Read Millionaire Fastlane
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- Oct 6, 2020
"Fastlane" is an entrepreneur discussion forum based on The C.E.N.T.S Framework outlined in the two best-selling books by MJ DeMarco (The Millionaire Fastlane and UNSCRIPTED®). From multimillionaires to digital nomads to side hustlers who are grinding a job, the Fastlane Forum features real entrepreneurs creating real businesses with one goal in mind: Freedom— both financial and temporal.
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Man, I am in awe... a company that "does nothing and just exists" cannot afford to pay a dividend, and their balance sheet will reveal it right away... what other pearls do you have there? If you are in a market, you are gambling having no fundamental understandings (that what your comments reveal to me, sorry).Yes. What I am getting at is dividend yield by itself is a poor, possibly meaningless indicator to make investment decisions. Take the extreme example of a company with $100/share cash that pays $25 dividend but does no business, it just exists. After 4 years, this 25% dividend will have returned all your investment and the company would be worth zero. You would actually be in the hole after dividend tax. Dividends are businesses way of saying "here, take this, sorry, we dont have any better ways to reinvest your money."
You go to the bank, take out $10. Your bank balance goes down $10 and you put $10 in your pocket. No change to net worth.Saying that dividends are like going to an ATM and withdrawing money from a bank account - sorry that is wrong.
Do you know from what money companies pay the dividends? I guess you have no clue. I can assure you, this is not how dividends are created, declared, and paid out to the shareholders. Please, educate yourself before you make yourself a fool.You go to the bank, take out $10. Your bank balance goes down $10 and you put $10 in your pocket. No change to net worth.
A company issues a $10 dividend, the stock price goes down $10 and you put $10 in your pocket. No change to net worth.
I believe in trading in the stock market. So, I started my own trading business. I will be posting my progress and insights here.
I started in my "intro" but I will continue posting here.
Here is my Intro thread: INTRO - On the path
► TRADING PLAN
We are investors, not traders. We buy assets - dividend-paying companies. We buy dividend growth companies. Our plan is to hold those companies forever. We treat those businesses we are buying as our businesses. It is like real estate. People do not buy homes just to sell them the next day, or next month. People buy to hold their home for the next 30 years or more. We buy dividend growth companies for the same reason.
We buy dividend growth companies to generate income receiving dividends. We want our businesses to reward us for holding their shares and paying us for it. We reinvest the dividends to accumulate more shares. Our goal in accumulating shares of a selected company is to reach 100 shares of that business. All dividends and account deposits are used to accumulate shares.
Once we accumulate 100 shares of a company, we start selling covered calls. When selling covered calls, we sell to avoid our shares being called away. We deploy all hedging strategies to avoid the exercise of the calls. If, however, our shares are called away, we immediately start selling naked or cash-secured puts. We sell puts as a means of investment to buy shares, not to speculate or sell put just to bring premiums. We sell puts against companies we want to buy. Once the shares are assigned to us, we implement the Wheel of Fortune strategy by immediately start selling covered calls again.
All premiums generated from selling covered calls or puts are used to buy more shares of the companies we want to hold.
We only sell our companies when they no longer meet our requirements - reduce or suspend the dividend.
From time to time, we use other options strategies to generate income: poor man's covered calls, butterflies, covered strangles, or collars.
Poor man's covered call
We use this strategy against expensive stocks where we do not have enough capital to trade a standard covered call right away or in the near future and when saving money would take many months or years; usually indexes such as SPY, RUT, IWM, etc. We also use it against ETFs or individual stocks while accumulating shares of that stock.
We use this strategy as a directional trade. When we identify a strong trend in any direction, we may apply this strategy to limit our risk but reap a decent profit. For example, buying a call against SPY to participate in a strong trend would cost us $800 while the same butterfly would cost us $200. This limits our risk in case we are wrong.
This strategy is selling an OTM put and a call against a stock which we want to add shares to our holdings and we already own shares. For example, we own 100 shares of a stock XYZ, and we are OK to buy another 100 shares. We sell covered strangle and our calls are covered by the existing position we already own and our put is covered by cash we have in our account in case we get assigned.
We may use this strategy (selling covered calls and use the premium to buy protective puts) if we see a need to protect our holdings and buy insurance. The covered calls will generate income for us to buy the puts.
Cost basis offset
Selling covered calls and puts, as well as other strategies, will be used to offset our cost basis. This is more of a psychological or mental offset. However, it helps to see it as having less risk in our stock and that we have purchased our shares for "free" (we used premiums collected when selling the calls and puts, although on many occasions we started collecting these premiums after we purchased the stock).
What about other options strategies?
From time to time we may use a different options strategy, for example, naked call, if we see it fit and we are prepared for any consequences from such trades. But, these trades will be very rare.
► REDUCING TRADING COST
Our other trading goal is to reduce trading costs. Therefore we picked a broker that charges low or no fees to trade. We think Tasty Works is the right broker for us. Tasty Works charges no fees to purchase or sell stocks and approx. 1.15 per contract of options trading. This allows us to accumulate our stock holdings buying a single share of the desired stock for no fee.
Note that all trades presented here are our trades and we post them for educational purposes. We are not licensed as investment advisors and we do not know your objectives and goals, so we cannot provide you with any specific investment advice. If you seek advice, contact a licensed advisor. Note, that trading or investing in stocks, options, or futures involves risk and that you may lose all your money. If you decide to mirror our trades, do it at your own risk and do your own homework.▼
Do you know from what money companies pay the dividends? I guess you have no clue. I can assure you, this is not how dividends are created, declared, and paid out to the shareholders. Please, educate yourself before you make yourself a fool.
I am not sure if your comment was to me but I guess it was.So how do you plan to grow this then? So far my understanding is that you’re just trading with your own money, and Im sure you realise that unless you are really exceptional, you’ll have a hard time making consistent profits and scaling to millions. I know traders who are making up to $10K/day but it takes an extreme amount of dedication and effort. Sort of like winning poker tournaments... it can be done, but you simply need to be the best...
A business on the other hand simply needs to provide value, which is much more reachable for the average person and easier to scale.
That's a short term view. It is a wash at that particular moment when a market maker adjusts the price by the dividend payout and it is to prevent speculators from buying at ex-dividend, capture the dividend, and sell after ex-date. But, I am not looking at a one-day event. Dividend stocks, historically, grow at the same rate as their dividend growth (re: Miller, The Single Best Investment), So this adjustment is only a temporary price adjustment and in no way diminishes the value of the underlying asset. As long as the company makes revenue, it can pay a dividend. If it makes no money, it cannot pay it. And a one-day temporary price adjustment doesn't play any significant role in my trading because I do not day-trade these stocks to take advantage of these adjustments. People don't even know about this happening, that's how insignificant it is.Technically he is correct. Dividends, when paid, are a wash. Company issues $10 dividend, market maker reduces the stock price by $10 -- the net net is a wash. Worse, you get taxed on the dividends, so one might argue, it is a net negative since the stock was still a hold.
You are absolutely correct. At some point, a company becomes so big and makes so much money that they have no more use for it. They did everything they could - reinvesting back into the business, acquisitions, buybacks, assets purchasing and yet they have so much cash that they decide to return that investment back to the investors. While high-flying stocks like Tesla may feel great today and everybody is a king who invested in it a few years ago but the stock price and company valuation are two different things. Tesla's price is not supported by its revenue and ability to make money. Today, Tesla is a king, tomorrow Elon screws it up NIO will come up with something better and outperforms Tesla and its price will collapse with no mercy to all believers. There is no guarantee. And that is valid for all stocks. There is absolutely no guarantee that when you buy today and it appreciates tomorrow. So it is a bet no matter how you look at it. And if I have to bet my money, I want to bet on something that generates revenue and growth, and while I am waiting for that appreciation, I want to be paid for it. Not 20 years from now but immediately.Something is missing from the discussion of dividends vs growth that seems critically important. Correct me if I’m wrong, but...
If a stock does reinvest its earnings in lieu of paying a dividend, the idea is to grow the company instead. This is great because it can grow unrealized gains!
But... if the stock is relatively unknown, unpopular, or just not all that interesting or hyped up in the news, there is a chance that this stock’s price won’t change much to reflect what management is doing to grow the value. Of course, that makes it a prime “value” stock, but as we all know, “markets can remain irrational for a long, long time.”
What I’m getting at is that share appreciation is NOT guaranteed. At least with a dividend (one that is supported by a healthy payout ratio and other fundamentals), you are getting an actual return on your money!
This isn’t to mention the fact that some companies simply can’t reinvest into more growth. The main point I’m making is that dividends are the best option in some cases.
Let me know what y’all think. I’m trying to learn by joining this discussion but this is where I’m at on growth vs. dividend (obviously less taxes are nice if you can count on share appreciation - I just don’t think you can ever count on that)
Stock dividends do not make you richer. Its the same as going to the ATM and withdrawing money out of your bank account.
Exactly. If there is never going to be any profit paid to investors, it’s only speculation, not investment.I thought stock dividends were a way for a company to share profits with its owners. If a company never pays dividends, and you will never have enough stock to control the company, why buy any of its stock?
If the answer is because the value of the company will go up, then again, who cares how much it grows if you will never have any influence over it or share in its profits.
I tried to start trading on the stock market in 2015, but it didn't work out. My investments did not bring me an income and I faced a big loss, so I had to look for a job through which I could earn enough money for myself and for my family. I learned the lesson that before you start trading on the stock market, you need to earn a separate amount for it, that if you spend it, it will not affect your life. Nowadays I try to learn more about the stock market in order to earn as much as possible, but the problem is that this knowledge is outdated. Now, during the pandemic, it is very difficult to buy secure stocks as they can lose value even faster than before. Maybe someone knows a really good strategy that can go with the current situation in the world.Not sure I understand what you mean. Can you elaborate?
I understand what you are saying. I had the same experience in the past. But I was not trading stocks, only options and I was trading options using SPX as underlying. So I was making money but I was also losing them as fast as I made them (sometimes faster).I tried to start trading on the stock market in 2015, but it didn't work out. My investments did not bring me an income and I faced a big loss, so I had to look for a job through which I could earn enough money for myself and for my family. I learned the lesson that before you start trading on the stock market, you need to earn a separate amount for it, that if you spend it, it will not affect your life. Nowadays I try to learn more about the stock market in order to earn as much as possible, but the problem is that this knowledge is outdated. Now, during the pandemic, it is very difficult to buy secure stocks as they can lose value even faster than before. Maybe someone knows a really good strategy that can go with the current situation in the world.
There are misconceptions and misunderstandings about the dividends I have seen in the past from people. Many investors do not want to buy dividend stocks and prefer growth stocks because they consider a 3% yield and sacrificing the stock growth not enough to bother to invest in these stocks.
Another claim is that in order to achieve let's say $90,000 annual dividend income, an investor would have to accumulate a $2.5 million account at current yields, and that is not realistic in today's world since it would take a person over 30 or more years to do.
Both claims are only partially valid. None take into account dividend growth.
If you take into account the dividend growth, the time and amount needed to accumulate shrinks significantly. For example, my current portfolio has a current dividend yield of 3.52% and dividend growth of 5.91%. With these numbers, the future yield on cost will be:
8.75% yield in 10 years shrinking the capital requirements to $1,028,571 portfolio value
31.26% yield in 20 years shrinking the capital requirements to $287,907 portfolio value
and so on (This is when you are reinvesting all dividends and not adding new money. If you start adding more of the new money, it will grow even faster). And, I speed up this process with options income. That was always my dream and goal in investing and trading - generate enough income that can be invested to buy more shares that would generate even more income. At some point in the future, I should accumulate enough income to start paying my bills on top of the accumulating of more stocks.
But yes, you have to give your portfolio time to work it out. If you are looking for a faster way to get rich, then this probably is not for you.
Yes, I agree that this kind of investing is a slow line. But, honestly, is making a business a fast line?This is important. I know it's slowlane investing, but I think it's crucial people at least understand slowlane math before they start talking about it.
There was another post where I did the numbers for someone regarding dividend growth, to explain how a 3% yield today is very different from a 3% yield 10 years later after your shares have grown to double what they were.
Of course, counting on this share growth is a bit (or a lot) naive, but it is important to know the math.
Anyway, good thread. You should join insiders because there's some stuff on this already being discussed pretty extensively, and more deeply. I mean I'm not staff or anything, but there are a couple threads in particular I feel like you should join in on.
Join Fastlane Insiders.