The Generalist Manifesto

“Investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”‘

Paul Samuelson, Nobel laureate in economics.

I wrote last month that the best investment choices for most people are stock index funds/ETF’s.  Trying to beat the market by picking individual stocks is extremely difficult and not worth the trouble for most ordinary investors.  However, this does not mean that it is impossible.  If you are intellectually curious, looking for a new hobby, and willing to spend some time on research, trying your hand at stock picking can be a worthwhile endeavor.

In my opinion, the key to having ANY chance at success at beating the market is having some type of investment thesis.  What is your information advantage that would enable you to pick which company’s stock will be successful better than the analysts and mutual fund managers on Wall Street who price the securities?  Be honest with yourself.  Stocks are priced the way they are for a reason.  Unless you work in the industry, talk to management regularly, or receive illegal insider tips, the chances of you discovering some amazing bargain that everyone else missed is slim to none.

So what advantage do you have?  One very important one: a long-term time horizon.  Unlike big mutual fund managers, you don’t have to worry about beating the S&P 500 quarterly, or yearly.  Mutual fund managers are often forced to sell when the market is cheap (shareholders pull out money), and must buy when the market rises.  You don’t.  With the freedom to ignore these short-term market gyrations, you can invest based on certain long-term principles that have been established over the last 100 years.  This does not mean that they are guaranteed to continue, but the past is all we have to go on.  A few of these principles:

1.   Stocks outperform bonds.

2.   Dividend-paying stocks outperform non-dividend payers

3.   Stocks with a rising dividend outperform those with a stagnant dividend

4.   Over time, reinvested dividends account for the majority of the stock market’s gains

One of the major benefits of dividend growth stocks is that the yield on your initial investment increases every year.  If you bought Coca-Cola in 1988 with Warren Buffett, you would now have a 30% yield on your initial investment, in addition to tremendous capital appreciation.  If you invest $1000 today in a 4% yielder that increases its dividend by 10% a year, in eight years the yield on your initial investment will be about 9%.  In twenty years, the yield increases to almost 30%.  In thirty-three years, you will get your entire initial investment back every year.  Even if the stock’s price does not increase at all, you are doing far better than keeping your money in bonds at 2% or savings accounts at even less.  Factor in even modest capital appreciation, and we can start to see the incredible power of dividends.

There is one large caveat: it is important to choose companies that will be able to continue to pay their dividends over many years, in good economic times and bad.  The 2008 financial crisis led to many companies cutting dividends that were previously thought to be safe.  To avoid unnecessary dividend risk, I recommend avoiding the financial, tech and retail sectors for use in this particular strategy.  I think these industries are inherently more volatile and prone to disruption by new competitors.  While I have faith that Coca-Cola will be dominant in its industry and paying large dividends in ten (or twenty) years, I cannot say the same about Microsoft or even Wal-Mart.

Here is a list of a few high-quality, dividend-paying companies to start your research.  Most of them appear to be cheap today based on historical valuations.  Remember to diversify and not overweight any one sector too heavily:

McDonald’s, Sysco, Pepsi, Coca-Cola, Procter and Gamble, Kimberly Clark, Automatic Data Processing, Paychex, 3M, General Electric, Emerson Electric, Dupont, Conoco Phillips, Exxon Mobil, Chevron, Abbott Labs, Johnson and Johnson, AT&T, Verizon, United Parcel Service, Exelon, Con Edison

Some people will take a look at these stocks and think that they are suitable only for retirees or others who are extremely risk-averse.  Nonsense.  What these critics really mean is that these stocks are boring, and won’t make you rich overnight.  Over the long run, low P/E, dividend-raising stocks like these have outperformed their riskier high P/E cousins, with much less volatility.  This is what is known as a free lunch.  Take advantage of it.

by Johnny Utah

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Filed under Johnny Utah, Money/Investing

Tagged as dividend growth stocks, dividends, ETF, excitement go to vegas, high yield, investing, pepsi, procter and gamble, stock market

If your goal is to experience and finish a marathon without becoming a long-distance running enthusiast, then read on.  It is a sporting event like no others, and well worth experiencing.  But does preparing for a marathon have to be the life-altering time commitment that so many people turn it into?  I say no.  Needless to say, exercising for 4 hours+ without interruption is a serious and potentially dangerous endeavor and shouldn’t be taken too lightly.  But a good level of general fitness and some luck on the day should be enough to see you through the finish line.

It might take some training to hang with these guys

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Filed under Athletics, Atticus

Tagged as distance running, fitness, Generalist, marathon, marathon with no training

Over the summer, my wife and I decided to take a long trip. We were
moving cities and jobs and such, so we had the time, and my wife was
interested in going on a grand adventure before we settled down and
started to have real obligations. I’ve already done enough traveling
(perhaps a story for another day), but I agreed to go as you don’t
always get that kind of opportunity.

My wife wanted to have the “Backpacking Europe” experience, so I
started planning. We decided on 6 weeks and 7 countries (if you don’t
count England, Wales, and Scotland as separate countries, 9 if you’re
the separatist type). We started in Iceland and made our way south and
west until we hit Greece, then turned around and came home. It was a
long trip. We saw lots of neat, famous places. We spent a bunch of
money. We got to spend a lot of great quality time together.

Here’s what I learned and my advice so you can know this stuff ahead
of time and have a better trip.

Continue reading →

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Filed under Enkidu, Travel

Tagged as adventure travel, backpacking, consumerism, europe, travel, travel planning, western culture

As a chef, I’ve been able to move around a good deal without a lot of career setbacks.  It turns out that no matter where you go, people prefer not to cook their own food if they don’t have to.  I grew up in the middle of nowhere Kansas*, moved to Charlotte, NC right before I started high school, and then went to college in Durham, NC.  In the five years since I finished college, I’ve lived in North Carolina, DC, Auckland NZ, and New York, and taken some time off to travel through Asia.  I’ve not laid down permanent roots – buying a home, getting married, starting a family, building a business.   I will; I just haven’t figured out where yet.   Traveling is great, but it’s a really bad way to learn if a place is where you need to be.

How to do it

1. Be young – The older and more established you get, the more life-interrupting a move can be.  Careers either act as the reason for the move, or take a hit.  The details of finding an appropriate place to live are complicated incredibly by families – finding good schools, work for a spouse, etc.  And quite frankly, the older you get, the more stuff you accumulate, meaning a more difficult and expensive move.   Being self-sufficient and under 30 makes moving immensely easier.
2. A flexible career – I am lucky enough to have been drawn to a career that translates well from city to city.  Certain industries like technology, consulting, journalism, and the food service industry are very transferable.  This is becoming less of an obstacle as technology is allowing more people are able to work from home, and travel to their offices occasionally.  A quick caveat – you actually have to be good enough at what you do to be able to succeed in the places you choose.
3. A like-minded partner – My girlfriend also suffers from the vagabond mentality that pushes me to explore new places.   We’ve lived together for five years, in almost as many cities – she has been the impetus for most of our moves.  I couldn’t have survived the stop and start that I’ve gone through without her as a stabilizing force in my life.
4. A broad social network – Aside from the year I spent in New Zealand and my initial move to North Carolina as a child, I have had friends in the cities I’ve chosen.  Even now, thanks to Facebook, I’m stumbling into old high school friends in New York that I haven’t seen in the better part of a decade.
5. Learn to pack – As a kid, I always expected that video games were training for real life.  I hoped that I would draw more on my time spent playing Golden Eye N64 than Tetris, but hey, I got something out of it.  Packing your belongings safely into boxes, then packing your furniture and those boxes into a truck isn’t exactly a dissertation defense, but it’s not as easy as you might think.  Packing everything you need into four pieces of luggage, putting the rest in a storage unit, and moving to the South Pacific – that’s a challenge.  Be organized.  Make lists.  Send in change of address forms.  Put aside more money than you think you’ll need to set up your new home, and then have a yard sale.

If you haven’t figured out where you need to be in the world, it’s okay.  Start reading and find out what cities or regions are known for your interests.  Pick one, and give it a shot.

Leave any specific questions about moving abroad in the comments.

by James Cook

*No really.  I was raised in that house.

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Filed under James Cook, Lifestyle

Tagged as goldeneye n64, kansas, middle of nowhere, moving around, south pacific, tetris, vagabond

The Dallas Stars filed for bankruptcy today in the District of Delaware, the fifth professional sports team to file bankruptcy in the last two years (joining the L.A. Dodgers, Chicago Cubs, Texas Rangers, and Phoenix Coyotes).  The Devils are probably next, but that’s another story.

The owners are looking to sell the team at auction, and it will definitely be interesting to see how this plays out.  If you’re interested, here’s an article I wrote about the Cubs and Rangers bankruptcy sales (go to page 10, or click here if you have access to Law360).  This type of process sometimes goes smoothly, which is certainly what the owners and the NHL are hoping for, but you never know what will happen when a sports team ends up in bankruptcy court.  (The Coyotes case is one example of a very contentious sale process).

Anyway, I was perusing the list of creditors holding the 30 largest unsecured claims (which the debtor is required to file with the bankruptcy petition), and lo and behold at #2 on the list, the New York Rangers.

So, I wonder, which “player picked up on waiver” led to the Stars owing the Rangers $2 million?  I believe that would be Sean Avery.  Well played, Stars.

This post was originally published at 5-hole.com, and republished here by the author.

by The Yeti

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Filed under Sports, The Yeti

Tagged as 363 sale, auction, bankruptcy, chapter 11, Dallas Stars, New York Rangers, plan of reorganization, prepackacked, sale, Sean Avery, unsecured creditor

One of the most underutilized areas of the iTunes Store is the podcast section.  There is a ton of free content that you can use to educate yourself in almost any area.  Here are 4 of my favorite podcasts to keep you entertained during your time in the car.

Tolkien Professor – The college professor you wish you had when you were in school, Professor Corey Olsen brings Tolkien’s texts to life.  I liked the “Lord of the Rings” when I read it years ago, but Olsen’s deep analysis of the text helped me to get much more out of the story.  He is known as the “Tolkien Professor” and focuses mostly on Tolkien’s work, but his “Fairy and Fantasy” course is also excellent.  It gets a little nerdy sometimes (Do Balrogs have Wings?), but this is pretty much unavoidable when you’re dealing with Lord of the Rings/Star Wars/Harry Potter.

Art of Manliness – The audio counterpart to Brett McKay’s excellent website.  Brett interviews distinguished guests on all manner of manly topics.  Designed for the manly generalist, this podcast covers issues ranging from conquering debt to MMA training to Hemingway’s guns.  Highly recommended.

Coffee Break Spanish/French – This is by far the best audio-only language instruction I have ever heard.  The courses are designed for the complete novice, and will have you speaking basic Spanish/French in no time.  The gang at the Radio Lingua Network puts together polished, professional intro courses, and doesn’t charge a penny for it.  They pull out all the stops to keep your interest: interviews with locals, catchy theme music and even soap operas in your target language.  If you have any interest in learning a new language, start here.  Coffee Break Spanish even has an intermediate-level sequel called Showtime Spanish.

The Random Show – “4 Hour Workweek” author Tim Ferriss and Digg founder Kevin Rose talk about whatever is on their mind.  Because they are both smart, dynamic guys, you want to listen.  The topics truly are random, though they tend to focus on tech and entrepreneur-related issues.  They also cover travel, gadgets, working out, and more.  After each episode, you will always come away intrigued or excited about something, and what more can you ask for?

by Johnny Utah

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Filed under Johnny Utah, Lifestyle, Literature

Tagged as art of manliness, coffee break french, itunes, kevin rose, learn spanish, podcast, tim ferriss, tolkien