This is my December 2019 FFJ Portfolio update. The portfolio was created in January 2017 for the purpose of demonstrating how investing in high quality companies with competitive advantages and with a record of consistently increasing dividends can assist investors in reaching their long-term financial goals without the need to speculate or to chase dividend yield.

‘It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.’ - Warren Buffett

I completely agree with Warren Buffett, and therefore, I have cash sitting on the sidelines in anticipation of a broad market pullback.

In several previous articles I have expressed my opinion that we may be experiencing another period of irrational exuberance. Judging from the behavior of the stock price of many companies I strongly suspect many investors are making their investment decisions on the basis of a company’s stock price movement rather than on the underlying fundamentals of the company.

Investment decisions made on the basis of investor emotions is fraught with risk and is akin to the game of musical chairs. When investor emotions come into play in the investment decision making process, investors can be lulled into a false sense of security and the belief stock prices will rise in perpetuity.

On the flip side, history has demonstrated that many investors become increasingly anxious as a company’s stock price declines. At times the degree of anxiety reaches the stage where outright panic settles in which leads to a very rapid drop in stock prices….even if the underlying fundamentals of the company are sound.

Although some investors argue that markets are efficient and all relevant information is correctly factored in to market prices (stock prices) at all times (efficient market hypothesis), I am not a proponent of this hypothesis. In my opinion, stock prices can become mispriced and several of the companies in which I have exposure, or which are on my ‘watch list’, are richly valued.

Although I appreciate why some readers would argue that it would be prudent to take money ‘off the table’ in the case of richly of richly valued shares, I do not sell shares unless:

  • The underlying fundamentals of the company are dramatically deteriorating;
  • The company’s is losing its long-term competitive advantages;
  • I have lost confidence/respect for management.

My investment goals and objectives take into consideration future generations, and therefore, I do not feel the need to become an active trader. In fact, I look forward to periodic broad market pullbacks so I can acquire more shares.

With that out of the way, let’s see how the FFJ Portfolio performed in 2019.

In late 2018, when the valuation of many companies which appealed to me was far more reasonable, I set the following dividend income targets for the year.

  • Core Accounts - CDN $15,000 (~$14,000 in 2018) and USD $18,000 (~$17,000 in 2018)
  • Side Accounts - CDN $19,000 (~$7,400 in 2018) and USD $11,000 (~$3,400 in 2018)

With the broad market upswing we witnessed in 2019, I found it increasingly difficult to identify reasonably valued companies and scaled back the degree to which I was deploying funds. Despite my decision to scale back the deployment of funds, the dividend income generated from the holdings within the FFJ Portfolio came pretty close to my targets.

  • Core Accounts - CDN ~$14,000 and USD ~$18,000
  • Side Accounts - CDN ~$19,000 and USD ~$10,000

NOTE: I do not include option income when setting my targets and in the tabulation of income generated within the FFJ Portfolio.

I am cautiously optimistic we will witness a broad market pullback at some stage in 2020. Given my expectation of one occurring within the first few months of 2020 I am setting the following dividend income targets for the year.

  • Core Accounts - CDN ~$15,500 and USD ~$19,000
  • Side Accounts - CDN ~$20,500 and USD ~$12,500

If you look at the holdings within the FFJ Portfolio you will find companies which distribute no dividend (eg. Berkshire Hathaway) or whose dividend yield is razor thin (eg. Brookfield Asset Management, Alimentation Couche-Tard, Mastercard, Nike). I am certainly not about to start chasing yield just for the sake of reaching the annual dividend income target I have set for myself. Remember, my goals and objectives are to create long-term wealth….not the maximization of dividend income.

Looking at the total value of the holdings within FFJ Portfolio we see a significant appreciation in 2019; I am under no illusion that this appreciation in value can be replicated on a consistent basis.

At the end of 2018 the total value of the investments in the FFJ Portfolio amounted to:

  • Core Accounts - CDN ~$351,000 and USD ~$715,000
  • Side Accounts - CDN ~$419,000 and USD ~$497,000

By the end of 2019 the total value of the investments in the FFJ Portfolio amounted to:

  • Core Accounts - CDN ~$390,000 and USD ~$858,000
  • Side Accounts - CDN ~$551,000 and USD ~$936,000

The total appreciation in the value of the holdings amounts to:

  • Core Accounts - CDN ~$39,000 and USD ~$143,000
  • Side Accounts - CDN ~$132,000 and USD ~$439,000

This appreciation is attributed to market conditions and to the fact that I did make a few additional investments over the course of the year.

That’s my roundup for December. Here’s hoping we get a significant broad market pullback within the coming months so we get presented with attractive buying opportunities.

I wish you much success on your journey to financial freedom!

Note: Thanks for reading this article. Please send any feedback, corrections, or questions to [email protected].

Disclaimer: I have no knowledge of your individual circumstances and am not providing individualized advice or recommendations. I encourage you not to make any investment decision without conducting your own research and due diligence. You should also consult your financial advisor about your specific situation.

I wrote this article myself and it expresses my own opinions. I am not receiving compensation for it and have no business relationship with any company whose stock is mentioned in this article.