Getting Started – Common Investing Mistakes

This post explores the common mistakes faced by traders and investors. I am putting together a series of posts in the Getting Started series to help new investors, but this post holds true for seasoned investors as well – as we tend to forget some of the basics and get caught in the moment. It is always important to keep track of the following points while investing in order to avoid repeating these mistakes.
1. Lack of understanding: Jumping into an investment without understanding it is one of the most common mistake. Every profession goes through years of training and practice, yet people gamble their life savings away by jumping into the stock market without educating themselves. Trading the hot stocks that you hear about without understanding  anything about the business is guaranteed to lose you money. Another problem adding fuel to the fire here is that the media and “experts” pass on their opinion portraying it as factual information.
2. Timing the market: Timing and beating the market consistently is probabilistically unlikely. Day trading and high-frequency trading simply does not work for the individual investor because the odds of beating the institutions are minimal, if not zero. Institutional investors always have more data (or at the very least, data before you do – which could even be by a fraction of a second), faster computers, better trading strategies which will always help them come out on top.
Remember that there are two parties to a trade. For every trade where you are buying and are sure that you are timing it right, there is another person who thinks that getting out at the moment is the best course of action. What one needs to consider is this: “What information does the other person have that I dont?”
3. Instincts and Emotions: Trading with instincts and emotions is one of the top reasons for the irrationality of the masses. Bringing emotion into your investing mechanism could result in huge losses. Investors should never get attached and fall in love with particular stocks and even your best performer should be a candidate for selling if something fundamental changes where the investment does not make any sense. 
4. Invest in what you know: ‘Invest in what you know’ has become a common theme in the investing world, which has also been perpetrated by the media. I disagree with this approach. Investing in a company just because you “know” their product doesn’t mean it can be a great investment. For example, I have heard many a times from gamers tending to think that a Xbox and PlayStation are fantastic products and are buying Microsoft and Sony are the way to go. However, during the life of Xbox 360, Microsoft was losing money on every console sold. Gaming has never been a breadwinner for Microsoft. Similarly, the Sony stock SNE has had a terrible run over years. Sony is a huge conglomerate, and even with its hands in so many pies, SNE has returned -17.5% in the past 5 years and -47% in the past 10 years.
Similar argument holds for geographical investments. Investors simply tend to stay invested in their own country instead of diversifying with investments in other countries.
5. Patience: Time is one of the biggest, if not the biggest factor in investing. An investment in a solid company which has a great business producing profits year-in-year-out will be your star performer. All you have to do is simply sit back and wait for your returns to compound over time.
6. Not sticking to the plan: Sometime also termed Performance chasing (although I dont like using that term for this issue) and shifting focus to the current theme that seems to make sense momentarily and abandoning your original plan to jump on the latest bandwagon – this approach can also incur losses in an investor’s portfolio.
7. Fees: Fees add up. A lot. If investments fees arent kept in check, returns can be diminished by thousands of dollars over a lifetime. It is for this reason that I discourage using mutual funds and instead use low cost index ETFs for better returns.

What do you think of the list above? Are there any other common mistakes that I have missed? Share your thoughts in the comments below.

Dividend Increase – Archer Daniels Midland (ADM)

Archer Daniels Midland
Archer Daniels Midland (ADM) is a dividend champion which has raised dividends for the past 38 years. In keeping with the tradition, ADM announced that it will be raising its quarterly dividends from $0.19 to $0.24, an increase of 26%. The new dividend is scheduled to be paid Mar 13, 2014 for stockholders on record at the close of business on Feb 20, 2014.
The board of directors issued the following statement: “Our continued strong cash flow generation and our confidence in the future earnings power of our company allow us to significantly increase our quarterly dividend,” said Patricia Woertz, ADM’s chairman and CEO. “Historically, we have paid out approximately 20 to 25 percent of earnings; going forward we will aim for a range of 25 to 30 percent, thereby allowing shareholders to participate more directly in the earnings stream of the company.” The company also announced that it intends to buy back from its shareholders 18 million shares of its stock by the end of 2014, which at current prices would represent about $725 million.
My portfolio consists of 40 shares of Archer Daniels Midland, which increases my quarterly dividends from $7.60 to $9.60 and an annual dividend raise from $30.40 to $38.40. At current levels, with the new increase in dividends, the stock yields 2.3% and my yield-on-cost is 2.97%.

10 British Stocks to Consider

This article explores 10 British stocks to hold not only for European market diversification, but also a global diversification since they globally renowned brands. British stocks generally pay higher dividend compared to their American counterparts, but tend to fluctuate, based on the exchange rate. Another caveat is that some companies only pay dividends once or twice a year, as opposed to the normal four times a year. The stocks discussed here all listed on the US exchanges trading as ADRs.
The advantage of buying British stocks for a dividend play is that American and Canadian investor’s can take advantage of a tax break. The tax treaty between the countries allows companies to pay out the dividends without any withholding taxes. Some stocks described below are originally companies from other countries (BHP is Australian, Royal Dutch Shell and Unilever are companies from the Netherlands), but because they are registered in the UK, can be traded as UK-listed companies offering investors the said tax break.
Lets jump into the details of the 10 British stocks to consider.


AstraZeneca plc (AZN) is a global pharmaceutical company. AstraZeneca discovers, develops and commercializes prescription medicines for six areas of healthcare: Cardiovascular, gastrointestinal, infection, neuroscience, oncology, and respiratory and inflammation. AZN has a 5-yr average yield of 5.3% and a 5-yr dividend growth rate (DGR) of 8.41%.

BHP Billiton (BHP) (BBL) is a diversified natural resources company. The company operates in nine segments: petroleum, aluminuim, base metals, diamonds and specialty products, stainless steel materials, iron ore, manganese, metallurgical coal and energy coal. BHP Billiton trades under two ADR symbols NYSE: BHP, which is registered in Australia (Americans and Canadians also get the same tax treatment as described above – no withholding taxes when held under retirement accounts) and NYSE: BBL which is registered in the UK. BHP/BBL has been raising dividends for 11 years, has 5-yr average yield of 2.7-3.1% and 5-yr DGR of 10.76%.
British American Tobacco plc (BTI) is a holding company in, as the name suggests, the tobacco sector. The company’s four principal brands include Dunhill, Kent, Lucky Strike and Pall Mall. The company has many other famous international and local brands, including  Rothmans, Vogue, Viceroy, Kool, Peter Stuyvesant and Benson & Hedges. The company’s brands are sold in over 180 markets – which includes cigarettes, smokeless snus and cigars. BTI has a 5-yr average yield of 4.2% and 5-yr DGR rate of 10.71%.
Diageo plc (DEO) produces, distills, brews, bottles, packages and distributes spirits, beer, wine, and ready to drink beverages. DEO sells products in more than 180 markets with brands such as Johnnie Walker, Crow Royal, J&B, Buchanans, Windsor and Bushmills whiskeys; Smirnoff, Ketel One, Croc vodkas; Captain Morgan rum and rum-based products; Bailey’s, Tanqueray, Guinness stout. DEO has a 5-yr average yield of 3.1% and a 5-yr DGR of 16.33%.
GlaxoSmithKline plc (GSK) is a global healthcare group, which is engaged in the creation and discovery, development, manufacture and marketing of healthcare products, including vaccines, over-the-counter medicines and health-related consumer products. GSK’s principal pharmaceutical products include medicines in therapeutic areas: respiratory, anti-virals, central nervous system, cardiovascular and urogenital, metabolic, antibacterials, oncology and emesis, dermatology, rare diseases, immuno-inflammation, vaccines and human immunodeficiency virus (HIV). GSK has a 5-yr average yield of 4.9% and 5-yr DGR of 2.81%.
HSBC Holdings plc (HSBC) is a global banking and financial services organization. As of Dec 31, 2012, it provided a range of financial services to around 58 million customers through four global businesses: retail banking and wealth management, commercial banking, global banking and markets, and global private banking. HSBC has a 5-yr average dividend yield of 4.1% and a 5-yr DGR of -4.91%.
National Grid plc (NGG) is an international electricity and gas company. The company’s segments include UK transmission, UK gas distribution, US regulated and other activities. The company owns the electricity transmission system in England and Wales and is the national electricity transmission system operator, responsible for both the England and Wales transmission system, and the two high voltage transmission networks in Scotland, which the company does not own. The company also owns and operates electricity distribution networks in upstate New York, Massachusetts, Rhode Island and New Hampshire. NGG has a 5-yr average yield of 7.7% and a 5-yr DGR of 17.46%.
Royal Dutch Shell plc (RDS.B) operates as an independent oil and gas company worldwide. The company explores for and extracts crude oil, natural gas, and natural gas liquids. The company had stopped raising its dividends from 2009 to 2012, but has initiated the increases again since 2012. RDS.B has a 5-yr average  yield of 5.10% and a 5-yr DGR of 3.29%.
Unilever (UL) is a giant in the consumer goods sector. Unilever has four business segments – personal care, foods, refreshment and home care. Unilever offers products under various brand names such as Axe, Becel, Flora, Ben & Jerry’s, Bertolli, Blue Band, Rama, Brylcreem, Cif, Clear, Comfort, Domestos, Dove, Fissan, Heartbrand, Hellmann’s, Amora, Knorr, Lifebuoy, Lipton, Lux, Omo, Pond’s, Radox, Rexona, Signal, Closeup, Simple, St Ives, Sunlight, Sunsilk, Surf, TRESemm, Timotei, VO5 and Vaseline. UL has been raising dividends for 25 years and has a 5-yr average yield of 3.5% and a 5-yr DGR of 7.07%.
Vodafone Group plc (VOD) provides mobile telecommunication services worldwide, serving approx 450 million customers. Vodafone has equity interest in telecom operations in nearly 30 countries and around 50 partner networks worldwide. Vodafone has a 5-yr average yield of 5.1% and a 5-yr DGR of 6.74%.

Do you hold any of these companies?

Disclosure: None

Chatter Around the World – 24

Chatter Around the World is a weekly link update of economics, investing, dividends and personal finance articles that have caught my eye. In these weekly updates, I also capture my blog updates and news related to my holdings.

Consumer Brands – The 10 corporations that control everything you buy

New Blog Posts

Let dive into the links that caught my attention this week.

Updates from My Portfolio Holdings

Have a wonderful weekend.

Three Things to Think About Before Buying Life Insurance

The following post is written by Brian So, a financial advisor and blogger at www.aafsinsurance.com.


Buying life insurance, like buying a home, is a long term investment. You wouldn’t go house hunting without doing some background research on important points, such as location, cost and mortgage rates. So why would you buy life insurance without also doing proper due diligence? Here are three things to think about before buying life insurance.


1. Why you’re buying life insurance

The reason you’re buying life insurance should be very clear to you before you go out and shop. You can think of this as your life insurance goal, similar to how you have a financial goal. Most readers’ goals will likely be to provide support for their family in case something should happen to them. Baby boomers near retirement may want it to preserve their estate for their children and grandchildren or as a gift for their favourite charity. Once you have a goal, you can develop a plan to reach it.

2. How much life insurance coverage you need

The amount of coverage you require typically boils down to two factors: cash and income needs at death. The cash need includes paying off the mortgage balance and other debts, setting up an education fund for your children and emergency fund for the family, and final expenses. The other part of the equation, the income need, is used to provide an ongoing stream of income for your family. You can do a rough estimate on how much coverage will be needed to ensure income for a certain number of years, or you can use the many life insurance calculators online that will produce a more accurate result. Please see my post herefor more detailed information on how much insurance coverage you need.

3. Have a budget in mind

You may already know about the 2 major types of life insurance: term and permanent. Term is purely for protection purposes with premiums that increase whenever the term expires. Depending on the specific product chosen, permanent life insurance may feature cash values, investments, dividends, increasing coverage and limited pay options. Term is seen as more budget friendly than permanent, especially during the early parts of the contract. But don’t just look at the initial term price though, because the premium jump after the term expires can be drastic and will likely outpace the increase in your income. This is why I mentioned life insurance is a long term investment. You don’t want to buy a term-10 product because of its low cost, only to cancel it in year 11 when you still need it because the premium is now 3 times as much. Budget for both the present and the future.

I’ve presented three points to consider before you buy life insurance. What else do you think is important?

This guest post was submitted by Brian So, a financial advisor and blogger at www.aafsinsurance.com. His areas of expertise include retirement planning, tax savings and insurance advice. If you want to hear his thoughts about the world of personal finance, follow him on Twitter.