Tuesday, November 4, 2008

* How Is Your Portfolio Doing This Year?

With all the talk about the financial crisis, market melt-downs, Dow/S&P crashing, et. al., the one metric that really matters to each of us individually is the performance of our personal portfolio. So, how is your portfolio doing this year? Mine has performed above expectations.

Investing Goals
Year to date through October, I am up 67%, with no single negative month so far in 2008. I am at 137% of my 2008 goal and expect to go higher. Before you brand me a liar, heretic or worse, let me explain. The above statements are relative to the goals I set for my portfolio, which is not total shareholder return or a specific portfolio size. My goals were defined in this December 1, 2007 Investing Goals post.

My investing goals center around dividend income and yield on cost. If the first step in successfully managing something is to set a goal, then the logical second step is to determine how to measure your progress to ensure you are moving toward your goal.

Align Your Goals With The Desired Results
If you are a long-term buy and hold income investor, does the absolute size of your portfolio matter? Put another way, if you need to generate $100,000 of income each year to live on, does it really matter if that income is generated from a $900,000 or $1,100,000 portfolio?

Many people make the mistake of setting the wrong goal, such as 'I want to be a millionaire' or I want a portfolio of certain size. Okay, once you have a million dollars or a large portfolio, what are you going to do with it? Will it be enough for you to live on? How do you plan to make it work for you?

Resiliency In The Face of Adversity
Like most investors, my portfolio's 2008 return is negative. However, it has performed significantly better than the S&P. Relative to its goal of increasing dividend income, my portfolio has faced adversity during the year:

Three stocks cut their dividend, resulting in an immediate sale:
  • Bank of America (BAC)
  • iStar Financial Inc. (SFI)
  • SunTrust Banks, Inc. (STI)
In addition, three stocks have been put "On The Shelf" after not increasing their dividend:
  • General Electric Co. (GE)
  • The Home Depot, Inc (HD)
  • RBC Royal Bank (RY)
There will likely be other problem stocks before the financial crisis is over. However, one of the true advantages of income investing over capital appreciation is it can be successful in any type of market conditions.

Disclosure: Long GE, HD and RY