Smartpolak interviews MG


About a year ago, a reader of the site (Pawel) got in touch with me via the contact form on the site. He had just come across the concept of Financial Independence and was intrigued by the concept. Pawel was in touch to say how much he enjoyed this site and had a few specific questions to ask. Ever since them, Pawel and I have been in regular contact with each other. So when he asked me for an interview for his sites smartpolak and smart roman I was only too happy to oblige. Please find the interview below. Enjoy.

Let’s start with general question about Money Grower blog. When did you start blogging about stock market and what are your goals for running your website?

I started the Money Grower website exactly 4 years ago. I recently did a post on it highlighting the main points of the site as well as my favourite blog posts to date.

When I started Moneygrower, it was a general personal finance website. It was meant to give readers information on earning, saving and investing money. Whilst I still do this, the main focus of the website has shifted to the my journey section which chronicles my journey in realtime to financial independence.

For those that don’t know Financial Independence occurs when your passive income covers all your expenses. When this happens, you are free to do what you want to do. You are longer required to work for money. Instead you can chose how to live your life.  You get the freedom to do whatever you want with you life now whilst still young and healthy instead of waiting till retirement.

Cool, let’s talk about investing. When in how did you get interested in stock market? Did anybody from your family invested in stocks? Do you remember your first stock you bought?

For a long time, the stock market seemed like a casino to me. I would look at ticker symbols flicking up and down at what would seem like random intervals. This is akin to how most people today see the stock market.

But this all changed when I read book such as the Intelligent Investor, Common Stocks and Uncommon Profits and One Up On Wall Street. The stock market movements that appeared to be random finally started to make sense. These books taught me that a stock represents an ownership stake in areal business. So when the underlying business does well, so does the stock. When the underlying business earns more profits, the dividends cheques that get sent to you as an investor grow as well.

The first stock I bough was Zambeef. This was in 2015. The main thesis behind this was that the stock was trading at a heavy discount on the London market compared to its home market. I still own this stock and I am up close to 60% to date.

As for my first dividend stock bought, it was BP (I only own 2 non dividend paying stocks). BP was what really got me excited about dividend investing as I would see cash flow into my account on a regular basis. I bought £1,800 worth of dividend stocks at the height of the oil crises a few years ago. BP stock was so unloved that the stock offered a dividend yield of 9%. For my purchase, I receive £172 in dividends a year or £42 every single quarter.

Since my purchase of BP, I have received £484 back in the form of dividends. BP has essentially paid me back 27% of my purchase price! On top of this, BP shares have appreciated in price further enhancing my return. All in all, I am up over 90% on my BP shares.



There are many investing styles, schools and approaches. Can you describe yours?

Most people would classify themselves as either a value or growth investor. Growth investors buy stocks of companies that are growing quickly while value investors buy stocks that they believe are cheap. But I don’t believe in these classifications. All else equal, fast growing companies are more valuable than slow growing companies and so any sensible approach to investing will recognise that growth is a component of value, not the opposite of value.

My style is to buy quality companies at a reasonable price. I want to only buy companies with sustainable competitive advantages that will grow their profit year after year no matter the macroeconomic environment. This means the companies I invest in will be throwing higher and higher dividend my way year after year. And for me the dividend aspect is key as it will provide me with the passive income to be financially free.

Procter and Gamble is a great example of a quality company. The company has increased its dividend for 62 years in a row! During this period there has been multiple recessions, including the worst meltdown since the Great Depression, the dot-com bubble and the housing bubble, the Asian financial crises, multiple international wars, ballooning government deficits, exploding national debt, countless natural disasters, political earthquakes and a maelstrom of regulatory changes in the financial industry, and Procter and Gamble still managed to increase their dividends during each of those years. This is truly amazing and that is why I aim to invest in companies like Procter & Gamble.

I have at times let my guard down and bought shares simply because they were ’cheap’. One example is Accrol Papers. It was trading cheaply and I ignored the quality of the business. I paid a heavy price for this and have learnt my lesson.

What are the benefits of investing in dividend paying stocks? What are potential risks and disadvantages?

Before I talk about the merits of dividend paying stocks, I just want to say that it is not the only way to achieve financial freedom. You can achieve financial freedom by other sources such as rental property as the rent can provide passive income to cover all your expenses. But for me personally, equities (stocks) are the best method as they are the highest returning asset class over time as well as you don’t need a truckload of money to start investing.

When it comes to retiring off the stock market, there are two schools of thought as well. The first is to follow the 4% rule where you build a portfolio of a certain amount and you sell 4% of your portfolio every year in order to get the cash you need to cover your spending. The problem with this route is that you constantly have to sell stock in order to derive income.

On the other hand, investing in dividend companies provide you with streams of cash at regular intervals. You never have to sell stock using this method. You can preserve your capital for life. Why cut down the tree when you can simply pick the fruit?

When you never have to sell stock you begin to act more like a business owner as opposed to a trader. Like Warren Buffet you have a strong incentive to buy and hold. This means that you never have to sell your stock during a market crash when stock prices are at their lowest. Instead you can use the dividend cash to buy cheap shares during a downturn.

Dividends for me personally are very tax efficient. This is because I hold all my dividend stocks in an ISA where there is 0% dividend tax.

On the other hand, taxes are of the drawbacks of dividend investing as well. From a corporations point of view, taxes when paying out a dividend are higher as opposed to the company keeping the money or returning it to investors via share buy backs.

But, companies keeping the money usually leads to empire building by the manager and this more often than not has lead to vast destructions of shareholder wealth. So I personally prefer management to return excess cash to shareholders int he form of dividends.

As you can see, the advantages and disadvantages of dividend investing are convoluted and that is why there is constant debate on this topic. But for me personally, dividend investing is the way to go and that is why I have a strong emphasis on it.

If you could quickly describe your method for evaluating companies and choosing good dividend stock. I know there are many different factors to consider but if you would choose the most important pieces of data, what those would be?

As mentioned earlier, I try to identify quality companies with durable competitive advantages.

Quality companies are those with high returns on invested capital. High quality companies earn above average profits buy having high profit margins. They also have pricing power where they can increase their prices every year above inflation without sales going down. Now the way capitalism works is that if one company or industry has high returns on capital, you will automatically see new competitors trying to enter that market. This is where the competitive advantage comes in. The competitive advantage is something the business possesses that allows it to protect its above average returns from the unrelenting assault of competitors.

A great example of this is the card networks industry which is dominated by Visa and Mastercard. They have something called a network effect.

Since Mastercard and Visa cards are accepted almost everywhere consumers are most likely to want a Mastercard Visa credit, debit, or prepaid card because they know they can use it to pay for almost any purchase anywhere and anytime. Likewise, while merchants (shops) might not like the high fees that Mastercard/Visa charges for access to their networks, there are billions of Mstercard/Visa cards in circulation around the world to help convince merchants to keep participating in the company’s payment network. If a merchant opts not to accept Matercard/Visa cards, many consumers will be inconvenienced and take their business elsewhere.

Basically, as more merchants accept Visa, the card becomes more valuable to the cardholder and vice versa. This is circular in nature. This results in a virtuous loop or a Network and cements the power than Matercard and Visa have.

So if a competitor is thinking of setting up a rival payment processing company, it becomes very hard. Consumers are less likely to go through the inconvenience of signing up for an account unless there are many merchants who will accept that particular payment method.  Similarly, merchants won’t bother with a new payments network unless there are enough consumers using it. Its the whole chicken and egg problem.

Another important factor is the long run way for growth. It is estimated that 75% of the world still use cash as a means for transactions so companies like Visa and Mastercard have a long growth runway ahead of them. IT is no wonder I own both these stocks in my portfolio.

I feel like the quality of the company is the most important thing. With high quality companies, results will always follow.

I also look at at least 10 years worth of numbers. I look at growth rates for things like revenues, cash flows, net incomes, earnings per share and dividends. I also analyse the balance sheet to ensure its eathier net cash or has a sustainable debt load. I also look at intangibles as too high a figure can spot trouble. Other important numbers include Returns on Equity, Return on Assets, Margins and Liquidity Ratios.



When doing research which tools are you using and can recommend?

When I analyse companies to see whether or not I should invest in their stocks, I like to pull out annual reports. Sure financial tools, websites and filters are useful but sometimes they miss out the small print. They don’t give you the quality of profits as well as the reasoning as to why the profits were the way they were that year. More often than not you won’t be able to find exceptional items in stock screeners.

I also like to read a lot about general industry dynamics. This is very important regarding the quality of profits. You need to be able to assess whether a company competitive advantage/economic moat is widening or shrinking.

What other resources (websites, podcasts, books, authors) can you recommend our readers to learn more about investing? What is your favourite resource?

The place I would start, even though it is not an investing book in the purest sense, is by reading the Richest Man in Babylon. The book teaches you the main concept of personal finance. Save more than you earn and invest the difference. It also teaches you the power of using money to buy more money.

As for investing books, for beginners the best ones would be Common Stocks and Uncommon Profits and One Up On Wall Street. More advanced investors can read the Intelligent Investor, and the little book that beats the market.

Also Berkshire Hathaway’s annual letters written by Warren Buffet are a must read. Constellation Software’s annual letters written by Mark Leonard and Fundsmith annual letters written by Terry Smith are also very good sources of knowledge.

Apart from this, I just read news, annual reports on different companies and listen to various podcasts.

What do you think about recent markets’ volatility?

I don’t really care about market volatility. Volatility is the price to pay for being in the markets.

Price volatility only matters if you are forced to sell when prices are low. If you don’t have to sell then price volatility is not going to hurt your long-term financial outcome.

Instead use volatility to your advantage as it allows you to buy shares at a cheaper price then before. 

I know that timing the market is very difficult but I would like to ask you a question about your strategy for the market crash? Would you sell your stocks or, perhaps, you have confidence in your chosen companies and hold treating crash more like a buying opportunity?

There are two types of people in the world. Those that know they can’t time the market. And those that don’t know they can’t time the market. So yes, market timing is impossible.

I recently wrote a piece stating that markets crash all the time. You should, at minimum, expect stocks to fall at least 10% once a year, 20% once every few years, 30% or more once or twice a decade, and 50% or more once or twice during your lifetime.

Knowing this, I would never panic and sell my stocks in a market crash. Just like you wouldn’t sell your house for the lowest possible price. Likewise, I wouldn’t sell my stocks at the bottom. In fact I would add to my stocks in a crash because they would be on sale. Just like you would buy shoes you have admired for a while when they go on sale, I would buy shares in companies I admire when they go on sale. My approach is I look at stocks as if I am buying an income stream that will increase for years.

As a stock market investor, one important thing to understand is that sometimes the stock price doesn’t reflect what is happening to the underlying business. A stock might fall for a number of reasons such as negative sentiment or people who bought on margin (using loans) need to sell due to them needing the cash to pay back the loan. So your job as an investor is to take advantage of these stock market inefficiencies and buy stocks in great companies on the cheap. Just have a look at this piece to see the irrationality of markets.

I know you get really promising results and your income from dividends in the last 3 years increased significantly. Can you say something about these results?
What are your financial plans for, let’s say, next 5 and 10 years?

Yes, I have so far been really happy with my progress as seen by the ‘my journey’ section of my website. Considering I had £0 passive income just three years ago, it is really encouraging that my annual passive income is now close to £3000.

The first £1,000 in dividend income took over a year to achieve. But the subsequent thousands have taken shorter periods as dividend growth works better on larger numbers and my dividends are beginning to buy more dividends.

At the current rate, I am aiming to cover all my expenses using dividend income within the next 10 years. The dream is to purely live off dividend income. That way I can choose how to spend my time instead of wasting my best years sat at in office the whole day.

I know that although you do not advise regarding stock, you have a informative product, a list of reliable, dividend paying companies. Can you tell us some more about this product?

On my website, I offer a list of high quality companies. The type of companies that continuously grow their revenues and profits no matter the economic conditions. The list also contains my target buy prices to ensure you don’t overpay for a stock.

Companies on the list include BP, Procter & Gamble, Mastercard and Visa.

On average, over the last few years, stock prices of the companies son the list have grown by 12% – 16% a year. So go have a look at my website to find out more. And please do get in touch if this is of interest to you.

Thank you for all the answers. If our readers want to learn more about dividend stock investing, where they should start when visiting Money Grower blog?

Have a look at my recent article on 4 years blogging. There is a list of posts there and I urge readers to read those articles one by one in the order listed. It gives a good overview on why you need to save mover, how to save money, the power of compounding, the power of dividends to grow wealth and what factors to look for when picking companies.

Thanks again for for talking to us and valuable information. I wish you further successes when investing.

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