Module six is building andtracking your portfolio.
Module seven is learning whento sell, which is just as
important as to know when to buy.
Module eight reducing your feesand risk.
(25:23):
So that's especially if youhave mutual funds, index funds
and ETFs.
Module nine is your action planto get started right away.
And module 10, I answer yourmost frequently asked questions.
And, for those of you that areinterested, I've also built the
Simply Investing platform, andthis is a web application.
(25:45):
A web app that tracks over6,000 stocks in Canada and the
US every single day, and weapply the rules to all 6,000
companies.
So when you log into theplatform, it will automatically
tell you which companies arehigh quality companies, which
ones are undervalued and whichones are overvalued.
So you can skip those for now.
(26:06):
So that's a much quicker andfaster way to get the same type
of information and data that youwould be gathering and looking
for in the course.
So if you're interested, writedown this coupon code save 10,
save10.
It's gonna save you 10% off ofour course and the Simply
(26:28):
Investing platform as well.
If you enjoyed today's episode,be sure to hit the subscribe
button.
We have a new video out everyweek.
Hit the like button as well,and for more information, take a
look at our website,simplyinvestingcom.
Thanks for watching.
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