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Income Investor: achieving returns of 27% can be plain sailing
Not having much to do much is one of the great advantages of investing for income, says our columnist.
I used to sail, including across the Atlantic and down to Africa (from the UK). Sailing depends on the wind and the tides - and that is pretty unpredictable, although there are fairly reliable seasonal patterns. One of my most unsettling and surreal experiences was being becalmed on a mirror-smooth sea in the middle of the Atlantic. Becalmed and powerless.
Do you remember the song ‘Busy Doing Nothing’ as sung in 'A Connecticut Yankee in King Arthur's Court'? This is how I feel a lot of the time. As a responsible investor I feel that I should keep an eye on what is going on in the markets, following share prices, watching CNBC, reviewing the business news. As the song goes: ‘Hustle, bustle - and never a moment free’: and mostly to no particular purpose. The moral of the song is that mostly our intervention is not required.
Take your time
Not having much to do is one of the great advantages of being an Income Investor. Of course you do need to buy things once in a while but, as you are unlikely to sell them in the near future, it is worth taking your time. Warren Buffett has this line about imagining you could only buy 20 investments in your lifetime: that would encourage you to make sure that you made the best choices possible.
When you are sailing, you start by laying out a course to avoid the hazards and dangerous currents and maybe to visit some interesting ports along the way. You then keep track of where you are (this used to be with a sextant but it is almost too easy now with satnav). The hard part is keeping to that course, night and day, bad weather and good - sometimes sitting in the cockpit in the dark and cold with the rain stinging your face and wondering what on earth you are doing there.
So it can be in the markets. My portfolio is currently showing a totally unexpected (and, I should add, uncharacteristic) near 27% total return since the beginning of the year: but with only four ‘buys’ and one ‘sale’. That’s around one major decision every two months.
But while the market rises and falls, like the tide in the English Channel (although not as predictably), the income from the portfolio has remained virtually unchanged. This means that the yield has been falling, of course, but this stability of income provides a stable mooring point for my investment boat. The increase or decrease in the capital value is almost secondary, as I am not planning to sell.
This doesn’t mean that in 2008 and 2009 I wasn’t sitting there in my figurative cockpit wondering if I was really on the right investment course. Since then the portfolio has more than recovered, although there is still some water in the bilges to be pumped out.
Inevitably, as the cash builds up in my investment accounts I will have to do something with it (given the low returns). And yes, next year we might well be in for a correction in either bonds and equities. But hopefully my investment boat can ride through that stormy weather.
Anyway, I have to get back to work to decide what not to do next.
If you've enjoyed this article, why not visit DIY Income Investor's blog? The views in this article are the author's own, and do not constitute advice.
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by Gavin Lumsden on Dec 13, 2013 at 17:09