Interview with ’The Danish Dividend Investor’

Today we’re going to hear from a young investor who blogs about dividend investing and other related topics in his blog: http://udbytteinvestoren.blogspot.dk/ If you can read Danish, I highly recommend his blog!

As I’m totally new into the world of investing, I try to learn as much as possible by reading books and blogs on the topic. Another way to get knowledge is to ask the experienced investors how they do. Therefore, I set up an interview with The Danish Dividend Investor, and I now have the pleasure of sharing it with you:

WWE: First off, thank you for doing this interview. In Danish you go under the name ‘Udbytteinvestoren’ which translates to ‘The Dividend Investor’. Can you tell us a little about yourself?

The Danish Dividend Investor: I’m in my late 20’s and I live in Copenhagen with my girlfriend. I have a blog about personal finance. I write about different subjects: frugality, stock analysis and about how to achieve a joyful life. Besides blogging, I work with macro data within the field of real estate transactions.

A frugal lifestyle and investments have always been a part of my life. My brother and I learned early in our childhood a business thinking mindset with respect to real estates, stocks and other small businesses. The more money I got over time, the more I invested. In my early 20’s I purchased some stocks that paid dividend quarterly, but I never really paid attention to dividend investing. Then with inspiration from some academic studies, the strategy ‘Dogs of the Dow’, and the performance of the dividend portfolio of Börsveckan (Swedish portfolio), I started focusing more and more on dividend stocks, and how it can be a profitable strategy. Furthermore, I like the idea of receiving money for owning a piece of a company, and that some companies are able to increase the income (and dividend) year after year. Take companies like The Coca Cola Company and Medtronic Inc., which have increased their dividends for more than 50 years. Increasing dividends imply that your income (and purchasing power) will keep up with the inflation at least. To minimize my risk, I focus on the valuation of the different companies and I have a broad diversification across countries and different sectors. My biggest concern is not that I’ll underperform the market, but the loss of capital permanently. That’s an important note.

WWE: Please tell us more about your investment strategy.

The Danish Dividend Investor: Well, first of all I can say that I don’t day trade. I’m trying to find companies, which are the best in class. These companies usually outperform their peers over a longer period. It’s like comparing students at a university: The students who study the most and have the most self-discipline are the ones who tends to achieve the best grades and accomplish their goals. Sometimes they don’t, but in general they do. A company like the Danish Novo Nordisk A/S has outperformed their peers for years in terms of products, revenue growth, profit etc.

Like the famous investor, Warren Buffet, once said: “our favorite holding period is forever”. So in general, buy and hold. I like that the companies pays a dividend, but it’s not my main focus. If the company can use all the profit and use it to invest in some highly profitable projects, which will give an even higher return in the future, I prefer that. However, companies that pay dividends entail the management to choose the most profitable projects.

WWE: Are you within reach of being financial independent anytime soon?

The Danish Dividend Investor: Hopefully I can be FI within 10 years. But I’m still in the accumulating phase, so every month I’m focusing on lowering my expenses and reach as high a pay slip as possible. It is indeed possible to reach FI without being a lawyer or an investment banker, but it’s important to not underestimate the value of human capital and time! Regarding keeping my living costs as low as possible, I’m focusing on transportation cost (I don’t have a car), food and housing expenses.

WWE: Have you thought about what you’re going to do once you’re FI?

The Danish Dividend Investor: My plan is to sit on my butt and drink coffee all day! Just kidding. To me, FI is having the opportunity to quit work if I want to. But I’m not sure that I eventually would quit work when I reach FI. I dream about exploring more of the world, maybe live in different locations for an extended period of time. Moreover, I’d like to spend more time on physical and social activities.

WWE: I’m wondering what you do to keep your spending low. I’ve been fairly frugal the last year, but only because I didn’t have any money. Now that I’m earning more, I find it harder not to spend the money.

The Danish Dividend Investor: Well, I’m saving to invest more, not investing to save less. I like Warren Buffets quote: “Do not save what is left after spending, but spend what is left after saving”. That’s actually the way I live. I have always focused on trying to invest about 7.000-20.000 DKK (~1.100-3.200 dollars) each month, even when I was on SU. It motivated me to keep a strict discipline with respect to my spending for a longer period. Furthermore, it also gave me an incentive to maximize my income. In terms of minimizing my expenses, I’ve always focused on the three main costs of living: rent/housing, transportation and food. Until this year, I have always lived with roommates to split the rent/housing cost. I do not have a car, which imply that I bike as much as possible. When I’m going shopping, I prefer to buy discount cheap food.

WWE: Did you loose money in the 2008 stock market and if so how did you cope psychologically?

The Danish Dividend Investor: Like anyone else I did lose money in 2008/2009. No one saw the crisis coming, and I was only 19/20 years old, so me neither. But I was lucky. And I think luck is a really important parameter if you’re going to succeed in investing and eventually reach FI. First of all, I’m lucky that I’m born in Denmark and not some developing country. Moreover, I’m lucky that I found interest in investing at an early age. Time is your friend. I’m also lucky that I only was 19/20 when the financial crisis hit the stock market like a tsunami. It’s never fun to experience that your portfolio, within a short period of time, lose maybe 40% of its value. When I say I was lucky, it refers to my portfolio “only” had a value of approximately 354.509 DKK (~56.000 dollars) and fell to 245.533 DKK (~40.000 dollars). A fall of about 30% in value. This is still a lot of money, but I think it’s psychologically less painful than a 30% drop in value with a higher face value like 3.000.000 DKK (­~476.000 dollars). So the conclusion is that I wasn’t psychologically affected by the crisis. Since I’ve experienced some small crisis, EU debt crisis and crisis regarding the debt ceiling in the US. All incidents where the market dropped approximately 20%. When great companies drop in value, I’m focusing on buying and not selling. A crisis just motivates me to save (and invest) even more.

WWE: What are your savings rate these days?

The Danish Dividend Investor: My savings rate – well, it depends on how you see it. Is it with repayments on my house mortgages (which is a kind of saving, from my point of view)? But let me turn it around. I think I spend about 3-4.000 DKK (~470-630 dollars) a month on clothes, food and fun. Some months, if I’m on vacation, I spend more. Then I repay my mortgages and invest the rest. So my savings rate is definitely +50%. Maybe closer to 75%.

WWE: That’s quite impressive! Do you ever feel like you miss out on things ‘normal’ people do? Also, I know you’ve diversified your investments so they include real estate, can you tell a bit more about your thoughts on that?

The Danish Dividend Investor: To be honest, I don’t think I miss out on anything. Of course, I don’t buy Dom Perignon when I’m out with my friends having fun. I don’t buy a new suit every month. But I don’t think any of my friends are travelling as much as we do (my girlfriend and I). The last one and a half year, I haven’t spent a single vacation day in Denmark. We’ve been to Sri Lanka for three weeks, Thailand 16 days, 15 days in Italy and a week in Egypt. Travelling is one area I prioritize.

Regarding real estate, I think everyone should diversify their portfolio. Real estate has some similar characteristics as bonds: A predictable income stream, and a low correlation with the stock market. Academic literature also shows that an optimal combination of different types of assets can optimize the return/risk relationship.

WWE: What are the 3-5 most important things you’ve learnt as an investor? And can you give some general advice to people who are just starting out as investors?

The Danish Dividend Investor: I’m actually writing an article about chapter 1 in a book called ‘The Intelligent Investor’ by Benjamin Graham. The chapter is about investing vs. speculation. It contains some great advice:

  1. A stock is not just a ticker symbol or an electronic blip: it’s an ownership interest in an actual business with an underlying value that does not depend on it’s share price.
  2. The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to the optimist and buys from the pessimists.
  3. The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be.
  4. No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on what Graham called ‘the margin of safety’ – never overpaying, no matter how exiting an investment seems to be – can you minimize your odds of error.
  5. The secret to your financial success is inside yourself. If you become a critical thinker who takes no Wall Street “fact” on faith, and you invest with patient confidence, you’ll be able to take steady advantage of even the worst bear markets. By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.

These five principles are a good framework, which can help you become a successful investor in the long term. If you’re a new investor, my advice is to be consistent. Save and invest a specific amount each month e.g. some ETF’s. Then you’d automatically create a snowball which will grow bigger every year, and some day in the future, you will be able to sit in the shade because you planted a tree a long time ago. I also think patience is key to success. You should be able to accept a return of approximately 7-15% p.a. If you can’t accept that, you will start searching for high risk companies (and high rewards), but then you will start speculating, not investing.

 

6 Comments on “Interview with ’The Danish Dividend Investor’”

    1. Hi Carl,

      I’m glad you liked it!

      I’ve known ‘The Danish Dividend Investor’ for many years and had no idea he was into FIRE. Turned out he’d been living after the principles for many years, and even had a blog on the topic 🙂

      Unfortunately, it’s a bit difficult to get into details in these facebook-interviews, I hope to do some real face to face interviews and share them as podcasts at some point.

  1. Interesting interview. I need more! 🙂

    I think it is really impressive, that the dividend investor have been able to accumulate that big a portfolio in dkk amount – (as I can see on his blog) – in his late 20’s.

    I will be looking into the studies he suggest.

    1. Hi Kristian!

      I’m happy you find it interesting! I’ll try to do more interviews like this in the future.

      I agree, it’s quite impressive!

      I do struggle a little to decide if I should adopt some of his advices to my own investment-strategy. But for now, I think I’ll stick to the passive index fund-strategy. What about you?

      1. At this moment I don’t have a fixed strategy. Trying different styles and seeing what fit me best. I do like Warren Buffets method of buying shares and then keeping them. Still I need improve my value investing skills.

        1. It sounds a bit risky to me, not having a strategy. I’d be tempted to do too much speculation if I didn’t rely on a clear strategy. But then again, I’d like to be able to shift strategy if I find something better, so I guess I understand your decision 🙂

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