Robert W Baillieul from IncomeInvestors.com [Financial Independence Forum, EP.005]

My guest this week is Robert W Baillieul. Robert is the Editor-in-Chief of IncomeInvestors.com. Robert started out as a Risk Analyst at one of Canada’s leading banks and has been a contributor to publications such as Slate.com, MarketWatch, The National Post and The Motley Fool.  Robert is an advocate for a group of publicly traded companies he calls his “Forever Assets.” These forever assets comprises of higher-quality, dividend-paying stocks which at their core are businesses that have created wealth not just over weeks or years, but for generations.

Podcast Transcript

Eugene / Host: (00:05)
Hello and welcome everyone. I’m Eugene Ting and this is the FinancialIndependenceForum.com. This show is an open ended exploration of stories, methods and mindsets. How to better invest your time, invest in yourself and invest your money. You can learn more and please contribute your voice and story at financialindependenceforum.com

Eugene / Host: (00:31)
Pleased to have Robert value as a guest on the show this week. Robert is the Editor-in-Chief of IncomeInvestors.com. Robert started out as a risk analyst at one of Canada’s leading banks and has been a contributor to publications such as Slate.com, MarketWatch, the National Post and the Motley Fool. Robert is an advocate for a group of publicly traded companies he calls his “forever assets”. These forever assets comprise of dividend paying stocks which at their core are businesses that have created wealth not just over weeks or years, but for generations. This week is Robert, so welcome Robert to the FinancialIndependenceForum.com.

Robert: (01:09)
Hey, thanks for having me on Eugene. Good to be here. Maybe you could tell our audience a little bit more about what incomeinvestors.com is and what you’re working on with with that right now.

Robert: (01:19)
Alright. Yeah. Income Investors.com is a project that I spun off with during my time working with Lombardi Publishing. One of the things that we noticed right away is, you know, with interest rates so low right now with a lot of people are struggling to generate a anywhere near decent investment income from their portfolio. And, and that, that became a big part of what I was looking at when I’m through across my investment career, kind of noticing companies that, you know, paying out dependable dividends steady growth, you know, seem to be the ones that we’re, we’re doing the best performance and doing the best job for shareholders. And that became kind of the focus of my investment research kind of the stuff that I wanted to, to focus on. So working with my business partner, Michael Lombardi we decided to create this project. It just started off as a small thing that we wanted to test it, see if see if it would be a hit with readers.

Robert: (02:14)
And over the last couple of years, it’s a, we started about two and a half years ago. It’s become a pretty big group. We’ve got about 50,000 subscribers now and it’s been kind of taking on a bit of, of life that its own and it’s basically what we kind of cover with the companies. You know, kinda, it’s, it’s a little I guess I’d describe it as counter-culture. You know, in the media right now there’s so much focus on the height emerging tech companies, you know, Tesla gets more articles written in a day about it then a lot of the companies that we cover in years, but finding a lot of these tried and true businesses that just crank out steady profits, steady dividends. And that’s, that’s where we tend to focus a lot of our research.

Eugene / Host: (02:58)
I think a lot of are

Robert: (03:01)
Certainly a lot of people who are contributors and readers of the FinancialIndependenceForum.com are interested in having different sources of income, especially as it relates to them. Either setting it up for them to retire early if that’s something they want to do in some part of their goal, but also making sure that there’s enough diversification outside of whatever pensions or other things that they have. It sounds like, you know, income as he started Income Investors are calm like it is. You see it as a pillar and you mentioned it as these are some things you would call like forever assets maybe like, yeah, it does help us, you know, describe to us a bit more about, you know, what would be the way that you would uncover some of these businesses and stocks that actually are, you know, forever assets forever holds that produce income versus you know, the other stocks that are out there forever.

Robert: (03:52)
Assets. It’s the distinction. I came up with a lot of the types of businesses that have just created wealth for their shareholders over, you know, not just you know, years or weeks or months, but generations, they tend to be timeless products, timeless services that, you know, your grandparents probably used in some way and that you can easily imagine that your, your kids and your grandkids and your great care grandkids kids would be using all the things like you know, we’re, we’re always going to need to turn on the lights. So utility companies we’re going to need you know, go to the grocery store and the type of food, the things that very dependable businesses that are going to continue to create wealth for shareholders for, for years and years and years at Tim Horton’s would be under a good example of that.

Robert: (04:41)
You know, I can very easily predict that I’m going to continue to be going to Tim Horton’s for years and years and buying coffee and donuts. It’s not the say that, you know, investing in growth companies like a, you know, I often bring up Tesla or marijuana or a lot of the hot industries are bad investments per se. But for me and what my core competencies, it’s very difficult to kind of predict what those industries are going to look like in 10, 20, 30 years. Whereas I, it’s, it’s much easier with these kinds of companies to figure out what the future is going to look like. And then what, what’s interesting is because a lot of these businesses don’t get a lot of the same media coverage. It you get, you know, they tend to be less less valued by investors. And you know, because of those small dependable growth over time, they tend to generate quite impressive compounded returns.

Robert: (05:40)
A great example of this in my opinion, is, you know, McCormick, you know, most people probably, you know, they, they, you know, do much cooking. You know, maybe they’ve seen the luxury spice brands on the grocery Souths at the store. And you know, it’s just a boring business. No one’s very excited about spices in their food. But you know, as long as we’re, you know, people are cooking food, people are going to be buying with McCormick brands or some of the other brands that they’ve accumulated over the years, like hot sauces and such. And over time, just those steady high compounded returns, high returns on invested capital at tends to create a lot of shareholder wealth over, over, over time.

Eugene / Host: (06:21)
And what, and what do you say, like, it’s interesting to hear some of the methodology that you, you and, and your editors and analysts from Income Investors.com look for like returns on investment, invested capital and return on equity. How does that juxtapose to, I think, you know, some of the people within the financial independence world and the fire world are very focused on either the income generating side, but income generating. And so far as like indexing, I think indexing, you know, as you know, probably in the last couple of decades has taken on sort of a life of its own in a way. Whereas it’s become a philosophy, a legitimate philosophy and strategy for, for investing. You know, what do you say to those that, that are, that have a affinity for the index, whether through purchases of exchange traded funds or mutual funds versus income generating stocks?

Robert: (07:13)
Well, I, I wouldn’t criticize anyone for, for picking a, an in that spine over individual stocks themselves if, you know, being at being an analyst is, and it’s a full time job and it takes a lot of work and a lot of background. So for a lot of people that are interested in, in just [inaudible] getting the average return from the market, I don’t, I don’t see any issues with that at all. And how, especially with the costs coming down so much I employ a lot of index funds in my own portfolio, in parts of the market where I don’t feel comfortable as an analyst going through and picking individual securities. So for example, my where I keep ons in my portfolio, it’s just index funds because a, that’s a totally different world for me then than equities. And I’d rather focus my time on, on where I know in terms of, and dividends, I think there’s a pretty compelling case for picking and choosing the best companies out there with the highest returns on invested capital. And you know, that’s where we tend to focus the wide moat businesses run by great management teams that return a lot of capital to their shareholders where we kind of focus most of our attention and yeah, that, that tends to, that we’ve seen

Robert: (08:32)
Somewhat have a better opportunity to beat the market if possible or or opportunities to find higher yielding securities that might throw off a little bit more income than say the rest of the market. And that’s where we see our advantage.

Eugene / Host: (08:46)
I’m curious to know you, he mentioned about a return on invested capital return, an equity and some of those financial metrics and ratios that help you if yeah, if there’s a company has a moat and you know, I’m also a fan of, you know, certainly a Warren Buffet fan and Charlie Munger fan and I know they were probably one of the first few people that talked about businesses and investing in that, in that light. I’m curious to know, you know, how you and your team kind of come up with the ideas, some of the ideas that come on the recommendations in your newsletter and your service, you know, where are the sources of some of these things that you look at, you know, you know, where are the things that kind of peak your interest and you know, w where do you kind of look for some of these things to, to confirm if a company is a forever hold forever asset and has a wide moat.

Robert: (09:38)
What I’ve developed over the years. You know, I think at one thing that happens to a lot of people when they start looking at a company is there’s just so much data out there. You know, you can look at, you know, that it seems like there’s PE ratios and earnings and operating leverage and all these kinds of factors. And what a lot of people feel like when they start venturing into the world of investments is just so much data and it’s, and it’s hard to make sense of it all. What I’ve kind of learned over my investment career is to start focusing on, rather than, rather than looking at every, taking in every little piece of data that you possibly can is to start drilling down into the handful of metrics that explain 80 or 90% or results. So this, so the 80 20 ratio and what is 20% of the information that explains 80% of the investment returns out there.

Robert: (10:28)
And what I’ve kind of come to over the years is something that I call my three amps. So the moat, the management and the money. So in terms of the mode, it’s like, you know what you were hitting out there, you know why wide moat businesses that have a competitive advantage over their customers. So Warren buffet kind of uses this analogy of, you know, if you have a castle and the enemy is trying to attack your castle, you want a big moat around the castle to protect it. If you don’t have the moat, it’s very easy for the enemy to, to, to attack you and take your profits. If you have a big wide moat, it makes it much more difficult to attack. Same thing in capitalism. If you have a successful business that’s making a lot of money, every competitor is going to be trying to, you know, take your market share and to your business and, and try to try to steal your profits essentially.

Robert: (11:18)
It’s just absolutely cut throat out there. So I’m looking for businesses that in my opinion would have a, a wide mode and I’m trying to avoid the businesses that don’t. A good example of a business that has a very small mode at, for example, down the street from me here on health facts, we had a popular donut chain, gambles donuts and it very popular on Instagram lineups out the door, used to be very, very popular all the time, always stacked up. But that’s pretty, Oh, easy to open up a a donut shop and any small entrepreneur can get a loan from a bank, rent out some space and sell donuts at five, 10 bucks a pop. And now you walk down my street and there’s about 10 different donut shops and the lineups at the original store have come down substantially. So that would be a type of business, which is most of them that I wouldn’t be interested in.

Robert: (12:09)
So it’s, it’s very rare to find businesses that have built a kind of moat around their company. But it could be anything from, you know, the great brand like McDonald’s and the network effect like Google or Facebook and social media cost advantage, you know, being able to produce a product that substantially below your peers or for whatever reason, these types of competitive advantages that are very difficult for competitors to replicate. And that allows you to continue to earn those excess returns for your investors year after year, after year. Maybe. Maybe you’re a lot of forever assets that I look at are just, you know, pretty irreplaceable. So you look at, say, CN rail and I know, I know you’re in Toronto and if you’ve ever driven down Toronto and you, you’ve seen the CN rail tracks next to the Skydome or by the CN tower and on every side of the railroad, you have condos on one side and you have, you know, the entertainment district on the other side.

Robert: (13:11)
Well, if you wanted to build a competing railway, you would have to spend billions and billions of dollars hang out all these other property owners. It’s just not going to happen. So for that reason, CN rail Bay, they have these tracks in place and they can just continue to if you want to ship goods through these different areas, you’re going to have to basically just pay them and they own those tracks. So number two is the management team. So you can have a wonderful wide mode business that delivers outstanding returns. But if the people in charge don’t manage shareholder capital very well, your returns are going to suffer over long term. A great example of this is Coca-Cola. So back in the 1950s and sixties, early seventies, you know, you think about Coca-Cola, it’s a wonderful business, great brand name, recession-proof delivers outstanding returns year after year after year.

Robert: (14:08)
But what management decided to do was invest those profits in, you know, farms and liquor and all kinds of things where they had no expertise and the a and had very, very poor returns. And so shareholder returns just did miserable for, for decades. It wasn’t until a new management team came in decided to sell off all the crappy businesses that they had no business being in. And that’s when Warren buffet became involved. And when they focus almost entirely on the, the core investments that that did a good job for them that folk Nicola’s stock actually started, had that big run through the 1980s and 1990s and being the successful dividends stock that we know what it has today. You know, you look at a lot of management teams and the longer that you’re in business, the more you realize that you really have to figure out who your business partners are, what their incentives are and whether or not they’re looking out for you.

Robert: (15:04)
And most management teams don’t have any incentive to create value for shareholders. They are want to expand their egos, they want to expand their corporate empires, and that gets them on covers of magazines and gets them listed as visionaries, doesn’t do anything to fund your retirement. And so by focusing on, you really need to look at how well management teams invest capital in their businesses. Are they being disciplined and only investing in the core competencies that they understand that deliver great returns for their shareholders? And do they avoid kind of corporate actions that destroy shareholder wealth. And then the third thing of course is just the money. And you know, when I’m, when I’m looking at buying a business, I gotta figure out how much is the business going to generate over the next 10 2030 years and cashflow. How much am I paying for those cash flows today? And as long as that’s a reasonable amount compared to what I might be paying for alternative investments, then it would be something that that’s when I decided to make a recommendation to the subscribers.

Eugene / Host: (16:12)
Thanks for sharing that. Like I think that that’s also very succinct too. Like the modes, the management and the money. It’s, it’s easy to kind of understand the different aspects. I think that are the key to looking for a great investment.

Robert: (16:25)
To me it comes back down to, you know, an 80 20 rule. Like it’s so easy to get involved. Like you’ll hear people talking about the color of the sheriffs or the CEO’s eyes or there’s so it’s endless the rabbit hole that you can go on with when you’re looking at a company. Whereas for me, it’s just what are the things that really matter that I am, that that drive investment returns over time. And when you started identifying those key characteristics, that’s really when you know you can, you can start looking at these businesses a lot quicker and come to better investment decisions. If I’m looking at a business with no competitive mode, well right away I know it’s not something that I’m going to be interested in at all.

Eugene / Host: (17:10)
Right. You talked about that there’s not a lack of information. There’s information everywhere and we want to look for it. Things that we can confirm our biases or confirm our own convictions. So how do you kind of, how do you and your analyst at, at Income Investors are com filter out through that noise? Like what are some of the primary sources that you go to to make sure you are looking at in verifying if, for example, a moat is, is stable, is the mold shrinking or is the moat widening? How do you, how do you make sure and monitor some of these things based on the sources of data that you,

Robert: (17:49)
You collect? Well, the easiest way to determine if the business has a mode is a metric that we have in the financial industry called return on invested capital. So in plain English, what that means is, you know, how much profit that the business make this year and how much debt and equity did investors have to put into the company to earn that return. So if you know, simple analogy, you know, we put up a a hundred dollars, you and I Eugene and into eliminate Stan, we make 10 bucks this year. Well, our return on invested capital would be 10%. And what what you’re kind of looking for is you just looking at that number over time. And if you see a business that is generating returns of, you know, 15, 20, 25% year after year for decades, you can be very confident at that point that that business has a very wide moat.

Robert: (18:44)
And if it’s something like you know, one or two years, I’ll see businesses from time to time. Yeah. Maybe an oil company, you know, when oil prices are really high, you’ll see it earn 25% return one particular year. But what tends to happen is, you know, there’s no sustainable competitive advantage and you know, you’ll, you’ll just see these wild swings and return on invested capital over over a year from year to year. And that’s usually an indication that the business doesn’t have a competitive mode. So the, you know, great. It’s, it becomes very obvious despite all of these things when you’re looking through lots of businesses over the years and most of them just don’t make the cut because you just look at this one metric and, and you can just see companies that, you know, they’re earning six or 7% in a year, maybe once in awhile. That’s a great year. Sometimes they’re are negative and the great businesses really just stand out right away. I mean, McDonald’s has been earning outsize returns for decades. A CN rail has been delivering outsize returns for decades and decades. Right. It’s when you, when you see a great business, they tend to just jump off the page. Especially on this particular metric.

Eugene / Host: (19:51)
What are the, some of the sources, I guess you would look for determining the, the return on invested capital for some of these companies?

Robert: (20:00)
For the, the sources? Well, I mean, I mean that’s just the financial statements. You would just pull out the annual reports for a couple of, you know, maybe 10 years or so or as long as they’ve been reporting and you start plugging that into your your spreadsheet to pecan. And it’s, it’s a pretty easy metric to calculate. You know, it was a lot of, a lot of websites. Now I think you can do it for free on some of these like a guru focus. There’s some websites that will do the analysis very quickly for you. Sometimes you have to make some adjustments with the financial statements. You’ll have companies with a lot of Goodwill or different kind of funny numbers with any, any, you have to make those adjustments based on the accounting. Every company’s a little unique. And so sometimes using the default numbers straight from say MSN money or something like that are a little bit misleading. But for the most part, yeah. You know, the financial statements that a lot of people kind of find kind of boring crossover though that I know a lot of people get caught up in the story, but you know, the, all the, all the numbers are right there in the, in the annual reports each year.

Eugene / Host: (21:09)
So like reading the 10 Ks and 10 QS and the proxy [inaudible] proxy statements are, yeah, awesome. I started reading some of those. It’s a little dense for myself, but that’s good to know that I think that’s the, that’s the source that we should all be looking at us. The metric for measuring the moats, the management and the, and the money part of it.

Robert: (21:31)
That’s all right. We’re the management part. I mean, the mode is very, that’s the straightforward metric. Return on invested capital for management. You what, what I, that’s a little bit fuzzier, right? Because it’s a more qualitative thing is, you know, do you trust this person? Do you think they’re doing a good job with their capital? The, the quantitative way that I kind of look at this is a, a test that I took from Warren Buffett called the $1 test, which is basically looking at the business and saying, okay, you know, every dollar that this business has kept and retained earnings. So when, when a company makes a profit, they can either invest it back into their business or they can pay it out to shareholders. And what you can do is you can look at our business over the last 10 years and say how much money have they actually invested in their company and how much value have they created in market cap and forever over a decade or two decades, you would expect to see that for every dollar that management has invested in the company, you’d expect to see at least $1 in market cap created.

Robert: (22:36)
Ideally even even better than that. And that’s a really quick test to identify crappy management teams versus versus good management teams. I’m trying to think of a good example of off topic. Clorox is a great example. You know, every dollar management has invested in their business. They’ve created four, five for shareholders that just absolutely incredible the results that this company has done. On the other hand, you might have a company like Barrick gold, which I’ve trashed many, many times, where management has plowed billions and billions of dollars in the new projects of shareholder capital and they’ve, they’ve lost money on all these and over over the course of a year or two, I wouldn’t worry about it, but over decades it becomes a, it’s an indication that something is wrong at the business and usually these things don’t turn around unless there’s an activist or something to really shake things up at the company.

Robert: (23:29)
For the rest of management though it, it’s a lot of buzzier qualitative data and for me it’s, I get a lot of value out of just reading the shareholder letters and things. Then I’m kind of looking at our, you know, when you have a bad management team, they tend to talk big story. They tend to talk about fuzzy, you know, vision and changing the world and all this kind of stuff. That’s nice. But I look for management teams that are very, very numbers focused. You know, this is how we’re creating value for shareholders. This is how this is why we returned so much capital to shareholders. This is the type of projects that we’re investing in. Texas instruments is a great example. You go to their website, they have an entire presentation just on their capital allocation philosophy and it’s kind of boring stuff maybe for a lot of people to read, but it jumps off the page when you see, you know, how great management teams treat the shareholders versus and kind of [inaudible] whimsical yoga Babel that that’s Scott Galloway talks about if you’ve ever read him in terms of companies that that don’t tend to do, what’s going to be job managing investor.

Eugene / Host: (24:43)
Some of the things that jump out, and I try to read some of the newsletters too, especially the ones in definitely Warren Buffett’s and Berkshire Hathaway and, and even Jeff Bezos as Amazon. But there’s some Canadian companies here that I, I follow that is very fascinating. Very interesting. You know, one of the things that I hone in on is that after a while, I feel like those people who either are the founders of the companies or management of the companies, they seem to take on such a reverence for their shareholders that they refrain from taking a salary. In fact and I think, I feel like that sometimes is a signal that it’s like, okay, well there’s, there’s a bit of respect for, for the shareholders, even if, if that’s the extreme that they heard that they’re going to in order to make sure all the costs are cut, including their own, their own overhead. Which is always fascinating,

Robert: (25:36)
You’re saying to look at how they build line their interests. With a lot of companies, you know, the, the management team’s interests aren’t aligned with the shareholders whatsoever. And so it’s not shocking that they don’t run the business very well for their investors. Going, you know, I bring up Tesla a lot and I had no idea how things are going to play out. A Tesla. I’m not bullish or bearish on the stock, but there’ll be a lot of companies, and this is an example, Tesla is the first one that comes to my mind is they’re paid a bonus based on market cap. You know, if they hit a certain market cap number, then they get a big payout. And that’s encouraging these companies to take on bigger projects, issue lots of stock and grow, grow, grow. Well as, as a shareholder in the business, I don’t care about how big the business actually is.

Robert: (26:27)
I care about how big my particular share grows in value. And so our fundamental interests are misaligned. And when you find great management teams, they really work the, you know, they own either own, a lot of the company themselves, they’re putting their money with their mouth is or their are aligned to things like return on invested capital shareholder order returns, these kind of metrics. And it’s, it’s so important to understand how your management team is compensated because that’s going to determine the type of actions that they’re going to take down the road. And that was kind of the, for me, the a big epiphany. I used to focus on just the moats and just the investment returns. And it, this was understanding the management teams and the people that are quarterback in business really became a big a big differentiator when you, when you see a lot of the companies and in particular industries that seem to outperform their peers year after year versus the ones that are constantly lagging behind. It’s the quarterback in charge, you know, and, and how are they paid and are they working in the interest of shareholders? And that’s so key. It’s the qualitative stuff that doesn’t often get picked up a lot. The news,

Eugene / Host: (27:41)
I think I was listening to another podcast yesterday about how a particular investor w was, you know, over the years looking at the 10 Ks and QS, but also also having a an added interest in looking at the proxy statements. Just because, you know, how, how’s the board thinking through these things, where the changes that the board made over the years. And I think he was talking about a particular CPG, consumer packaged goods company. How over time the metric for meeting certain milestones and how board members and upper management was paid was based around a metric that didn’t align very well to the shareholders. And I think the metrics was like comps, like and that over time it was like, you know, 10 years ago it was like 3% was the hurdle rate and then it went down to like two and then one. And then I think currently, and again, people should do their own research, but I’m hearing it from, from someone else, but currently it’s actually negative. So people are incentivized to shrink the business, which is it, which is kind of interesting. And, and and I I don’t think is well aligned with,

Robert: (28:54)
Well sure. It sounds like to me like if you can’t beat the bar, we’ll just keep lowering the bar and tell you

Eugene / Host: (29:01)
Exactly that. Yeah, that just sounds like a, a lot of not very good checks and balances with what the, yeah. The board and the, I mean, yeah,

Robert: (29:11)
There’s so much of it. I’ve had, you know, going to conferences and talking to people off the record and they were very explicitly clear. This was all off the record stuff, but hearing why companies go public and what they, what they think about their shareholders behind closed doors. And yeah, I was talking to one executive at a publicly traded company on the TSX venture exchange and I was like, why? Why are you guys public? You know, what’s it like running these kinds of companies? And for them it was just an advertising campaign. If you’re a, that means that you have a certain amount of credibility so you pay 20 [inaudible] and listing fees year and that makes it easier to sell a whatever product you are to your stakeholders or your customers. And I just was like, well, what about creating value for them? And the owner of the company owns all the stock, he gets it all on a salary.

Robert: (29:59)
So the, there was never at any point were they ever interested in creating money for their investors. That was all an advertising campaign. And it was just fascinating to to see what goes on on the inside. That’ll add a lot of these businesses that if you’re not really delving into the executives running the show, you, you know, you’re, you’re getting screwed. And it’s a, it’s a lot of detective work for figuring out those kinds of issues. And, and especially in Canada, on the TSX, there’s so many bad and poorly run businesses out there where you know, shareholders are just given. Yeah, we’re on the caboose for, for everything. It’s very disappointing. But the, anyone and when the good companies are out there, they, they definitely,

Eugene / Host: (30:45)
They definitely stand out. So shifting back a little bit to the, you know, the metric that you mentioned that, that’s sort of the North star. When you, when you guys, you and your analysts look for good quality companies, the return on invested capital you know, the, there’s different, different companies out there where if they’re growing and they have a place to actually invest that capital, that that’s great. And so probably they won’t be paying a dividend, but just because they, every dollar that can, they can roll back into a new facility that they’re building and you retail store that they could expand. They in their, you know, it management could see that that’s going to return X amount within, you know, X amount of years once they started new your location. For example in the retail example, how does, how does that different from like these forever companies that also pay a dividend as well. Like obviously the dividend is, is taken on at the bottom line where people are returning to some of the, part of that income, part of that net income to shareholders, but also saving a little bit for reinvesting for the feature or sort of how do you balance companies that are needing to reinvest but also making sure that that payout ratio isn’t imposing on some of the investment that’s needed for, for growing the company and for making sure the company has a longevity that that is needed. I kind of look at

Robert: (32:07)
If it ends as you know, going, going back to management teams, you know, every management team says they look out for shareholder interests and you know, everyone, they’re all working for shareholders. And the longer that you work in the investment analyst business, it’s, you know, you realize that’s all a big load of crap and most of them aren’t. So what you, what you need is kind of a really quick metric to kind of shake out the, the winners from the losers. And

Robert: (32:35)
For me dividends are kind of like a lie for management teams. I’m S I’m stealing that, the, that from Warren buffet who talked to, you know, buybacks and dividends, we’re turning money to shareholders. It’s a lie detector for executives to determine are they actually working for management or, or not. Definitely like at each part of a company’s life cycle, there’s a time when a dividend’s appropriate and when a dividend is not appropriate. And obviously like you’re saying, when new emerging companies coming up and they have lots of great investment opportunities, they should not be paying out a dividend. That doesn’t make any sense. So there’s nothing magical about a dividend payments at that point. For me, those are typically companies that I’m not really interested in because the new emerging industries are a little bit outside of my core competency in technology most of the time.

Robert: (33:29)
So that’s not where I tend to look anyway. But in terms of more mature businesses, that’s when the, the dividend kind of becomes a signal of, okay, something’s interesting here. This is an executive team that cares about their investors to at least some degree and that’s allows me to zero in on candidates. They take, take your investment universe out of 5,000 securities and drill it down into maybe a couple hundred that’s a little bit more manageable in terms of you know, what a dividend provides. It’s beyond just a signal to shareholders. It kind of forces management teams into making a lot, lot of better decisions for their, for their businesses. So it kind of enforces longterm thinking when companies decide to start paying a dividend, their shareholders expect that to continue year after year after year. So management teams can’t be thinking about the next quarter. They have to be thinking about their businesses over the next, you know, five years, 10 years, 15 years, paying out a dividend.

Robert: (34:31)
Also limits the bad investment decisions that they can make. If a company make you know, $100 million and half of that goes to shareholders, well they can only, they have a lot less capital so they’re going to invest in only the best returning projects. Whereas, you know, sorta ego boosting empire building campaigns might have to go by the wayside. And it also limits company’s abilities to make bold, expensive acquisitions that tend to backfire on their investors. And so that’s why you tend to see companies that pay dividends outperform over time. So a recent study done by Ned Davis research showed that, you know, with dividend stocks I mean, let me just pull it up. Dividend stocks, you know, a hundred dollars investment or $10,000 investment in dividend paying companies between 1972 and 2018 grew to $460,000. Whereas, you know, non dividend paying companies only grew to $30,000 and the best ones that did even better where dividend growers and initiators.

Robert: (35:38)
So it’s, it’s just such a powerful signal that you’re, you’re dealing with a good management team and it creates so many good incentives within the company. But, but yeah, companies have to balance how much they pay shareholders and, and how much they how much they invest in their business and what, what kind of happens. And you know, there are so many investors out there that are looking for capital or looking for, for income from their portfolio that a lot of businesses have spotted that as an opportunity to kind of attract by paying out artificially high yields. They can kind of sucker in unsophisticated retail investors that maybe aren’t doing their homework. And so if a company is paying out, you know, way more than it can possibly generate either, you know, funding that through, you know, new debt or, or by issuing shares, you know, they might have an impressive 10, 12, 15% yield, but it’s not sustainable. Or they might be starving their business of the investment decisions that they need and that that’s going to backfire down the road. So it’s a, it’s a balancing act. It’s not the say that the dividends are the end all and be all that you should pay out every dollar to shareholders. It’s, for me, it’s just a signal of a great company.

Eugene / Host: (36:59)
I like that. That’s very succinct. And and it sounds like it, like you said, w and what Warren Buffett also has said, I think more so with with dividend paying stocks and then buy stock buybacks is it is signals that the board and the upper management feel like the company itself is mature enough to be able to give back to the shareholders a certain amount while still be able to grow the company in a certain way. So in most cases that’s, that’s good. But of course, I think you were saying, and I’ve also experienced and I’ve seen companies that yeah, it’s, it’s, it, it doesn’t it doesn’t pay in a way to take the dividend because they’re not able to keep the lights on and they’re not able to re-invest as they should in the business.

Robert: (37:46)
And, and you have to, you have to look at their, there’ve been lots of examples where companies have starved their business just to continue paying shareholders and, and you have to be aware of those too, right? A craft is a good example of that. You know, when 3g came in and slashed costs to the bone to free up cash flow to pay shareholders, well that was great for a few years. But what we’ve seen, when you’re not investing in product innovation and you’re marketing, your customers are gonna, they’re gonna leave after a while. And I’ve seen a lot of real estate companies, real estate investment trust, I’ll drive by their properties just to check them out. And I was looking at a re read the other day and it had its operating costs way below what some of its peers had and you just drive by the properties and you’re going, wow, they’re dumps and you know eventually your tenants are gonna leave and or your rents are going to come down. And so you know, it’s a, it’s a balancing act for sure. There’s a nothing, no extremes in this business.

Eugene / Host: (38:46)
Yeah. And you talked about Tim Hortons and also about this, this particular read. Do you find that it helps as an analyst to have that business be more tangible to you? At least you can go out there to one of the retail stores and and do a little bit of bottoms up research that way it at least helps ground you in some of the more abstract numbers and the, and the financial reports that are quite abstract as it has already quite aggregated. Anyhow,

Robert: (39:13)
It’s a mix. I’ve, I’ve gone out in situations where I’ve done some on the ground research and I’ve gotten some insights being, there’s a lot of advantages for being at work where I’m based here in Halifax where you’re kind of distant from the investment community and that allows you to maintain a certain amount of independence. The downside is your sometimes far away from new on the ground trends that might be emerging. A lot of the companies that I’m looking at might not even have locations in, in the city where I, where I’m in. Right. So I find a lot of the times you can get what you need from the numbers and the financials and listening to the conference calls. You know, it’s, it’s a mix. I’ve, I’ve different different stories and different investment cases different examples of that.

Eugene / Host: (40:02)
Yeah. And that’s maybe a good segue into, we were, we were talking a little bit about before we started recording your interest in being a digital digital nomad and being location independent, which I think a lot of our audience either are on the journey through fire financial independence or in thinking about retiring early, arbitraging there maybe high cost of living area to live in a lower cost of living area that could help extend their, their monies to the, that’s pivot over a bit more to, you know, your earlier story of, you know, you worked at one of the big banks in Canada and you decided to take on more freelancing work and then venturing out into your own entrepreneurship and get Income Investors aren’t comm, was being a digital nomad and being location independent, being being just independent. Part of what you know, compelled you to, you know, throw in the towel and, and wanting to do something on your own.

Robert: (40:57)
Well, it was a, it was a lot of things at the time. So I worked at TD Securities. I got a job there right after the financial crisis with in, in their risk management department, basically making sure the traders don’t blow up the bank, which had kinda been an issue and in the previous few years that’s what a lot of that stuff. And yeah, I, I love working at TD I the great people there and they invest in their people and I have nothing bad to say about about the bank, but for me it was, you know, a very large organization. Yeah. A lot of bureaucracy and working on it as a pure finance guy just wasn’t, and just being on spreadsheets all day. I have that quantitative side, but it’s not everything about me. Right. I was looking for something else, a little bit more creative and I, I just couldn’t imagine being at the bank until I was 65 and collect my pension.

Robert: (41:52)
I started doing a little bit of freelance writing on the side. I realized, wow, people will pay me to write about stocks. This is incredible. It was just this epiphany. I got my first, my first check was like 30 bucks American and it just blew me away that I paid to do this. And I, I just freelance parlay those clips into getting higher paying gigs. And I, and I realize, you know, I can, I can pay my bills with what I’m making from this now. And it was a, it was a scary job, but eventually I made that decision to go full time. And the freelance writing over, over the steady job, there’s a lot of people that were very mad at me for making that decision, but it was the right decision at the time. And then the, the realization I had was, Whoa, hold on.

Robert: (42:45)
You know, I got, I got clients and in New York I got clients and now Andrea, I’ve got clients all over the place. Why am I living in, in Toronto on in the financial district paying, you know, at the time it seems cheap now, cause I know rents have gone up so much at 14, $1,500 a month in rent when I can be anywhere. So the first thing that I did was I took a trip over to Spain. I was living in Madrid for a bit and I just kept heading South. I was working from Granada in the mountains, a Southern Spain. And then I went down further to, to Malaga and just, you know, sipping wine while working from a laptop over the Mediterranean was just, yeah, it’s the dream life. I had a, I spent some time living in bath, spent a couple summers in Montreal, which is just gorgeous city, just love living there.

Robert: (43:37)
And a lot of time I rented a cottage, one winter in Myrtle beach to get out of the winter snow. And it was just a, you know, realizing that and with the internet now, just such a great opportunity to, to work from everywhere, everywhere. Build clients, build international clients and you can earn the top dollar that you might be making in a large city like New York or Toronto or San Francisco. But being able to work from, you know, a place like Southern Spain where the cost of living might be substantially lower and that kind of geographical arbitrage to, to make your dollar go quite a bit further is a incredible opportunity that we have now with, with the internet. For anyone that it’s not that everyone can do that, but if that opportunity is available to you, I would pull the trigger on it if possible. Banff, Montreal, Myrtle beach. I mean it sounds, it sounds like what

Eugene / Host: (44:32)
A lot of, I think a lot of the readers and people that come to the forum have achieved themselves. But also I think those that are on their way, I think when they hear about those ability to be just a you know, to work from your laptop or work, you know, as much as you want and to have that great work life balance than anywhere in the world. I think that’s part of what some of the people’s goals for reaching fire and what they want they want achieve. But maybe going back to that sort of, that, that jump when you, you know, when you were working at TD, like you said, and it was, it was good, you know, they were treating you really well, they were training you, etc. Tell the audience a little bit how, how it was to make that transition to, to freelance writing. Was it someone that either the Motley fool or somewhere else that came to you to, to start being contributor or you sought out those opportunities? Maybe we could go dive a little bit more to, to see and share how others, maybe you can do a similar thing if they wanted to.

Robert: (45:30)
For me it was building things up before I needed to leave. So having to go in a lot of people and I, and I’ve seen a lot of people do this where they, you know, they say, I hate my job. I, I hate my commute. You know, I’m just gonna quit. And they, they look out and in three months they’ve run out of money and they, they’re begging their boss for their old job back and, and I, yeah, I’m a couple of pins, sort of a strike sometimes, but I knew that was a bad idea to go down that route. So what I did was, you know, first test this out to make sure that this was an actual opportunity that I could do this, you know, or them getting the first check was a huge milestone. You actually get paid for my writing and then, you know, starting to get larger and better paying clients over time building up some financial resources myself, you know, having my emergency fund in place making sure that I had all my financial affairs in over and it was kind of about a six month process and probably more like 12 months to making this smooth transition.

Robert: (46:36)
So that, yeah, a lot of times you’re looking at these transitions as this massive financial risk and it’s like take every step that I can to make this transition as smooth as possible so that the day when you, when you’re, you’re not working at the corporate job anymore, that there’s not this, Oh my, you know, there’s this massive amount of fear that you know, you have most of your income replace, you have a fallback plan if things don’t work out and that, that makes that transition a lot easier. The other thing for me is, and what I’ve kind of realized over the years too is having a more [inaudible] diverse income streams. You know, working at the one corporate job is, it’s in hindsight it’s kind of the riskier decision and it’s hard for people to imagine that, that are working at these jobs because you know, they’re getting their paycheck every two weeks and you know, they got these benefit plans and that seems like the safe thing.

Robert: (47:31)
But I’ve seen so many booms and busts now in just the past 10 years on all these different industries. And you know, when you have just that one corporate job in that one income stream coming in, that can disappear very quickly. You can go in on a Friday afternoon and you know, you get called into HR and it’s, it’s over. Whereas the, the, the freelancer life seems a lot more risky and, and there’s a lot more to it. You know, there’s, you certainly need a certain amount of business savvy that a typical employee might not, but when you have multiple clients and lots of, lots of different projects on the go and you can position yourself to different clients in different ways, that over the long haul is I think a safer option. And so overall theme of this answer would be, you know, what seems like the safe thing and there’s certainly some risk in that transition, but I think over the long haul that’s a, that’s going to bring more career satisfaction and is actually the safer option over time.

Eugene / Host: (48:34)
You talked a little bit about the freelancer life and shifting to that and one of the things you mentioned was that, you know, definitely unlike being in a corporate job, you know, your, the boundaries of things that you would do is based on your subject matter. Typically as a freelancer you have to kind of expand some of that to be more focused on the business side and become business. Abby you know, how did you pick that up along the way and you know, any nuggets of wisdom for, for how you would, how you would pick that up or is it sort of a trial by fire? You just kind of just pick it up as it goes along?

Robert: (49:11)
It was a lot of trial by fire and just learning things the hard way cause yeah, yeah. You’re, you’re second in as an employee. It’s, you get your paycheck and everything’s done for you. HR takes off the taxes and your CPP and, and all these things and you just, you gotta do a lot of research and the first year is going to be rough. There’s, there’s no way around it. You know how you see, Oh, of the government takes this much off my paycheck. Okay. I gotta learn how to do that. And it’s, it’s just a lot of reading. The, the big thing for me, it’s kind of there, there their little luxuries that you can get away with as, as a corporate employee that you just are not going to be able to get away with if you’re a freelancer. So you know, a lot of them, typical corporate employees, we might be able to live paycheck to paycheck cause they always know that paycheck’s going to come in and they can always depend on that.

Robert: (50:04)
Well as, as a freelancer, you know, you might have a client that going to be a little late paying you one month, you know, or, or the HR staff or the accounts payable staff is on vacation over Christmas and it’s just going to be a bit delayed. Or, you know, you have an unexpected tax bill and you know, you having, having some cash, having a big kind of a emergency fund to kind of those ups and downs and ups and downs that are inevitable in your cashflow, that helps, helps a lot. That, that would be my, my biggest set of advice is just make sure that you, it’s, it’s like running any business. You know, if you wanted to open a Tim Horton’s, you would have some working capital in your, in your bank account, some spare cash to kind of to handle the inevitable ups and downs of your business.

Robert: (50:50)
And that’s, that’s what you have to have as a freelancer. The ways that people manage their finances as a typical corporate employee is not going to, it’s not going to cut it when you, when you make the move into, into the freelancing world. The other thing that you have to deal with too, as a, as a, as a freelancer, is you have to have this killer mentality of, you know, I gotta go and I got to hunt down work and I got to be able to sell myself all the time. Whereas, you know, in as an employee you’re kind of told what to do every day and you don’t have to think about those decisions. You know, you got your job, maybe you’re thinking about next one, but as when you went to the freelancing world, well, there’s this constant process of thinking about ways to, to market yourself. I’m being very comfortable selling yourself to potential clients. [inaudible] The different, different mindsets for sure that you need to develop. And there’s, there’s a learning curve. I think most people can handle it if they put their mind to it. But it’s, it’s certainly a transition entrepreneur. It’s a entrepreneur life for sure.

Eugene / Host: (51:57)
And it sounds like what you were saying just at the tail end too is is you over time as you got a, you know, you, you built sort of the, the relationships and such that you sort of built a personal brand with. Would that be correct? Yeah. And that it, that brand itself became a way for people to connect with you and instead of you needing to warm up to leads, they, you have sort of a basket of portfolio things that you’ve written and people kind of know you within the industry that they came to you for some projects. Would that be very to say

Robert: (52:31)
That’s, yeah. And that, and that takes time. You don’t get that your first couple of years out of the gate, but over time as you’ve worked on more successful projects, that starts to crop up more and more often. The, the best advice I would have to anyone is over time too, that you want to develop in terms of selling your services is definitely generating those passive leads. Having people come to you in the way that you do that is, you know, public speaking or writing articles on the topic and putting out lots of little breadcrumbs across the internet and, and around the world that people can, can find your work and find who you are. And when someone is coming to you for a potential project you’re in a much better negotiating position than, you know, when you’re sending a resume out to indeed.com and there’s a hundred other applicants.

Robert: (53:22)
You know, even if you’re good at standing out and getting interview and landing that position, you’re not in the best position at that point to negotiate a much higher wage or, or better value for your services as to turning that kind of mentality around from actively looking for work all the time, which is part of it. And also building those passive streams of clients coming to you that can, that makes them a very big difference in whether or not you’re going to be successful over long. But that, that’s good advice for someone in whether they’re a corporate employee or whether they’re a freelancer or an entrepreneur. That’s, that’s a good mind shift to adopt.

Eugene / Host: (54:00)
[Inaudible] And do you think that that mind shift is, like you mentioned public speaking, like I’m not sure if, especially at the beginning, maybe you’re, you know, one that is building a personal brand. You’re, you don’t really have a name, you might have a resume that is in that world, but maybe most people don’t know you. Do you think it’s, it’s sometimes taking gigs to do public speaking just for the value of it. You might not be a paid speaking gig that at least helps generate brand equity out there

Robert: (54:27)
At the beginning. Yeah. You’re, you’re not going to get well paid or well compensated for a lot of these efforts. But I would say, you know, when you’re starting out, you’re probably not very good and you’re probably not entitled to a good paying gig either. So for sure, just take everything that you can get at the beginning to build that repertoire. And then once you’ve got those experiences, that’s when you can start commanding. The higher, the higher wages. I mean, my, my first finance job, it was an internship, was working downtown Halifax at a brokerage office. And yeah, I did it for free for the summer. You know, I’m a kid, I’m not going to command, you know, 20 bucks an hour or anything like that. But over over years as you accumulate those experiences, it starts to become easier and easier to, to get that thing. The other thing I would say is you have to learn how to

Robert: (55:21)
Create a value proposition that your client or your customer is going to be interested in. So, you know, how are you going to make them money at the end of the day. And a lot of writers, and I see this with a lot of people in sort of creative freelancing fields, you know, they, they want to use this as a platform to express themselves and that’s nice, but no one wants to pay you for, for any of that kind of stuff. I have lots of political ideas I’d like to talk about, but no one wants to pay me for those kinds of things. And, or, or I, you know, I have a buddy that wants to talk about economic theories. No one wants to read about that. So you have to, when you’re presenting yourself to a client, you have to be very clear here is you’re going to here’s the ROI of what I deliver, the return on investment. And when you position yourself like that and you say, you know, I worked on this project and I created these results, you know, we’ve got this much web traffic, we got this many emails, we made this much money on this thing, we did this ROI on this campaign. That’s when people really tend to clue in, when you very resonant and you’re, you’re very aware of what it is that you have to deliver for that particular client.

Eugene / Host: (56:32)
Well I think that’s very good advice. I think that there’s the rare person that has a personal brand that can write anything. I know, I know a few bloggers that I follow too, that they’ve gotten so much notoriety that they could write. You know, one of them I think is Seth Goden. You know, he came up with a few very popular New York bests New York times bestselling books that I think he does like a short blog every day or others. In the tech world talking about business models and in the technology world. And I think there’s very rare cases where people can talk about anything that they choose to talk about and there’d be a huge audience. But you’re right, like forming that value proposition is super important.

Robert: (57:18)
Well, a, and just just to comment on that, I mean, yeah, one thing I’ve been learning over over the last few years now writing for Income Investors, there’s opportunities to, to reveal a little bit about yourself while you’re, you’re writing about these things because you know, there, there are millions of people that can, or not millions but thousands that could write about dividend stocks that you can separate yourself by building a relationship with each person you’re following or whatever. And that revealing little things about yourself, maybe your political views or your views on the economy or your hobbies and things like that. And that kind of as you build that relationship with your readers, that’s kind of gives you a little bit more of a the, the following to kind of generate over time and whatever topic you’re writing about. It’s how do I put myself on the page that separates me cause cause you’re the only person that Eugene is the only person that can write about fire in Eugene’s way.

Robert: (58:19)
Robert value is the only guy that can write about dividend stocks in Robert value’s way and finding little opportunities like that. But overall you, you do have to, you know, everything has to come back to how am I creating value for the particular customer. And that’s it has to come, come back to that at some point. And you know, in terms of running a business, the, the main point that I was getting at is you, you’ll have people that want to talk about in very artsy fartsy types that want to be very, very creative. And it’s like, yeah, that’s nice, but there isn’t a market for those kind of articles or, or those kind of things. And so you, you have to tailor it somewhat into where there’s a viable market for these types of services.

Eugene / Host: (59:04)
[Inaudible] And I think to pick up where you left off too is I think yeah, like there’s areas where people have opinions about certain things, but at the end of the day thinking back to what your audience, your users, your customers really and what’s in it for them I think is, is super important. You just want to spend a little bit time at the end to really talk more about you know, you’ve talked, you know, you came from sort of a traditional corporate banking job. You had a sort of an opportunity to grow your freelancer and your personal brand and you grew from that. And that was it. It got you an opportunity to work in different parts of the world, which is, and being location independent and becoming a digital nomad, you know, when did you, when was the point where you thought, this is the time for me to strike out on my own and be entrepreneurial and, and run my own investing newsletter?

Robert: (59:59)
Well. Well, just to be clear, so it’s not technically my company with a, the thing is I run this with my the owner of the company of Lombardi publishing is my boss, Michael and Marty. So it’s technically his property. I’m the, I’m the main face of it that kind of runs the, runs the show there. We have a good partnership or you know, I do, I do a lot of the work and, and make a lot of decisions for how it operates and, and he’s kind of the, the main backer and provides a lot of the infrastructure to, to make everything worked behind the scenes, the customer service department, the technology department. For me it’s, it’s a nice situation because there is a lot of stuff that goes into being a, the owning the entire business. It makes it very, very tricky.

Robert: (01:00:50)
I mean you all the things that you have to think about, you know, HR and employment laws and all these kinds of things that make it difficult to, to run an entire company. And I, I kind of, what I like about my current situation is I often talk about entrepreneurship light where I’m kind of running the show on a large scale business, but it’s, it’s not, there’s, there’s something, I’m almost like a a franchisee taking a franchise at Tim Horton’s or McDonald’s or something. There’s, there’s someone behind the scenes that kind of provides the main infrastructure and I kind of run the, the, the day to day operations. Which group? Same thing with freelancing. It’s not quite my own startup and I, and I know startup entrepreneurs and I admire and respect them, but I’ve learned more in this kind of middle ground between just being a pure employee and a pure entrepreneur. And that’s where I’ve kind of established myself so far where I’m the most most comfortable. They’d have a bit of a hybrid.

Eugene / Host: (01:01:52)
Right. Okay. Thanks for clarifying that. I, I misunderstood in, in the articles that you are working with your editors or your co editors and your endless, what are the, what are some of the articles or one of the, some of the comments that have really generated the most interest? Would you say in the last couple of years that you’ve been, you’ve been writing

Robert: (01:02:14)
This is this is where it kinda gets into the tricky part of, of running the business where a, sometimes giving, giving people what they want isn’t the same as what they need. So in terms of, you know, we have our, our mailing lists and we send out are three articles a week with our, with our commentary. And there is a direct correlation between how high the yield that you have in the subject line of the email and how many people actually want to read it. And, and I, and I understand that, you know, people are looking at dividend stocks as you know, the income stream. So they think the bigger the yield the better. And, and that’s the kind of tricky part is sometimes the the best investment opportunities, at least in my opinion, are that usually the companies that have the smaller pants and that may be growing over time.

Robert: (01:03:12)
And it, it, it’s, it’s interesting to see that Contra, you know, the, the, it kind of reveals, you can kind of see where, what gets it the most engagement isn’t always the kind of stuff that maybe people should be, should be looking at. And one of the big mistakes I see a lot of new dividend investors make is just always reaching for the yield yield yield yield. Whereas there’s not a lot of attention in terms of looking at is there a moat, is there a great management team, is this a, a good capital allocation policy? And it’s a bit of a, a bit of a contradiction there. So, so maybe not the answer you were expecting to that one, but probably it certainly looking at the open rates and what gets the most engagement, I think it kind of reveals a lot of insights into the typical investor mentality and, and where there can sometimes be issues with that.

Eugene / Host: (01:04:09)
No, it is, I think it’s a good insight because I think every, yeah, like you said, they reviewed a reveals a lot of the mentality and a lot of our own mental models. And biases with some of those aspects of investing? I think it’s sometimes even for myself, I mean sometimes it’s difficult to understand the, you know, the five or six underlying reasons why certain things are a certain way, including BI is a, is a stock paying at 7% versus a, you know, or why is the payout so high? I think it’s like digging into the details. Do we understand some of the, the challenges and the issues with that particular company, but thanks for sharing that because I think that that’s also interesting. Do you think also like, I don’t know if you get a sense to that in a world where we have low interest rates and people are looking for yields, striving for yield, especially as there’s more and more people who are in the gen X that are retiring every day, that they’re also looking in and chasing after yield too. Do you think part of that is, you know, kind of being pulled toward a higher paying equities that could help with some of their retirement income?

Robert: (01:05:25)
This, this is definitely the thing that worries me the most with when, when people will begin in the investment dividend investing field. So like I said, I think dividends are a wonderful signal of a great management team and there’s so much data to say that these are the type of businesses that you want. The problem is

Robert: (01:05:48)
When, when people start becoming entirely focused on that pay out. Well the, you know, if a 2% a good payer, well 4% better, well why not go for eight one ACO for 16 and that’s when you’re start back. That chase for yield is, yeah, you are, you’re the financial cliches, you know, picking up nickels in front of a steam roller, you know, you were, you are running into a lot of trouble if you’re not really studying the business. It’s, is this company actually capable of sustaining these high payouts? Very, very rarely. I come across exceptions once in awhile and I talk about them occasionally, but a lot of times the, the highest payout stuff is, you know, when you’re looking at, you know, mall reads, I paid 25%. You know, these are declining cash flows that are not going to these, this is not a business that’s going to be able to say that pay payout in probably 10 to 15 years unless something really, really changes in the world.

Robert: (01:06:47)
So it’s definitely something that that worries me. There’s certain, a certain amount of desire for instant gratification. If you present people with an idea of, you know, here’s a 2% dividend stock, like Texas instruments for example, when I recommended it yield at 2% it’s been growing active and, and every year at 20% a year, most recently increased with 17% well now that’s, that yields getting up to a 3% yield on cost and a few years it’s going to be 4% in a few more years. You know, in all likelihood it’ll be 6% that that’s kind of delayed gratification is something that a lot of investors just really aren’t interested in. And it’s a frustrating thing for me as, as a business analyst because you know, some of my best ideas are usually the ones that are kind of lower yielding and don’t necessarily have the biggest payouts today, what could be in five to 10 years. But there’s not a lot of there’s not a lot of interest in those kind of security. So that’s a bit of my rant, but at that, that’s how I kind of see it.

Eugene / Host: (01:07:52)
Oh, cool. Thanks for sharing that. One last question before we dive into the standard list of three questions that I ask every guest at the end of the show. How do you feel personally about doubling down on ideas that you know are premium? Like, are really, really good versus adding a new idea that you know is, you know, as excellent but his is really another company or another, another purchase in terms of

Robert: (01:08:21)
Portfolio allocations? I think, you know, it’s, it’s very tempting to kind of start spreading yourself too thin and, and getting into too many different things and too many different businesses to cover. [inaudible] I, I would, I would kind of warn anyone against that. You know, that it’s difficult to find the right balance. You know, 15 to 20 stocks seems to be good for, for an equity portfolio. I think that’s, and that’s still difficult to kind of keep up with, whereas, you know, running in so many ones, once you kind of get outside of that, that kind of competency you have, when you have too many different things going on, it just becomes a tougher and tougher to keep up. I mean, my full time job is to read about these all day. I can’t imagine someone I’m doing this, you know, running a portfolio of 30 companies.

Robert: (01:09:12)
It’s, it’s really not all that different from what you see with, with management teams after awhile in inside specific businesses. You know, you have, you know, a great core set of businesses that, that do really well. And there’s always the temptation to start growing that empire further and further out into further things that maybe you don’t understand as well or that don’t provide the best returns. And that’s when you start getting into trouble. So you know, figuring out what the, what is the I think about 15 names is kind of for me in my mind, the ideal number for an individual portfolio. And then getting too much outside of that, that’s when I start getting a little worried that maybe I don’t know what I’m doing here quite as well.

Eugene / Host: (01:09:54)
Thanks for sharing that. So we’re down to the last, last three questions that, that we typically ask every guest. The first one is what is the one item or service that you’ve made a purchase on that has the highest value or return on investment for you? And it isn’t, you know, maybe you’re gravitating toward a specific sock and it could be that but you know, something in your, in your personal life as well in my personal life

Robert: (01:10:25)
In terms of, Hmm. I, I don’t know if I’ll, I’ll phrase this in terms of return on investment, but I do have thoughts on how people should manage their money. My favorite expression is you can’t afford you can, you can afford whatever you want, but you can’t afford everything. And you know, we, I think there’s gotta be one thing that’s very important to you that you know, when, when, when people start trying to live frugal, a lot of times they struggle cause they, they cut everything out and including the things that they love the most and it makes it so hard to stay disciplined with their money. Whereas if you just pick the one, you know, one thing where you just splurge that you have no questions on this is this is what I’m going to spend my money on. That makes it easier to kind of stay in control for, for all your other purchases in your life.

Robert: (01:11:17)
So I got friends, you know, they, their, their big thing is travel. They love to travel all over the world. They don’t spend a lot on rent, they don’t spend a lot eating out, but they love traveling. Or maybe they love cars and you know, they have the nicest car and they, they don’t splurge on anything else. For me, oddly enough, my, my favorite thing is I love my apartment. I spend way more than what most people would think that you should spend. And I don’t have any roommates. I live in the nicest part in the city. I have no commute. I love it. And for me, not having the stress of dealing with roommates having great neighbors not coming home and, and living in one of the nicest, nicest places. See for me that has a great return on investment. In terms of my mental wellbeing, it’s also my office where I’m working all the time.

Robert: (01:12:09)
So it’s nice to have a great place to live and that makes it very easy for me to, yeah. I, you know, if I don’t want to go to expensive restaurants all the time, I don’t feel like I’m denying myself anything. I I used to be a digital nomad, travel and all over. I don’t take the same number of trips anymore. But it’s, it’s not difficult at all for me to, to stay frugal and live on our budget because the, the one thing that’s the most important to me, I, I spend lavishly on it. And that’s kind of my philosophy on it. That’s great. The second question is, what is one of the kindest things that someone’s done for you? You know, you, you look back in your life and you know, I, I like the saying that there’s a, there’s no such thing as a self made man.

Robert: (01:12:57)
You know, we all have to step up and, and put our work in. But when we, when we start looking through our lives, there’s usually a lot of people that stepped up to help us out in our own situations. And and it’s a lot of those kinds of gestures over time that people, you know, laid out the roadmap or, or give a helping hand to, to help us out. For me, you know, the story that I remember, you know, person who helped me out the most at the very beginning and there’ve been lots and lots of people, but just in one example that comes to my mind very quickly is my economics teacher from high school, grade 11, Mr. Curry, and he was the one that got me this, that internship that I mentioned earlier at the brokerage office in downtown Halifax. And that got me into invest an elite investment program at the university. And that got me into my, my base rate gig at TD securities and that got me, you know, and I’ve just kinda set that spiral of things and there’s so many people that have helped me out over the years and I’m so thankful for all the people in my life, but it’s just the one, one thing that pops out in connection to my financial that a guy that just poked into my mind at that, at this moment.

Eugene / Host: (01:14:16)
And then lastly, you know, where can people find you? Where the best people, you know, where’s the best place, where people can find you and you know, what’s next for you and things that you want to do at, at Income Investors.com or other, other areas.

Robert: (01:14:29)
Right now the easiest way is obviously just follow our stuff@incomeinvestors.com and it’s very easy to enroll into our our newsletter. We send out commentary three times a week from a, either from me or my a my analyst Jane and we were writing all the time on different ideas that we’re seeing in terms of on Twitter. That’s where I kind of post my a rapid fire analysis of whatever I’m kind of poking around or, or trolling someone else on Twitter at our value. [inaudible]. And in terms of the next stage for Income Investors right now we’re kind of in a, we’re, we’re desperate. It’s just been steady. I mean we were a, we, we built the business, we went from, you know, nothing a couple of years ago to, you know, a nice base of subscribers and we kind of, we were kind of in a holding pattern right now.

Robert: (01:15:23)
Like things are, things are kind of established at the company and we’ve fallen into a nice routine with stuff. I mean, next projects for me, I, I think I got to maybe get out, get out from behind the computer a little bit more, maybe do some more speaking and maybe at a book out or something like that. That might be the next project, kind of taking a lot of these scattered ideas that I’ve developed over the years and kind of put it into one collection and collect all those thoughts and the one thing, I think that would be the next project.

Eugene / Host: (01:15:57)
Well, thank you so much for sharing and thanks. Thank you so much for coming on the programs we have had Robert Ballieul from IncomeInvestors.com join us this week. Thank you so much.

Robert: (01:16:05)
Thank you — it was a pleasure being on here.

Eugene / Host: (01:16:08)
Please, please, please share this podcast and if you haven’t done so already, please hit subscribe. Thank you.

Categories Dividends Equities Income Podcast Stocks Warren Buffett

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