Summary

The author describes their successful strategy for building a share portfolio on the NZX that grew over 20% in 2019, emphasizing the importance of dividends, personal interest in sectors, and thorough company research.

Abstract

The article outlines the author's approach to investing in the New Zealand stock market, which resulted in significant growth in 2019. The author prefers companies that pay dividends, as they view this as proof of a company's success and a way to mitigate risk. They advocate for investing in sectors that one finds interesting, such as transport, food, and entertainment, to keep the process engaging. The author also stresses the importance of diversification and conducting comprehensive research on potential investments, including looking beyond financial reports to employee satisfaction and industry chatter. The article encourages readers to take an active and enjoyable approach to investing, suggesting that it can be both fun and rewarding with the right mindset and strategies.

Opinions

The author is cynical about non-dividend-paying companies, suspecting that the retained earnings may be used to enrich executives rather than grow the company.
Dividends are seen as a critical factor in the author's investment decisions, providing tangible returns and insights into a company's performance.
Investing should be enjoyable; the author invests in sectors they are passionate about to maintain motivation and interest in their investments.
Employee satisfaction is considered a vital but often overlooked indicator of a company's health and future prospects.
The author values both quantitative data and qualitative insights, such as employee feedback and gut feelings, in the investment decision-making process.
Diversification is key to managing investment risk, ensuring that the failure of a single company does not significantly impact the overall portfolio.
The author encourages using social media and platforms like Reddit to gather information and rumors about companies, while also cautioning to take such information with a grain of salt.
The article promotes the idea that investment knowledge should be accessible to everyone, challenging the notion that it is overly complex or only for financial experts.

How I Built a Share Portfolio that Grew Over 20% in 2019

What I look for when I invest in the share market

The final quarter of 2019 was a real whirlwind for the stock market on my side of the world. Some companies rocketed skyward, while others plummeted into the ground after enduring the many changes being made in both the political and business sectors.

My stocks are all held on the NZX, so this article is especially useful if you either hold or are planning to hold New Zealand shares in the coming year. Although the information is general, so you’ll still benefit if you live and invest elsewhere.

New Zealand is a wonderful place to own shares. The country is under much less scrutiny than Australia after the Royal Commission into Australia's financial services industry. It’s also a country that’s especially welcome to foreign cooperation and new innovation. Being one of the final places on earth where you can be part of a bustling business sector while also living without air pollution, New Zealand only gets sexier as the rest of the world gets more polluted and more corrupt.

Photo by Victoriano Izquierdo on Unsplash

Choosing my Shares

I’m a huge fan of investing in companies that pay dividends and almost never invest where I don’t get a distribution.

Many investors claim that companies who don’t pay dividends are growth companies, because in theory they’re using that money to expand and grow the company.

I’m much more cynical and believe that the money (that could be my dividend) is much more likely being used to line the pockets of executives.

In my mind, companies that pay dividends are much more motivated to achieve success, because that success is reflected in the dividend. Dividends are proof that a company is generating revenue, and each payment provides motivation for a company to improve each year. They want that improvement to be reflected in the dividend, and relish in the investor confidence it creates.

Dividends also lower my risk and reward my investment. If a company tanks and I lose everything, I’ve at least made what I earned in dividends. I could own stock in a company for 10 years before it tanks, and if it never paid dividends I’ll come out with nothing.

Dividends are payment for my continued belief in a company’s future. It also gives me a glimpse into how the company is performing, including shining a big bright spotlight if something is going wrong.

Without dividends, the only way I profit from my shares is by selling them. I believe an investment that only benefits you by exiting is barely an investment at all; it’s a gamble.

How I choose stock

I like to start broad in my research, then narrow further and further in on a company that I’m interested in. When beginning my search, I usually start within a sector that excites me. Investment can be a chore, but it can also be fun. I like investing to be as fun as a trip to the mall, keeping it this way ensures I stay motivated and engaged.

A lot of people laugh at me for thinking like this, especially intelligent and well educated people who are from multiple generations of money.

Unlike them, investing and good money management isn’t second nature to me. For me, being smart with my money is a bummer. I love to waste money, and would have far more fun throwing it at new gadgets such as the newest iPad. But instead I throw it at the stock market, so if I’m going to use it responsibly, I’m at least going to have some fun.

1. Choose a sector

Keeping investment fun means investing where I have an interest, this means transport, food and entertainment.

Because of this, I have shares in airlines, companies that own restaurants, and casinos. I also have shares in other sectors to ensure my portfolio performs as well as possible; it also ensures I stay as diversified as possible.

However, keeping a portion of my investments within my interests keeps me much more engaged than only thinking like a human calculator.

2. Choose a company

There are lots of resources out there to help you find companies that have a good track record and are predicted to do well. (Such as Motley Fool).

Some services require a subscription, but many are free. I personally haven’t noticed much of a difference in quality between free and paid services.

Remember, no one can accurately predict the future, so always make sure you keep your money as diversified as possible. Always keep your eggs in many baskets, so that you’re not devastated if one of the baskets catch on fire.

3. Investigate that company

I encourage you to go rouge with this one. Go onto their website, scroll through reddit, check websites (such as glassdoor) where employees can give honest feedback about what it’s like to work for that company.

After reading glassdoor reviews, I’ve been known to add people on Facebook because they worked for the company I was interested in investing in.

Moral Grey Area Ahead

I told these people that I was applying for a job with the company, and wanted to know whether or not to go ahead with the application.

I know, I know.. judge me.

I’ll never invest where employees are unhappy, it’s the kind of thing that never makes it into a financial report, but can be the strongest indicator of rough seas ahead.

The guy seemingly closest to the bottom can sometimes be the most perceptive about a company’s future. It never pays to be snobbish towards credible information about a company.

I’m also a big fan of listening to your gut. Never invest where things just don’t seem right. We all know what dishonesty smells like, even if we can’t quite put our finger on it. We all want to sleep well the night after making an investment. So make sure you’re always comfortable with your investment, and never invest more than what would devastate you to lose. A little piece in 100 companies is far better than huge pieces in a few.

In the end

No one gets it right 100% of the time, but you can increase your odds by being smart, being creative, and doing your homework. (And diversifying).

Why not use social media to learn what you can from the people that work there? Reddit is another great resource for rumours and chatter, some is credible, most isn’t.

Take it seriously, but have fun with it. You’re shopping for your future, so choose carefully and take your time. And make sure you’re having fun so that you stay motivated to continue investing in the future.

Welcome to Money Clip! This has been the first story in my newest publication. This brand new publication is for stories that talk about money and demystify investment.

I believe that more people aren’t investing because they don’t know how and are too nervous to ask. Financial investors and corporate big-wigs are making sure that simple money strategies seem complicated so that you’ll pay them to help you, but most of investment can be learned and executed by anyone.

If you’d like to read more about simple investment, follow Money Clip and stick around! Lots more is coming real soon.