Podcast: Brian Bollinger — Simply Safe Dividends

Brian BollingerEpisode 29 of the NewRetirement podcast is an interview with Brian Bollinger, an entrepreneur and founder of Simply Safe Dividends — a company dedicated to dividend investing and generating passive income. Brian is a former equity research analyst and registered CPA who quit his investment job to start his own company at 26.

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Full Transcript of Steve Chen’s Interview with Brian Bollinger

Steve: Welcome to the NewRetirement Podcast. Today, we’re going to be talking with Brian Bollinger, an entrepreneur, and founder of Simply Safe Dividends, about dividend investing and generating passive income. Brian is a former equity research analyst and registered CPA, who quit his investment job to start his own company at 26. We got connected to Brian when one of our users mentioned his service, and we got talking since we share a similar audience. I’m particularly interested in this podcast, since the idea of generating less risky reliable income from more of my portfolio is appealing, so with that, Brian welcome to our show. It’s great to have you join us.

Brian: Thanks Steve, it’s great to be here.

Steve: Brian, I just want to jump in and just learn a little bit more about what first got you interested in dividend investing.

Brian: Well, growing up, baseball was always my passion. I collected a lot of baseball cards, I loved reading through stats in the newspaper on games. I spent countless throwing a ball against our brick wall and fielding it myself. It was everything I loved to do. But, my baseball game peaked out in the fifth grade. Last was my last good season, so I redirected that passion and shifted my attention towards wanting to become a general manager in major league baseball team one day, which I thought was the next best thing.

Brian: And so, I was pursuing this avenue when I read up on what the current GM’s of the day where they had started off, and a lot of them had either played professionally in the past, or they got started working in an athletic department when they were younger. I decided, all right let’s give this a shot. I grew up in Illinois suburbs, I reached out to Northern Illinois university in DeKalb and I was able to connect with someone there and worked the summer unpaid in their athletic department. I was doing stuff like helping with marketing, some data work, back off as tasks, but it was the beginning of learning to how the sausage was made. I continued doing that work in college in Indiana University, and I guess it advanced a little bit. I was then overseeing where the women’s volleyball team would eat meals when they traveled on the road. It was grueling work, and the more I learned about this sports’ management side, the less interested I was becoming in that path. It seemed pretty daunting for a number of reasons.

Brian: About that time, I began to discover investing and it really clicked. I think, in hindsight there’s a lot of similarities actually between studying the game of baseball and investing. Instead of players, it’s companies though, so you’re trying to decide how much is this business worth, is this a good business, are people valuing it too highly or maybe it’s cheap. There’s so many companies to learn about, so it really sent me down that track, and I was fortunate enough after college to begin as an actual investing analyst at an invested fund, getting to study companies all day, which was awesome.

Brian: How does dividend investing? Well, the philosophy I developed through these experiences, I like companies that are pretty boring, stable businesses, they generate a lot of cash flow, they have predictable operations. It just so happens that a lot of companies that pay reliable dividends have those traits. There was kind of a natural fit with my own investment philosophy that I had developed through my especially. As an investor, I like knowing how long it will take me to get my money back. I like being paid in cash. The appeal of passive income is obviously really big too, this concept of building a safe, growing stream of income that can one day meet my retirement needs is a really appealing message.

Brian: Dividend investing has kind of fit the way I’m wired, it fits my philosophy and it has a lot of appealing elements that I really believe in too.

Steve: That’s awesome, it’s great to hear how you kind of got here. I take it you’ve read Money Ball?

Brian: I’ve read it, seen the movie, my brother-in-law quotes it incessantly.

Steve: Do you play fantasy football or fantasy baseball as well?

Brian: Yeah, I think I’m last place in my league right now.

Steve: Yeah.

Brian: I try, but there’s a lot of randomness involved.

Steve: Right.

Brian: That’s what I say.

Steve: Yeah, I actually think fantasy football has, I played for a few seasons and definitely I saw that it was … It’s all about being emotionally unattached to your players, and not being a hard core fan. It’s just about finding the guys that produce the best and putting them together. The poor man’s version of Money Ball.

Steve: Okay, that’s pretty cool. Do you feel personally like you’ve been successful building your portfolio and pursuing this dividend investing strategy?

Brian: Yeah. Success is one of those interesting things to define, right? Everyone can kind of come up with their own benchmark to look successful. What kind of troubled me when I was working in the investment management field was that I described it as in many cases wealth seemed to flow in one direction, and it often wasn’t towards the client. Whether its poor performance or high fees. Look at the numbers, and I know you’ve seen this big wave of money moving out of actively managed funds, and the low cost ETFs and index funds. Standard Reporters comes out with a study every year, and they showed that over the last 15 years, I think over 90% of all US large, mid, small and all cap active funds have been out performed by their benchmarks after fees.

Brian: It’s incredibly hard to beat the market. That’s now what I’m setting out to do. I think what attracts me to dividend paying stocks is when they’re used with retirement in mind, I think there can actually be a legitimate, sustained skill with avoiding dividend cuts, generating safe income and seeking to keep up with the broader market over time, while having a more defensive portfolio. With those benchmarks, yes, it’s been very successful.

Brian: The company was only started in 2015, about four years ago, so we’ve not had a full economic cycle or a down turn to live through, but today our dividend safety score system, which we can talk more about later, has avoided 98% of dividend cuts in advance, and the three portfolios that we have, that I actively manage in our newsletter, and I personally invest in myself, those have all generated annualized overturns between 12 and 14%, while the S & P 500 has been up about 11%.

Brian: I don’t expect that to continue. I think [inaudible 00:06:35] is a powerful force, but from a question of how has the strategy been doing, can this work using this admittedly narrow time period, sure. It’s working well, and I expect to with the focus again, on safe dividends. I think there’s skill behind that, and I don’t really believe anyone can consistently out perform the market by a meaningful amount over time. That’s where I’m coming at.

Steve: Cool. It’s great to get your perspective, and we’ll dive more into that, because there’s … We’re definitely on the passive side of the opinion spectrum, I guess. I get what you’re doing and I want to dive into it. Before we get into that, I’d love to just kind of have you give a quick overview on the history of dividend investing. In preparation for this, I was reading up on kind of how this got started and the first publicly traded company was the Dutch East India Company, which was created in 1602, and paid dividends for 180 years, which was pretty surprising for me to read. I guess, it looks like they paid roughly 18% annually. I mean, originally most people invested in the market for income, right? To get dividends, and then in the past several decades it’s shifted more towards a capital appreciation.

Steve: Many companies, especially tech companies don’t pay dividends, they just keep the cash, reinvest it or in the case of Apple, they hoard huge amounts of cash. I would love to kind of get your perspective on how dividend investment and just stock investing has evolved.

Brian: Yeah, it was interesting you brought up the Dutch East India Company. There was some book I was skimming through that covered part of it. It was a huge book, I forget what it was called, and back then, I mean it’s so hard for us to fathom, I think because the flow of information was just almost non-existent. Buying shares in a company like that was kind of almost like buying a house, where there’s very little information, there’s no really active secondary market at all if you wanted to unload your shares. I think it was just a much simpler equation, I buy shares, I give the company money, it goes out, earns a higher return than I could earn with that cash, and as it generates cash flow, I get my investment paid back over time.

Brian: What’s cool about this company, Dutch East India, is it’s a trading company. They’re sending ships all over, throughout Asia, buying and selling. And so, when you would receive your dividends, my understanding is they were literally brought back via boat. Can you imagine lining up at the dock, waiting to be showered with these cash payments from the company, from the success of their operations. It’s not as exciting today getting paid electronically, but the idea of passive income is the same. When you think about where dividends come from, it’s also the same today. They’re an output. I think many times, sometimes investors will get hung up on the differentiation between a value stock, and a growth stock.

Brian: I think it’s sometimes similar with like a dividend paying stock versus a non-dividend paying stock. These are all companies trying to do the same thing, maximize share holder value. There’s different way to skin a cat. Today, I think in the US alone, I read there’s over 3000 companies that pay dividends. A lot of companies pay dividends, it’s just to different degrees. When you’re thinking about how do you earn a return on your investments you make, whether it’s in your 401K, dumped in an ETF or what have you, it’s either through receiving dividends back or seeing price appreciation in what you buy.

Brian: To me, total return is kind of an agnostic thing. I don’t really care a whole lot if it comes more from dividends versus earnings growth, I just like that a dividend return is kind of cold hard cash. It’s money in the bank, it’s a tangible thing, and the companies that pay a dividend, there’s some appeal there too because it limits the amount of retained cash flow a management team has. Ideally, they are more disciplined. If a company makes a dollar in earnings, for example, and pays out 50 cents, they only have 50 cents left now with which to invest in projects. Hopefully that causes them to focus more on their highest returning projects. If they were to go out and issue a bunch of shares, there’s a cost associated with that because those shares would have dividends that must be paid too. I like it from a corporate discipline standpoint as well.

Steve: That’s a great perspective. You said there’s 3000 companies that pay dividends. I was just looking online, it looks like the number of public companies currently listed is on 3700 these days, and that’s by the way, down from 7300 in the 1990s. That seems really high, a high percentage. Just in terms of the number of companies issuing dividens, 3000 out of 3700.

Brian: Yeah, I think it may come from the number of exchanges. If you look at the over the counter market, there’s thousands of companies there, but I think in the S & P 500 alone, the majority of those companies pay dividend. It may not be a big dividend, the market’s yield is less than two percent. Many companies do have a dividend policy, but it’s a small portion of the money they make. It might only be 10 to maybe 20% of the earnings they make they distribute, and the rest goes towards buy backs or just reinvesting the business acquisitions, et cetera. There aren’t that many companies that have paid dividends a really long time, to your point.

Brian: There are some like Exxon Mobile has paid a dividend since 1882, Colgate, the toothpaste company, 1895, but it’s a pretty small list when you’re going back 50 or certainly 100 years. The world of companies keeps shrinking and consolidating, at least in the public markets.

Steve: Right. How many companies do you track in your business?

Brian: I really like Warren Buffett’s concept of Circle of Competence. Over the years, I realized mine is quite small in many ways, in life. In investing in particular, I really emphasize focusing on businesses that are simple, that you can understand how they make money. If you can do that, you’re much more likely to hold an investment for the long term and let it compound for you. In terms of our company’s coverage universe, I publish research on about 150 to 200 dividend stocks. These are kind of the biggest companies that are most popular with investors. Most of them tend to fit that profile of kind of these safe, mature, large businesses that generally speaking pay stable and growing dividends.

Brian: It’s not a huge universe, I like to say there’s really no more than a couple of hundred businesses I would ever feel comfortable owning, just because most places are just too hard to understand. A lot of management teams get blindsided by changes, and they’re in the weeds, managing the company every day, looking at all the internal data we don’t have. Being an outsider, it’s that much more difficult. I like really focusing on businesses that are stable and mature and industries that have a slower pace of change, which is getting harder and harder to find.

Steve: Right. Yeah, I want to circle back to that idea in the risk side, the potential disruption that you might see. Let’s move on. Obviously, you’re a fan of dividend investing, why should people consider this?

Brian: Well, I think it depends again on where a person is in their curve, I guess, as an investor and what their goals are as they change. Someone that might have 20, 30, 40 years ’till retirement and has gotten wind of this whole saving, investing, compounding thing, in my view, their goal is really to maximize long term full return, because the bigger your portfolio is, once you hit retirement age, it gets a heck of a lot easier to make the numbers work out without taking on risk behind which you’re comfortable with.

Brian: For those investors, dividend growth investing is one avenue that I think makes a lot of sense to generate a health long term full return. Do I think it’s going to be better in the marker or worse in the market, no. I think it’s a strategy that can encourage people to stay the course because you can kind of focus on that rising bout of passive income growing each year, if you’re doing it right and saving more. But, otherwise, like I said at the beginning, I think dividend growth investing is a good strategy to stay the course and kind of track the broader market over time. ETF could be just fine doing that, a low cost fund could be just fine doing that.

Brian: I think it’s different once you get to the thinking more about retirement, maybe it’s 10 years away, five years away, maybe you retired five years ago and the question now becomes not so much about wealth accumulation, but wealth preservation and how can I keep this nest egg intact as best I can, make it generate enough income for me in a manner that has me not worrying about what if I live to be 100, am I going to run out of money? The appeal of dividends in this investors case is really interesting because instead of having to focus on just selling off principal, selling off assets you own to raise cash each year, you can kind of change your mentality a little bit, to a degree, and think, okay, well what if I could invest in a portfolio that threw off a four percent yield of dividend income that actually grew four or five percent per year, and use that to live on and supplement it with either smaller shares of principal, smaller sales of principal or other income sources you might have.

Brian: That kind of flip of the switch is interesting because it can allow you to preserve principal and not worry so much about what do I sell now or what if the market drops 50%? I had an email like I’ll read you really quick. Let me find it here. From one of our customers, Josh wrote, “Thanks to your service, I’m funding our retirement without having to touch any principal at a rate that is still allowing me to add to my savings. I used to live and die daily on the ups and downs of the market, but now I just smile knowing that my dividends keep pouring in, no matter what the market does.”

Brian: That’s really, I think, the appeal of dividend investing for that demographic.

Steve: Right. That makes sense. I guess, the question is will, if the market takes a big correction, as long as the company’s core business is strong and they can continue to pay dividends at the same rate or the same absolute amount of cash, so it will be a higher percentage yield, they’re good. If they start cutting dividends, then it starts to not work as well. But, I guess the idea is hopefully you can be prepared for that and have a plan to adjust your expenses, or maybe draw other savings to bridge that gap if that happened.

Brian: I think that’s the key, both planning and expectations. It kind of reminds me of Mike Tyson. Right? Everyone has a plan until they get punched in the mouth. I think with the dividend investing, it’s honestly the same way, because if you look throughout history, dividend cuts have kind of come in waves, typically tied to recession events. 2008 is a pretty extreme example, but if you were to look at just the S & P 500, of those companies that paid a dividend, I believe about a third of them reduced their pay out, and the S & P’s dividends dropped about 25% from peak to trough. That’s pretty similar if you look at, like one ETF people invest and like to invest in that pays dividends is Vanguard’s high yield fund, the ticker symbol is VYM.

Brian: There was a similar story there. That ETF, I believe it owns over 400 companies. It’s only focusing on high yield, not safety. If you look at the income paid by that ETF form 2008 to its trough in 2010, it’s dividends fell, it was about 24, 25% and they didn’t recover to their prior peak until 2012. To your point, if you’re not prepared for that and you’re just thinking “Oh, this is awesome, I found this company that’s paying eight percent and it’s paid me that for the last year and a half, like it’s reliable.”

Brian: Well, it is until it isn’t, right? You have to be focused on companies that are financially healthy enough to weather a down turn without having to cut their dividends, or ideally somewhat recession resilient businesses, while also maintaining a diversified portfolio that can deal with an unexpected hit or two, because that will happen too. In 2008, no one expected General Electric and Bank of America, these kind of darlings of Wall Street to experience what they experienced, not to mention the dividend reductions. There’s only so much you can do, but we try and help people stay between the guard rails, focus on the financially healthiest companies that have the best chance of making it through an economic down turn, and also helping people design a stock portfolio that is keeping them between the guard rails.

Steve: Okay.

Brian: From being over exposed in a company or sector.

Steve: Have you back tested your strategy against kind of the 2008, 2010 time frame? I know you identify specific, you’re out there saying, “Hey, here’s this portfolio of companies that I think could be good,” and you rate their safety levels for their dividends and provide alerts if you think it’s going to fall and not be able to pay the dividend. If you went back, would you have identified these companies that tanked, do you think?

Brian: We get asked that question somewhat often. The short answer is we haven’t gone back and back tested. That’s largely because many of the lessons learned that have gone into the creation of our dividend safety score system were rooted in the 2008 financial crisis. It kind of feels a little cheap to go back and say “Oh, knowing what we know now, if had known that in 2007, we would have said avoid all these banks, don’t invest in GE,” what we do is we made a real time track record. Any time there’s a dividend cut, we record it on our website, and we show what the company’s divided safety score was before the cut was announced. So far, we’ve over 98% of the 270 plus companies that have cut their dividends since we’ve been in business in 2015 have scored below our safe rating, with most of them falling in the very unsafe bucket we have.

Brian: We’ll keep doing that. We’re a big time believer in real time transparency. I’m just as eager as everyone is, what isn’t for the next down turn to kind of show the value and help people to understand how our system works and it’s something I’m monitoring daily as well. It’s not just kind of a static marketing thing. It’s something I really care about since it’s so important to our members.

Steve: If it really works then, I should be watching your dividend safety score and if I start seeing a bunch of like red alerts go off across a big sector of your portfolio then …

Brian: Yes and no. Our safety score system is designed as best I could do it to have a long term outlook. We’re trying to look at a company’s dividend safety not next quarter, but over a full economic cycle. It’s taking into consider things like how did the company do during the last down turn, is the balance sheet in good enough shape, because the company can maintain a lot of debt now while credit markets are friendly and times are good, but that could become a wait if borrowing conditions worsen in a downturn. We’ve got dozens of different industry templates trying to slice apart dividend safety risk.

Brian: It’s comprehensive and it’s something that keeps getting better and better too. We put a lot of thought and time into it.

Steve: Okay. Awesome. All right, well I want to move on to some of the downside risks and, but before that, I’m just going to kind of recap. When I was doing research for this, it seems like the reasons to consider dividend investing are, right now, it looks like higher returns, right? It encourages disciplined investing, and I saw that also on your site, and I’ve seen this in other places that kind of the average retail investor actually captures a two percent return, because they’re actively, basically making mistakes versus staying in the market, versus the market staying about eight percent. It generates income for you, which without drawing down your principle, so it hedges your longevity and also hedges inflation because you’re capturing, the companies are factoring in inflation in their own pricing and that’s being passed through in the dividend as well.

Steve: Those seem to kind of like the main benefits of this, which are significant. From the downside perspective, I think when I was looking at what you’re doing, you are buying a basket of companies. I think in your site you recommend to 20 to 60 companies. It feels active, right? Versus if you talk to a passive person, they’re like, “Hey, buy the whole market. Buy a VTSAX, and just own the whole thing.” Anyway, from one of our users, he said, “I’m interested in why dividend investing is viewed as so special when realizing capital gains as another option. The tax rate on qualified dividends is the same as long term cap gains. Since dividends are a return of capital, what makes dividend stock so special?”

Brian: I think it goes back to again, what the investor is trying to accomplish. To me, I’m total return agnostic. For someone who is in the wealth accumulation and growth phase of their investing life. Again, once you’re in the stage of harvesting income, I think it’s just a lot easier to stomach the idea of “All right, let me find a company like Coke-a-Cola that’s raised its dividend 56 straight years. Let me see if I can build a portfolio of businesses that I think will keep doing that, and not have to worry about the market being down 30% in 2020 and what do I sell, how do I withdraw from my account?”

Brian: I think the issue there is really just where’s the income, how is it being generated in retirement? Separately, I think there are some other benefits, which I’ve kind of talked about at the beginning, a stock that pays a meaningful dividend. They’re kind of showing a commitment to rewarding shareholders, they have less capital available with which to invest, so they are hopefully focused on higher returning projects. It’s just a corporate culture that I’m more comfortable aligning myself with.

Brian: I think when you’re trying to generate safe income, I’d feel better hand selecting at least most or some of what I’m in, instead of owning a fund which pays a variable dividend, and I don’t know if it’s going to be up or down 30% next year potentially.

Steve: Got it, because of the kinds of companies that they own. Okay, so I have another question. It’s along the same lines from one of our users and he’s saying, “I’d be interested in the behavioral reasons that result in many investors ignoring the evidence that a globally diversified portfolio of index funds gives them the best shot at the optimal outcome in favor of a dividend growth strategy that targets the value in what he calls a naïve manner, some dividend players are not value stocks, and some non-dividend players are value stocks, resulting in an overall less efficient and much less diversified portfolio, which therefore will have a wider dispersion of returns, which on average will be less than a more diversified portfolio.”

Steve: It’s essentially the same question, like “Hey, you’re concentrating risk, you’re being more active.”

Brian: Yeah. I think people do it, just turn on the TV or go over to Seeking Alpha, and you’ll see why people engage in irrational strategies. We kind of talk about the online financial world as just being a wild West. I mean, you just need a computer and two arms right to sell the service or make a sensational claim, you can remain anonymous. There’s so many misleading messages, and unfortunately a lot of people are apt to follow them. If I see a headline saying, “Scoop up this 16% dividend yield, the stock has the potential to generate 22% annualized returns.”

Brian: If I don’t know much about investing or what’s really reasonable, yeah sure. I’ll go all in with my portfolio until I get burned and have to learn the hard way. I think that’s part of the equation, and then yeah. I would just reinforce what I said earlier, which is from a long term perspective, I agree, just buy an index fund, keep your cost low. That tends to be the biggest determinant of your long tern returns besides the asset allocation plan you formulated. I think dividend paying stocks can certainly play a good role in that. They have qualities that I think help them to be stocks that are less volatile overall and have a healthy long term total return potential.

Brian: There’s different ways to skin the total return cat, especially over a 30 year time period.

Steve: Okay.

Brian: When you’re not focused on income too.

Steve: Yeah. Interesting. Back to your need to actively watch these companies, do you feel like companies are getting disrupted more quickly these days? I mean, we definitely see that here in the technology side of the world. Right? It’s so where technology goes, companies get blown up. I mean, Amazon is going out and blowing up retailers like JC Penny all over the place. It feels like almost every business is subject to this. Grant you, things like Coca-a-Cola or Clorox that sell things that you use in your house, yeah maybe that’s not going to get disrupted as much. Although, from a distribution perspective, maybe. Would love your take on do you feel like you have to be quicker, and more cognizant of these significant, potential existential risks to these companies?

Brian: It’s all the companies that aren’t in the retirement or simply safe dividends, right? They’re the ones that are in the cross hairs. No, even our world, I’m sure it’s the same thing. I was actually reading through Kroger’s annual report, and think supermarkets. It’s been around forever and sells groceries, people keep eating, the population is slowing growing. They were talking about their own space is changing rapidly too, with … Just with my family for example, you know we order food, groceries from probably three different chains around here. Meyer, Kroger, a place called Market District and all of them, we just … Even Amazon Pantry we’ve used because I like the delivery service here, we pick up at Kroger here, it’s just kind of splintering things off.

Brian: They’ve realized this and they are now having to pour a ton of money into making their stores a convenient place to either shop in person, have groceries picked up, or offer that delivery service, they’re going to lose share in a market that’s not growing. That can spell the end of a growth share with razor thin operating margin of two percent. Anyway, my point is they’re changing, in the annual report they mentioned that if you look at the Fortune 500 list, fewer than a quarter of the companies that were on the list 30 years ago are still here today. These are absolute giants.

Brian: The pace of change is certainly accelerating across a lot of different industries, and companies that pay a really big dividend that were not ready for change, those can be really dangerous investments because they’re trying to balance on one hand keeping their share holder base happy by offering this big dividend payment. That’s a big part of why someone owns the stock, but then it’s also kind of hamstringing them because that’s capital they can’t use to make the right acquisition, to make the right big investment, to evolve their business.

Brian: You do have to be very careful to again, focus on companies that have the financial health to not only keep share holders happy and keep the income stream safe and growing, but they also have a good balance sheet, they also have enough retained cash flow, and they’re also in an industry that’s not shifting around a whole lot, where they can not risk falling behind. When you look at companies that have paid steady dividends a long time, it rules out a lot of these industries that are just not good places for capital, like steel. Places where there’s a lot outside of the company’s control. Even the technology sector, there’s very few, at least non large cap tech companies that are reliable dividend payers, that even choose to pay dividend at all.

Brian: It’s kind of a bit self-selecting in that nature, but you do have to be careful too. Again, focusing on simple businesses in simple industries is a core tenant of what I try to follow.

Steve: Right. Okay, that’s great. I just wanted to ask you about a couple other types of income producing investments that you covered on your site. MLPs, master limited partnerships and REITs. MLPs, I mean I know at a high level. They’re essentially typically you’re buying like a share of a pipeline in the energy space, transporting oil and any color commentary on those kinds of vehicles as opposed to dividend investing?

Brian: Yeah. A lot of dividend investors will own MLPs. We have not, we have actually never owned an MLP. There’s actually very few that I’ve ever felt comfortable with. That space is evolving pretty rapidly too, and for different reasons. Not so much technology, but regulatory and tax changes I can briefly touch on. But, MLPs were created I believe in the 1980s by Congress to encourage investment in basically energy infrastructure. Right, companies that have pipelines, they might have storage, they might process oil and gas to help get it from where it’s produced to where it needs to go to the end user. In theory, they’re supposed to be really reliable solid business, right?

Brian: The customers often times have volume committed contracts, so no matter how much oil or gas they send through the pipeline, they’re still paying the same fixed fee. They’re under long term deals, et cetera, et cetera. MLPs in theory have very stable cash flow. That’s largely held true, even despite the oil crash that’s happened the last five years, but what’s happened in the space in a nutshell, when the oil prices crashes, even though MLPs marketed their businesses as being insensitive to commodity prices, since they’re not the ones that make a dollar more if oil is higher or lower. Their unit prices, their stock prices got hammered. I think the MLP index was down 60%.

Brian: This caught a lot of investors by surprise, and what happened was MLPs are required to distribute the vast majority of their cash flow as, they’re called distributions, but they’re the same thing as dividends. To grow the business, an MLP has to constantly issue new units, new equity, or debt. When their stock prices tanked because investors were fearful that maybe these oil companies won’t be able to honor these contracts anymore, they could no longer issue equity affordably. They had all these big growth projects in the works, and they had to decide “Well, do we cut the dividend or do we cut back on, do we stop these growth projects? A lot of them decided, “Well, we’re cutting the dividend,” and that really stunned a lot of retail investors who had been spoon fed this message of if it’s a tollbooth business model. What can go wrong? It’s an eight percent yield because they pay out all the cash flow.

Brian: A lot of MLPs are actually going away now. They’re either rolling up or converting to corporations. The industry is changing quite a bit, and tax reform brought in lower corporate rates, and MLPs don’t pay taxes, they’re pass through entities, it made that structure a little less attractive too, since the tax savings weren’t as great. It’s a space that has evolved significantly. I always urge investors to be cautious. There’s only a few MLPs that I feel like are really well run companies and will probably stay MLPs and not be affected. The rest, you really have to be careful with what you’re buying.

Steve: Yeah. That’s great to get that commentary. It does definitely seem like a pretty nichey investment, and how about rates? Do you look at those?

Brian: I do. REITs, I’m much more comfortable with. Again, all things in moderation, because like MLPs, REITs or real estate investment trusts, they’ve been around a lot longer. I believe they were created in 1960, and it was for a similar reason. The government wanted to encourage investment in real estate. Real estate investment trusts, they own, gosh, they can own just about anything real estate related. Public storage is one consumers are probably pretty familiar with, self-storage. They might own malls, they could own industrial warehouses, they could own hotel chains. They could own healthcare facilities, gas stations, there’s a ton of different types of REITs, it’s really a big box of chocolates.

Brian: It’s also a nichey too in that right now, at least the real estate sector, I believe it’s less than five percent of the overall S & P 500, but it’s a big appeal to income investors again, because they’re required by law to pay out at least 90% of their taxable income as dividends. They have a high, as its known a payout ratio. If they earn a dollar of taxable income, they have to send at least 90 cents of it back to their investor base. Their yields are higher, which again raises the appeal of these as retirement holdings. We own some REITs in our dividend portfolios, and you have to be careful too because like MLPs, if they’re growing REITs, they do have to issue capital to keep growing, because the dividend doesn’t leave much left.

Brian: They got hit pretty hard during the financial crisis too. Over 30% of REITs either cut their dividends, suspended it or paid it out as shares instead of cash. Again, you got to focus on what industry its in, how cyclical is that, and how healthy is this company? Is the balance sheet good, is the payout ratio reasonable? That’s again, what we try to do with our dividend safety scores, to help investors size up, okay what REITs seem like a good fit for my risk tolerance?

Steve: Right. That’s awesome to get that color. Anything else that your users are kind of actively looking at, besides dividend stocks, REITs?

Brian: I would say most of our people that are drawn to our website, they have, of course, a portfolio of individual dividend stocks that probably includes REITs and MLPs. A lot of them also own some ETFs or mutual funds, and that could be for a few reasons. One, some people I think feel more comfortable the more diversified they seem to be. Two, they might only have options like that if they have a company sponsored 401K, whatever their restrictions might be. Outside of those securities, less common ones are preferred stocks.

Brian: You can think of a preferred stock as kind of a hybrid between Coca-a-Cola stock you might buy and bonds that Coca-a-Cola sells. They tend to pay a fixed dividend, and it’s usually a higher yield because of that. Typically, you can find a preferred that might yield four, five, six percent, but not a whole lot companies issue preferred stocks. But, their higher yields make them attractive, and they’re more stable too, since they’re that hybrid between a safe bond, and a riskier share of common stock.

Brian: The other type of investment some people will look at are closed in funds. If a preferred stock is a hybrid between the common stock and a bond, a closed in fund is somewhat of a hybrid between an actively managed mutual fund and an ETF. They trade like ETFs, but they’re actively managed like an active mutual fund. Their fees tend to be higher, but they also engage in strategies that boost their income appeal, it’s not uncommon to see closed in funds that might offer a yield of six, eight, 10%, usually because they employ leverage. These can be riskier investments, again, you have to be really careful to understand what is this fund doing? Just because it says it’s a fund, doesn’t mean it’s this safe, diversified little angel that will float through the next down turn or whatever their strategy is, it can vary wildly with how they invest.

Brian: It’s an area that I’m not totally opposed to, but you have to really do your homework if you’re going to own some of these vehicles, because since they do trade like an ETF, they’re valuation can drift significantly from the value of their underlying assets. They can trade at huge premiums when times are good, during the down turn with the financial crisis, even if their investments are worth 100 bucks, investors freak out and they can trade at 70 cents on the dollar. You have to be aware of those risks to go into that space.

Steve: Yeah, I think for a lot of folks, they would like to be thoughtful about what kind of risk they can handle emotionally and also financially, and really understand that hey, if you’re targeting a return that’s well above market indexes, there’s risk that comes with it. You can never get away from that. Everyone is always looking, “Oh, can I get 12%?” Yeah, sure, but just be ready for some extreme volatility in your portfolio, which many people don’t understand.

Brian: I think wasn’t Bernie [Maydoff 00:41:07] targeting 15% annual returns?

Steve: I’d be like oh great.

Brian: Right. If it sounds too good to be true, just come to your senses or be willing to take a speculative bet to understand the consequence, it’s one of the two.

Steve: Right. All right. I’d love to kind of understand from your perspective how to get started doing this. If somebody is interested in this, and they say, “Okay, I want to put part of my portfolio towards a dividend strategy,” how do you suggest they get started?

Brian: Right. Like we were saying just a minute ago, I think big part of the work happens before you get started doing anything, thinking through issues. A lot of what you guys cover, trying to understand what’s my risk tolerance, what am I trying to do, and come up with an asset allocation plan. Right? How much should I invest in bonds, how much do I want to hold in cash, how much do I put into stocks? The answer to that question will by far have the biggest impact on not only your income generation, but just your long term return on risk profile. It’s going to be different for everybody.

Brian: With that said, once you have decided, “All right, I’m going to invest 100 grand into a dividend stock portfolio for whatever reason,” the question is how do I do that? Well, we could buy a dividend ETF, and that can work well, depending on what you’re going for. The downside to an ETF in my view, are you lose a little bit of control, right? Well, Vanguard’s high yield ETF yields three percent VYM. For a lot of people, that’s not going to cut it. I think you can have a conservative strategy that puts you between a three and a half and a four and a half percent yield in today’s market.

Brian: If you’re just buying the ETF, your kind of maybe leaving some income on the table, depending on what you’re looking at. That’s one of the downsides and you don’t necessarily understand the risk profile of it, because it could be spread across 50 companies or 500, and it’s not focused on safe income.

Steve: Why do you think that VYM only pays, I’m assuming VYM has a really low load, why do you think they’re only achieving three percent, when you think you can achieve three and a half to four percent?

Brian: They’re spread across over 400 companies and when you think about the S & P 500 has a yield of two percent. There’s just not that many companies that yield more than four percent. We’re probably looking at a few hundred, and a lot of those are going to be junk companies that you don’t want to own. Part of the blessing and curse of an ETF is like yeah, you get a lot of diversification, but that can cause trouble actually when it comes to generating a reasonably high income and a safe income too.

Brian: If you look at the dividend payments from VYM for example, they’re all over the map each quarter. You have no idea what you’re going to get paid. Coca-a-Cola, they tell you exactly what you’re going to get paid. If you’re investing in individual paying stocks, you can customer your portfolios yield and risk profile and you know exactly how much you’re going to get every month of the year, which a lot of people appreciate being able to see it. Again, helps to focus on safe dividends.

Brian: How do you do this all? All right, we’ve decided a 100 grand in dividend paying stocks, now what? Well, there’s articles you can read on our website, or others, I’m sure that talk about how to build a diversified portfolio, but there’s just a few guidelines that our website and portfolio tracker adhere to that I believe remove most of the risk. First is you don’t want to just own a few stocks because your return profile is all over the place. That’s why people like diversified index funds.

Brian: Like Warren Buffett, if you look at his partnership back in the 50s and 60s, he might have a single stock that accounted for upwards of 40% of his portfolio, and it worked out great. 1968, his portfolio was up 58%, the DOW was up nine percent. You don’t want that in retirement. I’ve kind of settled on this range of like if you’re owning really quality, basic, safe looking companies, I would not go less than 20 in a portfolio, that’s pretty concentrated. But, I think once you get beyond 60 as well, your kind of owning so many things, it becomes much more of a chore to manage it, and the diversification benefits start to tail off.

Brian: There’s academic studies that kind of support that arrange, which I can direct anyone whose interested to. Besides that, you’re looking for companies that operate in different industries. If you were saying, “Okay, I’ve got 40 bank stocks, these are great companies, they’ve paid dividends a long time, they make money, Warren Buffett loves them,” well, if you own those before 2008, your dividend income would have been slammed and you probably would have lost a ton of money and panic sold. It’s important to spread your risks over different parts of the market. I like to cap each sector’s exposure at 25% of my portfolio’s overall value. Again, that just is to protect me from extending too far in an area.

Brian: The final part I would say is I like to equal weight these investments too, because it’s really difficult to know which stock will go on to be one of the best long term performers or run intro trouble too. The world is changing as fast as we’ve talked about. Your kind of following those three overarching guidelines, and you’re focused again on looking for companies that you understand, they seem like simple businesses as you learn about them, and their dividend appears to be, has a risk profile I should say that’s aligned with what you’re willing to accept.

Steve: Okay. And you’ve constructed kind of three portfolios yourself, that you invest in personally and track?

Brian: Correct.

Steve: Okay. How have you separated those? What’s the purpose of having three for each one?

Brian: Each one has a slightly different goal. Our most popular one is by far a conservative retirees’ portfolio, and that one targets a yield between three and a half and four and a half percent, with low volatility, safe dividends that moderately grow over time, and we’re just trying to basically track the broader market with less risk overall. That portfolio is focused on mature companies like Johnson and Johnson, right, that have paid dividend a long time. They remain in great financial health, they keep moderately growing, and their defensive businesses during down turns.

Brian: Of the other portfolios, one is called our long term dividend growth portfolio, and that’s focusing on companies that yield close to the one and a half to two and a half percent, so they’re retaining a lot more cash flow to grow quickly. You’re not going to buy that if you’re retired and looking to generate income today. That’s kind of more in the vein of people who like seeing this passive income snowball starting small, and they’re trying to grow their wealth a little bit more aggressively.

Steve: Okay, got it.

Brian: The third portfolio is kind of a mix between the two.

Steve: Okay, got it. The most popular one is the conservative retirees. I mean, what does your audience look like in terms of age and wealth, or savings?

Brian: Well, our service is again focused really on this concept of I think there’s skill behind generating safe dividend income and reducing portfolio risk. We’re not selling the message of beating the market or buy these 10 stocks every month. We want people to learn how to do this on their own with us by their side, sending them the right tools and easy to use data and research so they can go forth with confidence to meet their goals without being stuck with high advisory fees or anything like that.

Brian: Most of our audience is someone who is now thinking about retirement, and “Hey, how am I going to make the numbers work? And can dividends play a role in that?” Most of the people that are interested in our service are between 50 and 90 years old, if you can believe that. They all have this shared interest of either learning more about building a dividend paying portfolio or they already have a portfolio in place, and they’re looking for someone who can help them understand the risk profile and monitor that going forward to keep their income stream as safe as you reasonably can.

Steve: Yep. Makes sense, that’s cool. Why not start your own fund?

Brian: That’s a good question. We get a lot of emails from people that are asking us questions like, “Hey, why don’t you guys launch an ETF?” or “Can you personally review my portfolio? I’d pay you something to do that.” Today, at least, we’re not an RIA, we legally can’t do that and we don’t. We kind of provide information we believe those things themselves. I think it’s just really hard to do a lot of things well without sacrificing on quality.

Brian: For the foreseeable future at least, our plan is really to just double down on what we feel we already do well now, that our customers like and try and make more of them increasingly love it. That’s so far, it’s been just a really, really valuable thing for us to do that. We’re kind of unique in that we don’t do any active marketing. In fact, this is I think the second podcast I’ve ever done. The last one was three or four years ago, but I really like Steve, so here I am.

Brian: Instead, we’re a small team. We focus everything that we do on just improving our service. You don’t see like our research blasted anywhere else on the web, it’s all on our own website. We’re not out there tweeting about things. It’s just really an internal focus. I think our customers have really appreciated that. We’re not trying to upsell them on new services we’ve launched or anything like that. They’ve talked a lot about us, and that’s been how our business has primarily grown to over 2000 customers today, it’s just word of mouth, keeping people happy.

Brian: Until we feel like we’ve tapped out on opportunities to make our service better and better, right now I don’t foresee us moving to another model, but there is a need there. There is, because at some point we kind of age out of managing individual stocks, right? Your wife doesn’t have an interest in it, your kids aren’t interested or they don’t have the knowledge, and your kind of left like well, gosh, what do I do? In fact, some of our cancellations, most of them even, are due to people aging out where they say, “Hey, I love the service, but I just can’t manage a portfolio of individual stocks anymore.” They seek out an advisor, or some other way to do it. That’s a problem that’s on our minds a lot is there’s not a super easy way to thought of or solve it without going down that route of providing more individualized service.

Brian: For now, at least, we’re just going to stay the course, and I think that’s something our customers really appreciate about us.

Steve: Yeah, it makes sense. I totally get staying focused and focusing on your differentiator, which is this dividend safety score and actively watching these companies, I think that has value. Yeah, when I’m … After being in this space for a while, it does feel like so much of this is lowering the barrier for people, whether it’s for planning on our side, like hey, anybody can build their own financial plan and retirement plan, and you can actually understand it and get educated to invest and how to do it in a low cost way, in a way that you understand, and in a way that meets your needs.

Steve: If it’s, I, like you, most of our users are over 50. They’re kind of like “Hey, what I really need is how do I convert this pool of assets to income in a way that I understand that lasts for as long as I will, which is unknown, and adjusts for inflation, which is unknown and doesn’t go up and down in a huge way, that keeps me up all night,” because I think everybody feels like hey, the market is pretty highly valued. It’s had this 10 year run. What happens if we hit 2008 again?

Steve: I mean, unlikely we’ll hit 2008, but if you have the 25% hit, which is I think the standard deviation of the equity markets, and so you should expect that in any given year that could happen, and you go from a million dollars to $750000 bucks, you’re like eh, that’s painful psychologically. Anyway, my point is that I think the idea of a fund would probably be pretty scalable for you.

Brian: That’s a great business model. I mean, having come from the fund world. It’s unbelievable. The place I was working at, they started up in the late 90s and by 2010, they had scaled that business from nothing to at the peak, at least over $10 billion in assets. When you’re charging one percent, and you don’t need to add people to grow that business, I mean we could have kept the same team in place, and if the business quadrupled to $40 billion, your revenue just went up significantly, and your head count stayed the same. It’s a great scalable model if you can deliver results for folks, and that’s-

Steve: Well, that’s where Vanguard has been crushing the fund world and forcing fees to come down, which is good. You know, our thesis is the same. Similar things are going to happen to individual advisors. One of the places that the high fees still exist are individual financial advisors, and they do add a lot of value. The question is … It’s the same model, though. Taking one percent of someone’s million dollars is $10000 a year, and that return gets lost for that year, all the future compound growth gets lost. If you look at the map, it ends up being like 33% of your lifetime returns.

Brian: It’s scary how it works, and it sounds so innocent, one percent.

Steve: One percent, sounds great. If I’m an advisor, and I advise $100 million, and I get one percent, I’m making a million dollars a year. Great. Let’s keep doing more of that.

Brian: We wouldn’t be doing this podcast, right?

Steve: Right.

Brian: I mean, to be fair though, when you go back to that number we talked about earlier, that 2.1%. I think it was Delbar who conducted this 20 year study and found that, it was a 2.1% average annual return of the individual investor earned. I mean, gosh an advisor could charge three percent if they just keep that person invested earning the market return, they’d be probably tripling their return to six percent a year after fees.

Steve: No, and I totally buy it. That’s where the value of the advisor is. It’s managing people’s behavior and talking off the cliff when they come rushing, and be like okay, it’s 2008, I want to go to cash, let’s go to cash or 2009. That’s what people did, they went to cash and then, the market snaps back and you’re in cash and you’re like okay. Let’s get back in.

Brian: That was-

Steve: And now it’s 2019. Let’s put it all in.

Brian: Completely. I was looking at something I’d written down, I think this was in, I think it was January of 2016, that’s when the market dropped, it might have been 10% to start the year and every one was freaking out. T. Roe Price, it might have been Fidelity or Schwab, I forget, yeah. They said their contact with customers, whether it’s phone or email surged 60% to all time highs.

Steve: Right.

Brian: That’s when everyone pays attention, like oh my gosh, what’s happening, get me out.

Steve: The last couple times the market has corrected a lot. The robos out there have actually had some sight outages or people can’t get through, and they’re like wait a sec, I can’t talk to these guys.

Brian: It’s really interesting how that whole landscape is evolving. We have some advisors who I think use our service, and it’s kind of the same story. They’re looking for ways to differentiate themselves, right? Because, people are … Fees are becoming more and more transparent, performance track records more and more transparent, people are talking, information is just flowing everywhere online. Anything you can do to just show people how you’re adding value and kind of justifying your fee structure, I think it’s just that transparency is really increasingly appreciated. If not, there’s alternatives that are bubbling up.

Steve: For sure.

Brian: Like with all things in capitalism, someone will benefit from the greater competition, but it’s not always the incumbents.

Steve: Totally. All right. Just as we wrap up, I’d just love to hear what’s a day in the life like for you? What are you spending your time doing?

Brian: Well, with a two and a half year old toddler, and another baby on the way next month, life has been busy preparing outside of work. No, I love my family, they’re great, but from a work perspective, a day in the life, one of the reasons I love investing is most days are different. Something new is happening, something is changing and oftentimes, there’s nothing to do about it. But, as we’ve just talked about with people reacting to market fluctuations, there is something to do about it in terms of how do you help people stay calm and stay the course? That’s a huge part of our job.

Brian: Once someone has kind of bought into how dividend investing can help them meet a goal in retirement, then it’s really about managing the risk profile and that includes both behavioral issues as well as financial issues, like dividend safety. Every morning when I wake up, I usually skim through Wall Street Journal and a few other sources I look to and just see hey, has anything interesting happened that would be getting the attention of some of our members?

Brian: For example, a couple of months ago, Johnson and Johnson stock plunged again because it was dragged into the opioid crisis. If you hold Johnson and Johnson you’re probably like oh my goodness. It’s down 10% today, should I sell? Is the dividends still safe? There’s kind of a never ending stream of questions that I don’t know what the questions will be any day or week, but I do my best to find them and get in front of them before someone would do something they may regret by just reacting on emotions to a situation.

Brian: A lot of my time is spent actually in the weeds staying up to speed on material events that effect the companies that I cover with research and that a lot of our members own and are interested in. It’s being a monitor as well, beyond just a little number on the screen on how safe the dividend looks. The research process is really big for me, it’s my background, I love doing it. It takes a lot of time to do thoughtful research. It involves a lot of digging. That’s my passion, that’s what I spend most of my time doing, otherwise, as our business has grown, you get more emails throughout the day to people asking questions about all sorts of stuff. Some entertaining, some not so entertaining.

Brian: We answer those in house, we don’t outsource anything and I think people like being able to hear from us directly on issues they’re wondering about. Those are oftentimes two of my biggest tasks, and then we’ll spend time as well prioritizing what comes next for the service. By maintaining that direct connection with our customers, it’s oftentimes pretty easy to discern, like hey you know what? We’re hearing a lot about this, or people seem to complain about this problem, is there a way we can address it or do that better with our service than we are today, and building out kind of short term road maps I guess that are aligned with the long term vision we have for the service.

Brian: It’s really blocking and tackling, it’s not too exciting, but it’s really a lot of fun to be able to work on something that you’re passionate about, and to get emails from people that are happy with what you’re doing and happy enough to refer other people to it too.

Steve: That’s great. That’s great to hear. It sounds like there’s core research, there’s supporting your users, and then you’ve automated this to some degree, your safety score and you’re continually running in the background. How does that work? You just run it periodically?

Brian: It’s kind of a hybrid system as well, so all of the website’s data is updated in basically real time. We pay a lot of money to a vendor, a lot of money, they’re great though. They’ve provided us with a lot of information we need. Having that up to date and timely is critical when it’s so easy to go into your broker’s account. It’s not like the East India Company, right? Where I have no idea what’s happening, I’m waiting for the boat to arrive at the dock. Now, it’s super easy to go into your brokerage account and see stuff changing and that needs to be reflected on our website as well, so people can understand usually you have to do nothing.

Brian: With our website and our dividend safety scores, we’re getting all the information up to date, every single day. The question is with our long term focus, ideally our scores never change, because they’ve accounted for risks that can happen in different industries and the different companies based on their financial profile. Scores very rarely change, even though we’re looking at all the data every single day. When they do change, it’s often because there has been a material shift in the risk profile. Maybe a company made this huge acquisition and now the balance sheet is loaded up with debt. Well, certainly if a dividend looked very safe before, it’s probably not looking as safe today, so we’d go in, and we’d change that.

Brian: I’m the one who actually looks at every single dividend change, it’s not all robo. It’s kind of a recommendation system if you will. If it’s telling me hey, this company’s dividend score looks like it should be down graded because it took on more debt or earnings are declining to a risky level, it’s paying out too much of its cash flow. I’ll go in, and I’ll get to investigate a situation and make the final call. I think a lot of times it can be tricky to automate something like that without just losing the performance element and the quality.

Brian: It’s a hybrid system, and it’s an area that we’re spending a lot of time. I mean, every single week, I’m doing something related to dividend safety. Customers care a lot about it too, and in the future we’d like to explore different ideas and how we can make that information even more easily communicated and understood. I can explain more if you like, that’s kind of the high level.

Steve: No, no, no. This is super helpful. I always think it’s interesting when you look at a lot of investors, if they’re passive, they’re like, “Hey, I just want to buy the whole world and have everything work out,” but when you dive into the markets and then into companies, and then it’s down to people and what actually happens, returns are driven by individual innovation, hard work, you can’t get away from the fact that what makes the market in our economy work is all this individual activity. Active is definitely a part of the world, and innovation is a part of it and identifying that is what makes, and capturing that value, is what makes our economy work. It’s always kind of cool to hear how it translates for individual people and companies.

Brian: I think you’re exactly right, and active absolutely has a place. I think the problem was, there were too many active managers mascarading, they’re basically passive managers, but charging fees like active ones, owning 150 stocks. When you do that, one thing it’s impossible to stay on top of your portfolio. For two, unless you’re really concentrated at the top, it’s almost impossible to deviate from the passive benchmark you’re tracking or competing against, especially in net of fees. I think there are just too many active managers, I mean at one point, it may be still true today, there were more hedge funds than there were Taco Bells in America. It’s unbelievable how many people are studying the market and-

Steve: Right.

Brian: A lot of these guys are really, really smart too. I had a chance to visit a fund out of New York a few years ago. I sent them some of my research and this huge packet. It was like seven dollars to ship the thing or whatever, there’s a few dozen managers that I just love reading about them, I totally respect their process, and they’ve got the decades of performance to prove they had skill. Whether or not that can be sustained with today’s information age remains to be seen, but oh man, the kind of diligence these guys do. They were telling me if you were to start out there as an analyst, you would study your first year … You might study like five companies, and you were working 60, 70 hours a week. You’re doing everything. You’re learning all their suppliers, you’re talking to competitors, you’re learning about everything. You’re flying in planes all over the world.

Brian: Despite doing all that homework, they’ve not been able to in any given decade pick all right, this is a stock that’s going to be our best performer over the next 10 years. Half their decisions are still wrong because the world is constantly changing. No matter how much work you do, these guys are doing their absolute best to set the right price for stock. The market is really efficient most of the time, not all the time, like 2008 panics happen, both at a company level and market level, but I think the active world is going to continue to favor managers like them who are truly active that run a concentrated portfolio to set prices and the rest will just go to the lowest cost provider that will track the market.

Brian: It’s a healthy balance I think that’s ultimately going to be achieved at some point.

Steve: It’s cool to get your perspective. All right. Well, look, I think we should wrap this up. Any key influencers or podcasts or doesn’t sound like you’re super active on Twitter.

Brian: Don’t follow me. Yeah, it’s kind of like Johnny Depp, but you have heard of me, right? No, I don’t think anyone has heard of us really. We’re just a little gnat. In terms of influencers, like I said, I would refer people to just read up on some of these managers that I think are really skillful and have just an incredibly detailed diligence process. There aren’t a whole lot of them out there, in my opinion. For example, there’s the Sequoya Fund out in New York, there’s Harris Associates in Chicago, Vulcan Value Partners down south, and all those guys publish letters either quarterly or yearly, and it’s really interesting to read some of their thoughts. Of course, they’re not telling you the juicy inside analysis they’ve done, but just learning how they think and how they invest. Even following some of their holdings, this is going to be more for the hobbyist.

Brian: A site you can use is Whale Wisdom. It’s free, you can pull up any of these managers, it’s called a 13 F, attracts what they own, they have to report to the FCC if they’ve over a certain size. You can see it, it makes it real easy to see, what did they buy, what did they sell last quarter? It’s kind of a cool insight. The other person I would recommend following, and I don’t know him personally, and there’s actually not a whole lot of content out there either on him, but Pat Dorsey. He’s in Chicago as well. He runs Dorsey Asset Management now. He was a key piece in building up Moringstar’s Equity Analyst Team and developing their mote rating, which a lot of people are familiar with.

Brian: His view of the world, his approach to fundamental investing I’d say is, it really resonates with me. He also runs a very concentrated portfolio, in fact, I think he owns 10 stocks, maybe fewer. He’s up to I believe half a billion in asset management today, and again a guy who really does his homework and puts his money where his mouth is by being truly active. I’d give anything you can find on Pat Dorsey a look. He also wrote the book, The Little Book that Builds Wealth, which is a classic I read a long time ago too.

Steve: Okay, cool. Yeah, I haven’t heard of it, I’ll have to check it out. He’s probably doing pretty well if he’s taking a percent of assets and owning 10 stocks.

Brian: I think Facebook is one of his biggest positions, like maybe 10, 20%, and they have been crushing it, so he’s more than … He’s probably been underpaid the last few years actually.

Steve: Interesting. All right, cool. Any questions for me before we wrap it up?

Brian: I will ask you a question. I really love when we were first getting to know each other, a few weeks or months ago at Tom Blair’s, you were telling me a little bit about you were helping your mom think through some financial planning issues, and that’s what kind of set you down the path with a new retirement. Great story. My question is how did you position her to generate income back then, and is there something you would change now, and the follow up is, why isn’t she using Simple Safe Dividends?

Steve: Great question, I would say that we didn’t do nearly enough on the income side. It was really when we first took on her situation, it was first about expenses and kind of right sizing her situation, and getting her to a place of confidence. What happened was we, it was a multi-year process, but we were kind of looking at … Just her situation, she was … Her income expense situation was upside down. She was burning money and she was using credit cards to subsidize her life, like so many people.

Steve: Once she said we could help her, we started looking at this and said, “All right, look. We got to kill the credit card debt.” Okay. “Well, you’re living in the 6000 square foot house with two people and 10 acres of land, it costs a fortune to heat and all this other stuff, do you really need this? Do you want to … Are there other places closer to town where you could have a much more manageable life?” We went through this process of kind of helping her down size, right size and move to a smaller house that was much less expensive. Freed up home equity and much more walkable area. Freed up some capital.

Steve: There was some investing, but not strictly focused on dividend investing. In retrospect, I think that would have been something we could have done for her, but she’s kind of gotten to a place where she can live decently on social security, Medicare. We’ve subsidized her life to some degree as well. Her life has gotten, we’ve done some internal family transactions to facilitate things, like around housing and stuff like that still lets us capture some of the return in some of her assets, but also helps her with her life. I think she’s at a place where she’s financially confident, so she’s got enough income, enough assets, she understands her situation, she’s not worried about it, and that’s kind of unlocked the rest of her life.

Steve: I mean, when you don’t have that, and that’s a big part of what informs what we’re doing, we think a lot of people are spending so much time kind of worried about their money, the money side of this that they can’t think about anything else in their life. The more that we can help people get organized, see easy things to do better, to be more efficient, bring their cost down, use their assets better, get their income and expenses in line, and then take simple steps to try to make that better if that’s setting up a dividend income stream or some other kind of passive income stream for rentals or whatever it is. Help them kind of get to that point of economic confidence, then they can do other things with their human capital, which is kind of the big secondary unlock for our business.

Steve: It’s like okay, there’s this huge demographic wave that’s been happening, 10000 people a day turning 65, but they’re living a lot longer. I mean, the average person I talk to now is 60 to 70 years old, if they’re reasonably healthy, they’re going pretty strong. They may not be working in the career they had when they were 45 or 50, but they still want to do stuff, be involved in the community, contribute. We see a kind of what we’re doing is trying to help people get to that economic security so they can do these other things.

Steve: Yeah, learning more with our users. It’s like you have 2000 customers, well there are … Think about how many people are out there. I mean, we have 70000 users that are similar to yours, and probably less than five percent, right, pursue a strategy like yours. Could many more benefit? Probably. That’s why we’re talking to you, learning about this and I’m interested in … I may fire it up, put together a portfolio, I probably will, see how it performs. Yeah. Anyway, does that answer your question?

Brian: Yeah, that’s really interesting. I mean, you guys are solving a big problem, I’m actually going to be talking with my parents soon just to go over some of the different options that are out there because it is really, really difficult I think to wrap your mind around all these different issues, and it’s stressful. I mean, time is not necessarily on your side anymore to make a mistake. Your mom was really fortunate to have you and your brother there to help her think through some of these things, because it’s not necessarily rocket science, but when it’s all combined like that, and we don’t really have a trustworthy place to go. It makes life really difficult.

Steve: Yeah, I think when you’re in the space, you know, it doesn’t feel like rocket science, but if you’re a non-financial person, like my mom was in advertising. Then she was in real estate, but she wasn’t necessarily like a financial, I worked for Schwab and Wells and I worked in financial services, so you kind of pick up a lot of things in doing this. But, you know if you’re like a DJ or something, or you’re an artist or you’re a writer, you’re not thinking about money. You may not even want to think about it. Then it’s like who do you trust, do you understand it, and so much of this industry is like people trying to win trust, and there’s so many bad actors out there or people that are just, they feel like they’re doing the right thing, but they’re actually not that efficient or they’re taking way too much risk or their fees are way too high. That’s the challenge, you know? Helping people navigate that is the opportunity I think.

Brian: Yeah, it’s like the balance we have to strike is hard one because it’s that thing of keeping it simple enough, simplicity to make it understandable and approachable and easy enough to follow, but then also keeping it thorough and detailed enough where it’s being followed in the most responsible manner possible. It’s kind of a never ending problem.

Steve: Yeah, I mean this comes up all the time. It’s simple, but not easy. You know? It’s like losing weight. Simple, but not easy. Getting in shape, all this stuff. Same thing here. All right, well this was really good. I’m going to just wrap it up. Thanks, Brian for being on our show, thanks Davorin Robison for being our sound engineer, anyone listening, thanks for listening. Hopefully you found this useful. Our goal at New Retirement is to help anyone plan and manage their retirement so they can make the most of their money and time. If you’ve made it this far, I encourage you to check out Brian’s site, simplysafedividends.com and his service. Check out our site at newretirement and our planning tools. If you want to join our private Facebook group or follow us on Twitter, you can look for those things. Just look for New Retirement on Facebook or @newretirement on Twitter.

Steve: Finally, we are trying to build the audience for this podcast, so if you have a chance to leave us a review on iTunes or Stitch or anywhere, we’d appreciate it, and also we read those and all questions, we try to work them into the show. Okay, so with that we’ll wrap it up. Thanks, Brian.

Brian: Thank you, Steve.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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