Being a successful dividend investor is tough. You have to be disciplined and not let emotions get the best of you.
Plus, sometimes it may not seem like your monthly dividend income is increasing at a fast enough pace.
And sometimes, long-term investing can be boring too. After all, we’re investing in stocks, not day trading or gambling.
As a result, it is easy to become distracted and get off course with our investing goals.
Here are 6 habits of successful dividend investing you need to use to achieve financial freedom and retirement.
1. Stick to what you know
Warren Buffett (the greatest investor of all time) always says you should stay within your circle of competence.
Basically, Buffett means you should only invest in things you are highly knowledgeable about.
If you don’t know the first thing about drugs, you should probably stay away from pharmaceuticals. If you don’t know anything about the oil and gas market, it would be best to stay away.
The point is you only want to invest in companies and industries where you have above average knowledge.
Never invest in a company or situation you are not knowledgeable in.
Remember: it’s not HOW big your circle of competence is, but how well you stay in it!
2. Think independently, but use other sources
I remember the heyday of the dot com bubble. People were literally taking investing advice from janitors, grandmas, and taxi drivers.
Don’t get me wrong. It’s fine to listen to other people. In fact, I source a lot of successful investment ideas from other people all the time.
It’s fine listening to other people’s opinions, but ALWAYS do your own research!
Never invest in a stock because someone told you to.
Taking investment advice solely from the opinion of someone else is a disaster. Why?
…well because they won’t be around to tell you when to sell!
In short, it’s a great idea to source investment ideas from other people. In fact, it saves a lot of time. However, always do your own research and verify the investment thesis!
3. They know how to read financial statements
In high school I wanted to be a lifeguard in the summer because I thought it would be an easy job and I’d get to hang out with girls.
Problem was I didn’t know how to swim!
If you’re an “investor” and you don’t know how to read financial statements you’re basically like a lifeguard who can’t swim!
Reading financial statements is absolutely key to being successful and making money in the stock market.
Yeah, I know…financial statements are scary.
However, you will be able to beat 90%+ of investors who only read the occasional press release or stock chart if you put in the effort and learn this valuable skill.
Check out my FREE Financial Analysis book (available on Amazon) to learn some basic financial ratio analysis.
Also, check out my Financial Statement Analysis course where I’ll teach you how to read and analyze financial statements and how to research stocks like a pro. Click here to get this amazing course for only $35!
4. They think long term and benefit from volatility.
In the age of short-term day trading and even high frequency computer trading, investing may seem more short-term biased.
However, long-term dividend investors have one specific advantage over all other investors: TIME!
Long-term investing is all about Time Arbitrage.
Great dividend investors are able to take advantage of volatility. Volatility just refers to the random ups and downs of the stock price.
Take Apple (AAPL) for instance. Over the past year, the stock has traded as low as $102.53 per-share and as high as $162.51 per-share.
Think about it…
There is a 58% difference between the 52 week high and 52 week low!
I don’t know about you, but I don’t think Apple’s business deteriorated by over 50% over the past year. In fact, iPhone sales have still been going strong!
Volatility is just noise in the market. Ignore all the nose and be prepared to take advantage of such great opportunities!
5. They know when to sell
A lot of dividend investors like to claim they’re “long-term investors”.
In fact, there’s a saying on Wall Street that goes something like this:
Everyone is a long-term investor until the stock gets cut in half!
Stocks don’t always go up in the long run. Sometimes they unfortunately go down.
To be a successful dividend investor you need to be able to sell a stock when you are wrong.
There’s a fine line between having conviction and being stubborn.
Trust me, this is one of the hardest things you will ever do: to sell a stock at a loss. It may be hard on your ego especially when you’ve lost money.
However, remember this: the stock market doesn’t care about you or your money!
It takes courage to admit you are wrong. Trust me, your wallet will thank you in the long run.
6. They do their homework!
A lot of the work in selecting a dividend stock for your portfolio is done right off the bat with the initial research.
However, you still have to keep up with news about your stocks and read the financials as they come out.
Think about it as maintenance!
When you buy a property you might have to repaint the walls or replace the stove or redo the carpet.
When you invest in dividend stocks you have to be keep up with the news and identify any potential long-term implications on the names in your portfolio.
This doesn’t require much time too. Typically I recommend DGI investors spend at least 2 – 3 hours per quarter keeping up with the news and reading the financial statements for every stock holding.
For instance, if you hold 25 stocks in your portfolio, you should spend 50 – 75 hours every quarter reading the important materials!
Habits are the key to investing success. They must be practiced daily and never forgotten.
Hopefully you can use these dividend investing habits to become a successful dividend investor!