Hey everyone! I've got a really cool interview for you today. I recently sat down with a good friend of mine named Mike (I did this interview with him about a year ago that was very popular on the site).
He has a net worth of around $5,000,000. He's always been very open to letting me see his portfolio and follow along with what he's doing, and he agreed to talk about his approach to investing!
Keep in mind – this interview isn't intended to tell you what stocks to buy or that you need to adopt his strategy. This is just a look into someone else's portfolio that is getting closer to retirement age and has made millions in the stock market.
You're free to put your questions or thoughts in the comment section, but keep it civil if you disagree with something. This was pretty cool that he allowed me to get this much detail about something so sensitive. ~M$M
1. How did you get started with stocks?
I got started with “DRIP investing” a long time ago. That's where you purchase a small amount of stock every month directly from a specific company that you want to invest in. I would pick five blue chip companies and put $20 a month into them. This was back in my mid-twenties (when I was broke and didn't have a pot to pee in).
Eventually, I ditched them because keeping track of the cost basis was an absolute nightmare. This was way before computers were out there! It would be much easier to do it now, but that's not part of my strategy anymore.
2. Who taught you what you know about investing?
I'd have to give credit to my father, who taught me quite a bit. His basic preaching to me was to start early and invest regularly in quality companies at a reasonable price.
After that, the rest of my knowledge just came from reading financial magazines and through experience over the past 30+ years.
Basically, I had no formal training with investing. I do have a degree in business, but they didn't teach me anything about stocks or investing.
Read also: Investing 101 for Millennials
3. Do you manage your portfolio on your own?
Absolutely. I don't use any financial advisors – they can lose my money just as fast as I can.
*We both laughed*
Personally, I don't think it's always necessary to pay a financial advisor a portion of your earnings to manage your portfolio. It works well for some people, but it's not really something I'm interested in. I've been really happy with what I've been able to do so far with my investments.
4. What types of investments do you currently hold?
A little bit of everything, with the exception of bonds. I don't hold any bonds or bond funds. I'm not a fan of investing in debt, especially because I don't feel like there is enough return there for me to be worth it.
I also feel like I have a good amount of diversification with the investments that I already have. My risk tolerance is pretty high, but I am finding that the older I get, the more conservative I might need to become. Maybe I'll start buying bonds someday, who knows.
I own common stocks, REITs, commercial real estate, mutual funds, ETFs, some Master Limited Partnerships (the ones I own pay an awesome dividend), and quite a bit of cash that I'll be investing in the future.
5. As you've gotten closer to retirement, you're more interested in dividend producing stocks. Why is that?
They produce cash that I need to maintain the lifestyle I've become accustomed to. With a dividend producer, I'm getting the growth in the company and the cash as well.
For me, I would much rather leave my equity alone. If I die before my wife, I want to make sure that there is no possibility she could ever outlive the holdings we have.
6. What are your general criteria for picking a specific stock?
I like stable, blue chip companies that pay a dividend that increases annually to hedge against inflation. I'll consider a dividend that's anything over what a 10-year T-Bill will produce.
Typically, I like to see them with PE ratios around an average of 10. Right now, the average PE ratio for the S&P 500 is in the 20's.
It's not really just about the PE though. I look at how the company has performed over time and if they cut their dividend in hard times or not. I also like investing in things that I'm familiar with and actually use, but it's not a requirement.
Right now, I'm watching about 24 stocks that I'm interested in purchasing. I could watch a stock for 6 months or more before I pull the trigger and buy. Sometimes I'm waiting for the stock to get to a price that I feel comfortable with. Sometimes they never get to that price, and I don't buy.
7. What would you do if there was a market correction next month?
I'd look at my “wish list” to see what was down, and then start buying where I saw value. But honestly it's very simple – you're never going to invest at the very bottom, so don't try to. You can't time the market anyway, but I do have enough cash to where I could capitalize.
8. What's the best stock you've ever picked?
That's too broad of a question. Here's why: Is it based off of the percentage gain? Is it based on the dollars that I've made off of that stock? Give me the criteria that you want.
Me: Percentage gain.
Mike: Has to be O'Reilly Auto Parts (ORLY). Right now, I have about a 1,000% gain in that stock. Until recently I had as much as a 1,500% gain. Keep in mind – that's not a dividend producing stock. I bought it a long time ago because I felt that people would be keeping their cars longer and would need parts to repair them.
At the time, O'Reilly was rolling up other car part stores, and I felt like it was a good time to buy. They had some missed earnings lately, so I'm keeping a pretty close eye on them.
9. What's the worst?
*Long pause*
Everybody wants to talk about their winners, but nobody wants to talk about their losers. You'll always hear people talking about their best stocks and how much money they made on them, but they'll never tell you what they lost their butt on.
I'm not afraid to tell you about my losers because you can't always pick the winners.
The worst stock I lost the most money on was Hewlett Packard (HPQ). At the time I bought it, it seemed like a good company. The price was relatively low, but then the CEO had a scandal and resigned. After that, the company more or less imploded and I lost at least $40,000 on the investment.
10. What do you think about Robo Advisors?
Don't know enough about them, but from what I do know, I'd have a hard time putting my faith into a computer program to invest my money. For somebody that isn't as investment savvy or doesn't watch the market as closely as me, it could be a good option.
The concept seems good in theory, but I definitely wouldn't put all of my money into it. I'd probably put a portion of my money into it, and then compare my returns over time with the rest of my portfolio. You can't argue with success.
11. If you were a millennial, what would your investment strategy look like?
I'd try to get out of debt first and build an emergency fund so that I wouldn't have to tap my investments. Other than that, I'd say to start early even if you have limited funds.
If I were just getting started now, I'd probably buy some ETFs like VTI (which I own a bunch of), stay away from mutual funds because the fees are too high, and then buy some individual stocks that I liked as well.
Something they need to think about is the transaction fees over time. A few bucks here and there doesn't seem like a big deal, but if you're buying and selling all the time, those fees can eat you alive. It also means that you aren't being patient enough if you're trading that often.
12. What's your best advice for anyone else that is getting started with investing?
Don't panic or let your emotions ever play into your financial decisions. Also, don't try to time the market (although I am guilty of that from time to time).
So many people let fear guide their finances. At some point, you've got to learn to make decisions and see what happens.
Question for you:
What's the most important thing you got from this?
“3. Do you manage your portfolio on your own?
Absolutely. I don’t use any financial advisors – they can lose my money just as fast as I can.”
Very interesting. I’m kind of on the same mindset, so it’s always interesting to hear people’s perspectives!
And #12 is so important, too. I think people often react based on emotions which can be a disaster for financial decisions and investments.
Awesome interview! I like these sorts of posts 🙂 Keep ’em coming.
Yeah he’s definitely a DIY investor. I think for some people a financial advisor is a great tool, but obviously in his case he has been pretty successful without. Glad you liked it!
Interesting that he cited his father as his investment mentor. I had a great mentor, too…my grandfather. However, as a product of the Great Depression he made me risk averse and frowned upon traditional stock market investments. I wasted much of my twenties and thirties, because I was too afraid to invest in the market.
Don’t make my same mistake. Being risk averse is one thing, but staying completely on the sidelines is quite another. One gives you healthy skepticism; the other earns you a fat 1% on your money and gets you nowhere fast.
I could see how his experience would have created that mindset. I think a lot of millennials are just coming out of that and getting the confidence to invest.
Cheers to your Dad teaching about investments. Far too many parents don’t teach money, in general, let alone investing.
And man the HP example is too real. I worked at HP after Mark Hurd was let go for a sex scandal. Then Léo Apotheker was a train wreck. Followed by Meg Whitman who’s done a decent job but was tasked with an almost impossible task of getting them back into the forefront of technology they let slip through their hands.
Thanks for the interview! Good stuff!
No problem! I wasn’t sure if I should put the details of the scandal Mike mentioned, so I left that little nugget out haha.
Thanks for sharing this! It’s good to see that even people who are heavily involved with investing sometimes make mistakes. Nobody can beat the market, after all. 😉
No problem!
Great, interview! It is definitely cool to see how people invest on every end of the spectrum. The best part about investing in the stock market is you can do it with $10 or you can do it with $10 million. I have been investing for a few years now and have learned a ton. Investing is so important if you want to achieve financial freedom.
Glad you liked it! Yeah there are definitely a lot of ways to get started!
Really enjoyed the interview. Liked that his focus has been more of a long term buy and hold strategy rather than jump around trying to find the next big winner.
Also completely on board with self management and using ETFs. It’s incredible how much cheaper they are than mutual funds. Too bad most 401k programs still tie you to mutual funds.
Yes, his strategy has definitely been to buy and hold. Seems like it’s worked out so far!
Great advice, I really like this interview! I am in complete agreement on the financial advisor side, and I really like his advice to start with and emergency fund and ETFs (not mutual funds!) and move into some individual stocks as well. Thank you for sharing!
You’re welcome!
I think it’s pretty awesome that he manages his portfolio all on his own! I’m not sure I’d want to do that, but he’s an inspiration for sure!
He definitely spends a lot of time watching the market 🙂
Thanks for the post M$M. Your friend is a great example of the success that us millennials can have over the years investing ourselves. His DIY investing and success is what I hope to teach our generation and others who think they can’t invest successfully. Hopefully, millennials will believe in the success they can achieve investing and in turn improve their financial situations and reach financial independence.
No problem, glad you liked it 🙂
Awesome post, still not sure why we aren’t taught investing in school lol. I have all Vanguard ETF’s so glad I’m on the right track! Mutual funds almost always fail to beat the market and any gains are negated with all the fees….not easy for us millennials.
The most important thing is to get started – as he pointed out, he only started investing $20 a month. I think that is huge. Often times people think “Oh, when I have an extra X, I’ll invest.” But that X never comes because more “important” things always come up. Just do it, put it on autopilot if you need to and increase it at least yearly or as often as you can.
I’m actually intrigued about his views on bonds. I’m not a fan either but for a slightly different reason. I hate debt with a passion so investing in it seems contradictory to me. Great read!