13-05-2012, 09:50 AM
(12-05-2012, 02:26 PM)KopiKat Wrote: [ -> ][quote='freedom' pid='24763' dateline='1336798560']
dividends as a predictable cash flow can help offset everyday expense in the case of job loss or unexpected larger expenses e.g. one more kid. if you were to sell a counter for such cash flow problem, normally, you would not have a chance to buy it again or switch to another counter because the proceed would have been spent.
Essentially, what dividends really help is buying time for a recovery in your portfolio so that you don't have to sell at the bottom of the market.
I believe what Ben Graham described the distribution between fix-income security and equity still applies, especially for people who has retired or has no stable income. just like any company, you need cash to pay for everyday expense and you surely don't want to sell your equipments and machinery for cash flow problem.
In my IDEAL factory, I'd maintain enough 'Working Capital' for normal operations + some extra for unforseen circumstances (in the more than ideal situation, I'd even have extra for unusual circumstances to acquire other factories at a good discount). The FCF generated would ideally be ever growing so as to qualify me as a 'Growth' biz under normal circumstances and allow me to at least have enough even under poor biz conditions.
In such a case, I'd be having more 'Equipments & Machinery' than required (to maintain a minimal FCF). During extraordinary times, if I see better 'Equipments & Machinery' that are more efficient which happens to be selling at a huge discount, I'd dip into my excess cash to buy them. Assuming I'd run out of cash, it's not unforeseeable for me to sell some of my less efficient 'Equipments & Machinery', even at a loss (based on Cost / Book Value, depending on your own accounting recognition) to swop for the better ones.
Even in a less well managed factory where I run out of excess FCF, I'd still go ahead and sell some of the excess 'Equipments & Machinery' to swop for the better ones, as long as the discount is attractive enough. The more efficient 'Equipments & Machinery' would after all result in more FCF.
Under the situation where I don't have any excess 'Equipments & Machinery' and the FCF generated is just barely enough for my 'Working Capital' then ya, your are right!
dzwm87]Personally, for small capital portfolio (anywhere below $50K), I will prefer a very concentrated approach. Better to focus your attention on the 1 to 3 eggs in a basket than having a diversified approach in both stock holding and your due diligence. Of course, one may argue a concentrated approach can have a lot of risk. But, for myself, I believe that such risk' can be mitigated via a disciplined margin of safety approach - you don't go for stocks with only 20-30% gain but those which potentially can hit 80-100%. So even when bad times hit, your losses can be minimal or your gain can be reduced to only 20-30%. Same logic as 'aim for the stars, even if you fail, you will land on the moon'. [/quote Wrote:I had a concentrated portfolio of 5-8 stocks for a long time, way beyond the $50k level. The key is to be able to have the time and energy to be put into knowing the stocks well. The main risk comes from ignorance ie. the less you know about the stocks, the higher the chances of 'surprises' and losing money! Unfortunately, now, with young kids around, short of locking them out of my life, I went on a diversification approach to mitigate the risks of not doing enough to know all I ought to know about my stocks...
Can help but recall the analogy of dairy cows and cows farmed for their beef. Was this from Robert Kiyosaki, or did he quote someone else. So sometimes one has to slaughter the dairy cows for their meat, especially if they are not yielding much milk anymore?