Why I am a dividend investor - Introducing myself & my opinion on various investment strategies.

Hello folks,

After polling the Getquin community, once again there was a very close race between Biofuels and the "older" topic "Why I am a dividend investor" came about. The dividend topic won by a very narrow margin. At this point, a big thank you to everyone who voted - your opinion is important to me. I will definitely discuss biofuels on my YT channel - if you want to see it here on Getquin - let me know :)

The topic of dividends today is like the one about veganism on the stock exchange floor (https://tinyurl.com/364sdnc5) is very emotionally charged and leaves the objectivity in many financial forums to be criticized. Therefore, I would like to present here as neutral and information-based my opinion.

IMPORTANTThis is not an investment advice. It is also not an invitation to buy / sell financial products. I only describe my opinion here. You are responsible for your own decisions.

In the following I will first describe my personal investment goals, then I will present my stock market strategy and thirdly I will critically examine other investment philosophies and compare them with my opinion. The almost philosophical headings are:

Who am I? (Introduction)

2.what type of investor am I? (Influences on my investment decisions)

3.Why am I not...

1)...70/30 investor?

2)... ACWI investor?

3)...Exclusive single stock investor?

4...My flirt with other investment strategies

1)... why I ended up with Core-Satellite.

2)... why I use dividends

Since the topic will be quite extensive, I will separate the topic blocks from each other - theoretically you can jump between the blocks, if you are only interested in my opinion.

Who am I?

Let's start with me. I am BASS-T, 29 years old and active on the stock market since 2010. If you count back, I was 17-18 years old in 2010, and due to my fascination with BMW and Apple, I was often up to date on what companies were doing. I enjoyed reading up on business analysis of new products and making connections to the economy around me. Quite quickly, however, I realized that capital markets and financial products had a rather dim and elitist image among many people. I personally found this very unfortunate.

So I did some research and came across the telecom stock crisis during the dotcom bubble of the 2000s. On 18.11.96, the Telekom share became tradable on the stock exchange in Frankfurt and went into the pockets of private investors for just under 15€. An increase in value to 103.50 in 2000 was the high point and seemed to justify the grandiose advertising campaign with well-known stars and the image as a "people's share". However, as a result of an overvaluation of real estate and the dotcom bubble in March 2000, the share price fell by 90% to below €10 (see (1), (2)). This was the basis for all statements like "On the stock market you only lose money" and "Savings account/pension is safe". Even today, such statements make the hairs on the back of my neck stand up, but I tried not to pay too much attention to this opinion against the background of the huge speculation bubble at that time and exaggerated advertising slogans. It was obvious afterwards that one should not have made such promises to a largely inexperienced people with capital market topics.

Nevertheless, I was already aware at that time that with a deposit interest rate of approx. 1.4% and an inflation rate of nevertheless 1.1% the distance was not too large and nevertheless with the money better and faster more money had to be earned (see (3), (4)). So I started to look up well-known companies on the Internet, to take a look at the companies producing everyday food and to slowly dip my proverbial toe into the stock market. One of the first stocks I looked at was NVIDIA and Square Enix in direct comparison. I was also interested in companies like Unilever because they were often available in supermarkets and had been placed very prominently. Pretty much every supermarket had products from this manufacturer in their assortment, so I started looking at this company as well. Based on a then still vague basic understanding of sales, profits, share price and dividends, I looked at the individual charts. Although many parameters such as the ominous "P/E ratio" didn't mean much to me and the information available at that time was still rather meager, my interest in stocks was definitely aroused. I started to read specialized literature in the library to get a basic understanding in preparation for my studies (see (5), (6)).

But how did I then come to my dividend investments?

2.What type of investor am I?

Back around 2011, I received my first dividend - 18 cents a share from Square Enix. Not a particularly high amount. Still, I liked the idea of sharing in the company's success. Collecting dividends as a payout from a company's annual profits was both comforting and intriguing to me (see (7)). One must not forget that the population had little confidence in shares due to the above-mentioned dubious "TELEKOM - Da mach ich mit" campaign. I was made to feel this on several occasions, as every disadvantage, no matter how unreal, was pumped up into an over-present fact - "Yes, and what will you do when the prices fall?", "My money is safe in the savings account - I don't need the stock exchange" was often heard even among those interested in economics in the upper school. I criticize these sayings only against the background that they are not based on any analytical consideration, but are a relic of old thinking.

Unfortunately, this relic still carries strong weight, especially today, if I take the study by the opinion research institute Civey as a basis. Here, 5,000 citizens were randomly asked about their attitude to the share pension with the request for an assessment in "I stand positively to the share pension" or "I stand negatively to the share pension". Subsequently, the respondents were assigned to the federal states, so that a rejection of the share pension of 43%-48% can be stated in particular in the east of Germany. The text to the study looks for the explanation here in general disinformation and lack of knowledge to the function mode not of the share pension but to the stock exchange generally. The resistance is based thus far on missing search will and/or a general disinterest of the involved ones. An exact percentage breakdown of who exactly voted for the motive of lack of education or fact-based rejection is unfortunately not provided. I'd love to tell you the study was only done online and maybe they just targeted the wrong people - unfortunately though, taking into account the statistical error, the study is significant and representative. From my point of view, this is a great sign of delusion for an almost convulsive adherence to the outdated pension model and for the ignorance of population development (see (2), (8)).

Even when I was a high school graduate, Germany was in second-to-last place in a comparison of countries, with only 2.9 contributors per person of retirement age (in our case = pensioners). At that time, it was still calculated that in 2050 only 1.5 contributors per pensioner would be available in Germany. Of course, in the 2010s, further developments came on the scene and the study plus its calculation then needed to be updated. Still, it seemed critical to me at the time to rely on pensions. To this day, I hear Norbert Blüm's saying from the 80s. More precisely: from 1986 during the election campaign for the CDU - in conversations with citizens concerned about their prosperity again and again (see (9), (10)). The actual perhaps unspectacular starting signal for my start on the stock exchange actually occurred to me during a bus ride:

Pensions may be safe - but when and on what terms?

I started researching - especially since I have always been interested in economic and social topics. In my days back in 2010-2016, investment in the capital market had taken a downturn. In 2010, just 8.4 million Germans were invested either in funds, stocks, ETFs or a combination of these. Although this figure may seem relatively large for Germany, which is a stock-poor country, we were already at one and a half times this figure in 2001. At that time, just under 13 million Germans were invested in the capital market 56% in the form of funds/ETFs, 20% in a mixture of both and 24% exclusively in individual shares. This represented the largest absolute share of Germans in the capital market up to and including 2020 (see (14)).

In contrast, numerous university parties literally stormed in at welcome events to hog the potential new freshmen. I will probably never forget how easy certain parties made it for themselves and how little was done to counter the brazen actions. I have no problem with the advertising of party content - but I do have a problem with venal incentives not even to join a party, but merely to vote for it. Political opinion making is very important to me - however, taking advantage of the poverty or low income of new students struck me negatively several times. Since not every course of study and every path to the Abitur provides for a practical basic economic education - promises and simple representations such as "The rich are doing too well, we must act", "BAFÖG must remain compulsorily linked to the income of parents, otherwise rich people will study here at our expense" and my personal favorite: "The stock market is only for speculators - the state must look after its citizens" fell on open ears. Suddenly the world in the university cosmos was very simple and there was a strong spin in a special political direction, which I do not want to discuss further here. I have also formulated the individual statements in a more strikingly intelligent way than I have heard from the future students. Against the background of the above-mentioned figures from (14), my impression at the time can be confirmed that a lack of interest in the stock market mixed with simple "the rich should pay via tax" rhetoric promoted the anachronistic and anti-stock market opinion (cf. ibid.).

As a result of not coming from a rich background, but knowing that wealth has to be earned, I stayed out of the political cosmos of the university. I concede everyone his opinion, but when I look at how in the USA already at university campuses disagreeable opinions are "canceled", i.e. quasi faded out via disinvitation, defamation and other undemocratic means, I hoped and hope for a more intelligent discourse in Germany.

So far I have been disappointed.

In 2017, I noticed on the fringes that presumably left-wing autonomists wanted to prevent Christian Lindner of the FDP from giving a lecture at the Ruhr University in Bochum. It was thanks to his sheer rhetoric that his presentation did not have to be canceled. The videos of his performance can still be seen today and still raise many questions for me. A sign called for free education for all - a favorite mantra of the FDP (whether you like them or not) is that anyone can make it through a little effort. Neo-liberalism, moreover, was equated with the adjective "asocial." I can only make assumptions, but obviously freedom of expression was probably rather trampled on at the time. In 2019, he was also banned from appearing on the premises of the University of Hamburg (cf. (11),(12)).

I do not want to advertise the FDP here. I could also have represented other parties such as Free Voters, AFD or The Left. Only I was already aware at the time that a) our ailing pension system and the caring state with high expenditures for b) the social system and a tax rate that I think is c) much too high cannot finance this leftist thinking for our generation. To me, especially the FDP with its party program therefore seemed striking (cf. ibid.).

Furthermore, I noticed at that time consequently already an alienation from the thought that the state had to take care of me 100% with a corresponding tax rate. Even though I had little money at my disposal, I invested in promising tech companies and went to work in demanding part-time jobs in addition to my studies. I was interested in personal performance, which is why I particularly liked the taxation of retirement savings on the capital market in the USA. What I liked less was the capital gains tax, even though it was of no significance to me at the time (see (11)).

I would be happy to write a contribution "Retirement provision USA vs. Germany". I would be happy to receive feedback in the comments column.

After I wanted to continue to take my retirement planning into my own hands, I started looking at the stock market. But why did I end up with the dividend strategy of all things?

3. Why am I a dividend investor?

For me, dividends have always been a great thing - both in the short term as a motivation booster and in the long term to secure a good return at favorable conditions. I myself started investing around 2010, for example, and at that time I was more interested in the long-term growth prospects of various markets (see (13)).

3.1 So why am I not a 70/30 investor?

The firing up of the 70/30 strategy by, among others, financial flow and other channels around 2019/2020 have often brought me the question of why I considered a fund + dividend solution in my days starting in 2010. The stocks from back then still exist, but I have adjusted my strategy over the course of being an investor. To make it easier for you to imagine, imagine the following simplified portfolio. I deliberately do not mention any names in order not to advertise:

Funds on industrial country level (approx. MSCI World)

Funds on Tach level as sector bet (ca. NASDAQ 100)

Individual stocks (Apple, BMW, Square Enix ...)

With this portfolio it was possible for me a) to participate in the significant economic growth of the 2010s decade, b) to live out my interest in Tach companies bundled as a fund and c) to use the dividend growth effect for then growing software companies. Due to my still rather limited experience and the little income as a student, this seemed to me to be optimal according to the boundary conditions.

Over time, I came to understand the world of stocks better and better through my involvement with stocks and the gains I made through my studies. So a few years ago I was faced with the choice to invest only in the above mentioned funds or to spend my free time researching companies that interested me. I decided for the latter.

It was and is important to me to invest exclusively in companies whose markets and characteristics I understand. Thus, I researched the current consumer electronics market and quickly came across Apple, Square Enix and Sony. While Apple had been paying a dividend since 2012, the amount was less than one dollar until 2014, so Apple was rather irrelevant to me because of the dividends (see (15)).

The dividends received from BMW, Square Enix and Sony etc. also did not play a particularly large role for me at the time and I considered them more as a contribution to my savings plans.

However, that changed in 2016 when I suddenly received about 30 cents per share for my 90 Square Enix shares instead of the usual 10 to 20 cents. A small increase, but I noticed the dividend growth effect for the first time. Since I had bought the stock for around 11-15€ (fluctuating around 1,500 JPY) because of re-buys, an average cost price of 13€ and a dividend of 30 cents results in a dividend yield of 2.3% for a tech company after all. This was as of 2012. In 2016, I also received this amount of dividend, but the price was no longer 1,500 JPY but 2,500 JPY. So in addition to the dividends, I had achieved price gains via book profits, which in my perception is one of the nicest combinations in the capital market (see (16), (17), (18)). One might argue that my dividend yield had not increased, since Square Enix kept the dividend the same in 2012 as in 2016. Nevertheless, I was able to generate a lucrative additional income and invested the dividend in other shares, such as Sony.

At that time, I already noticed that this effect of continuous cash flow plus active share price action excited me a lot. Since Square Enix is a software company from Japan and therefore an industrialized country, I found the involvement with neighboring and emerging countries such as China, Taiwan and India quite exciting at the time. Many people might be surprised that the No. 1 hater of emerging markets would say such a thing. But I found emerging markets very interesting because of their economic importance. Combined with the above-mentioned remarks on the shrinking German population, I came to the conclusion relatively quickly that future purchasing volume would probably not be rotting in industrialized countries. This rather simple consideration was due to the fact that I was still at the beginning of my investor journey and judged markets purely with the parameters I knew. Of course, I was not overking in market assessment at that time and only came to this consideration because of Square Enix.

So I started researching the emerging markets. For those who don't know: Emerging Markets often have a fluctuating definition between different brokers and even banks and so this time I just want to explain them with a macro definition. Basically, emerging markets, called emerging markets in German, were countries in the process of modernization. This speaks to an alienation from their own agrarianism to industrial standards in their participation in the world market. To put it bluntly: fewer raw materials for export such as wood, wool or natural gas to processed products such as sweaters from China at a low price. Often, governments themselves have an interest in making citizens better off by means of these standards, so that the low GDP income per capita is increased, for example. Again, this sounds terribly complicated. Again, put crudely and perhaps not 100% academically, every family should be able to afford a television set, for example, or at least be free from extreme poverty. This is often not yet the standard in many emerging countries, even if extreme poverty was/is supposedly declining, at least in China. Here, at least the last 9 of 832 counties in extreme poverty have been upgraded in 2020, so that extreme poverty no longer exists in China according to the government. This results in strong volatility, strong growth and the option of strong gains. This triangle is sometimes a key growth driver for emerging market equities (see (19), (20)).

Sounds really great, doesn't it? After all, people are doing much better and I'm making a killing in their markets. So can we pull up our chairs and go home? Am I getting high on EM ETFs now?

Unfortunately no.

As indicated in above poverty reduction on the part of the Chinese government, the government has a substantial interest in the positive development of the population. For this purpose, specially defined key figures are collected in order to make the success quantitatively tangible to the population and the world gg. The Chinese government sets for this 1.90$ per day as well as the access to food, clothes, school and medical supply among other things. According to this calculation, the above-mentioned poverty reduction is successful. However, if one takes an external assessment by the World Bank, China is fixed as a low average income country. This is important, because the limit is then not 1.90$ but 5.50$ per day. After all, just under three times that of the Chinese government. If one follows this argumentation, 25% of China's rural population still live in poverty: That is 373 million people (see (20)).

Why should that scratch my itch?

1) Ethics: As an investor I am responsible for my own investment decisions. Whether I want to support weapons, tobacco, alcohol, oil, child labor stalls or anything else is an ethical decision. Even on Getquin, one encounters different values. I myself draw the line at weapons and child labor. Everybody is free to decide if he or she wants to end up in the emergency room via alcohol excess / lung cancer. Less free I can decide in war zones and emerging countries if I want to be shot or enslaved via textile factory. This is not an ethical judgment about you, but only my personal opinion.

2) Information flow & quality: Probably the most important feature of all components is certainly for the rational investor: Am I getting my data? Can I trust the data? Third, what do I derive from the data I receive?

I deliberately chose the example of China and poverty reduction. It shows that the quality of information in countries with different government regulation is often difficult to judge from the outside. Basically, we don't know for sure whether one can live well with $1.90 in China. It also remains unclear whether the Chinese government's relocation of rural populations more to urban populations makes sense and how exactly it affects the productivity of China's extractive sector (see (20)). In the end, it's all just globally determined values imposed on a large economy. I dislike the fact that I cannot really trust the stated Achievements of the respective governments and possibly not all information is externally verifiable. This dark field of information quality has always bothered me about investing in emerging markets.

But this dark field does not only remain on the level of numbers - even if his yacht has meanwhile reappeared off Mallorca, the disappearance of Jack Ma, the founder of the Alibaba Group, a good year ago was an absolutely dubious action. It is unclear to me why a general criticism of the financial authorities results in the most far-reaching cancler of an important industrial magnate and why mutual discourse with important personalities is not given sufficient space. I am aware of the difference with a democracy, nevertheless the sudden absence of significant figures in your company can provoke substantial economic damage (see (21)). While Alibaba's share price was still around 250€ in October 2020, after Jack Ma's departure, the share price dropped continuously to 150€ in October 2021. Certainly other factors play into it, but a ship without a captain is worse off in a storm than with present leadership. I strongly dislike this volatile risk in EM (see (21), (22), (23)).

Unfortunately, the Chinese yuan is not immune to current inflation, energy concerns, etc. either. In 2019, the Chinese government therefore lowered the interest rate for one-year loans to 2.75%from 2.85%.

Not itching? Understandable - because it's not true. It was not in 2019 but now on Aug. 15, 2022 (!). The problem with emerging markets from my perspective is that the engine of growth must always be running - with the threat of global recession, emerging markets have a responsibility to continue to "step on the gas". So in order for companies to borrow money more cheaply in this environment, the above interest rate lowers. Doesn't that sound good (cf. (25), (26))?

Not quite.

By decreasing interest rates, DCF modeling calculates a higher value for especially tech stocks like Alibaba, Baidu etc.. Your future revenues are discounted less, leaving you with more inherent value for your stocks. However, this comes at the expense of the counterpart from inflation, so more cheap money to borrow means more volume is available in the money market, which ultimately drives prices. I don't want to hold a VWL discussion here, only this example should underline that monetary policy in emerging markets is often driven by the primacy of perpetual growth and does not adequately reflect macroeconomic downsides. Silly practical example: you buy a house via credit above your comfort level. Because the interest rates are low, you think you can somehow manage it. But now the follow-up financing is due and the interest rates are suddenly higher. Suddenly, the big problem is there. This also affects governments of emerging markets, which now have to react to potentially misinterpreted project volumes (in your case the house purchase). Often then, run supporting projects for essential sectors of the economy like tech in China are about to be deregistered and can collapse accordingly. In the words of Martin Huefner, an eminent chief economist, "(Investors) are suppressing the long-term consequences. That is dangerous" (cf. ibid., (26)).

I could go on at this point about emerging markets, especially China. In conclusion, my opinion today is similar to that of me around 2016 - TLDR: "Countries opaque, decisions too fixed on growth, ethically difficult, etc." I must say that away from the stock market, China holds a great fascination for me - the culture is very sublime and the Chinese I know personally are very friendly and thoughtful. That said, I separate personal experience from the investment case and therefore am not directly invested in emerging markets.

With this, I have shown in outline why emerging markets are out of the question for me, using China as an example. If you want to read or see this in detail via video, I would be happy about a corresponding comment.

3.2 If you don't like emerging markets - why not reduce their share via ACWI?

If I don't like fries with mustard, why only use a small portion of mustard?

Theoretically, the idea of ACWi is not wrong - one investor, one ETF, one savings rate.

However, the problem here is a bit more complex in design. While the above mentioned 70/30 portfolio at least allows me to control fries and mustard or MSCI World and EM in a fixed ratio continuously over years myself, an investment in the ACWI means total dependence on the global economy. Combine this with the comments about the economic growth engine and its compulsion to run, and it shows the 100% dependence to emerging markets that I cannot escape. Even though EM is currently only about 11% of the ACWI and includes 2,900 different companies, I dislike the lack of payout levels in this variant as well as the fact that the benchmark index has packed 130.36% over the 10-year interval. That sounds like a lot of return, and measured against my approach to portfolio design, it is. I evaluate in my strategy strikingly return plus options versus risk and effort (see (27), (28), (29)). The effort is low according to the statements made, since only savings plan date and amount have to be determined. The risk is relatively low with a representation of 85% of the global market capitalization. On the negative side, I therefore do not locate my exclusion criterion. Where then (Cf. ibid.)?

In the above-mentioned return and action options.

Neither can I go on proven economy in the short term, nor can I intensify my risk component. Even my first portfolio mentioned above with developed markets and NASDAQ 100 focus offered more adaptive investing. I only criticize this against the backdrop of my own investment philosophy, which I will present again at the end. The only important thing to me is that in the time frame from 01/01/2012 to today, the NASDAQ 100 is up about 402%, while the broad ACWI is up about 118%. I realize that comparing a broad market index to a partial selection is always difficult - yet comparing it to the MSCI World (i.e. its developed market component) shows little difference. We thus compare 113% of the MSCI World with 109% of the ACWI index. Basically, based on what was said in 3.1, I decide that the simple investment philosophy of ACWI investing therefore does not really excite me.

3.3 Why not exclusively single stock investor?

Now that I have compared 2 well-known investment types in the form of 70/30 and the ACWI and hopefully have been able to outline their disadvantages succinctly enough, I would like to end by stating my opinion on stock picking. In principle, I also use stock picking - but I am aware of my focus and the possible dangers.

A particularly clear danger is understood in the study of S&P Dow Jones Indices (2019). They virtually analyzed the performance of actively-managed funds versus their passive counterparts. The result could not be clearer:

85% of actively-managed funds with a large cap focus reported worse results than the S&P 500 passive representative. This was not referring to short-term trends to promote passive ETFs. Instead, it was to a 10-year cycle. After 15 years, as much as 92% were lagging their passive S&P 500. So you invest a lot of your money in active products only to get lower returns after brokerage and acquisition costs. It's sort of like the meme with the bike and the stick in the wheel. Even though you could easily set off, i.e. start with passive products, you are already hitting a stick in your wheels (= above mentioned costs) at the beginning of the journey due to false promises (cf. (31), (42)). So where does this come from and why did it influence me for my portfolio?

First, the probability that one of us is the next Warren Buffet with "magic" stock-picking skills is low, according to the above study. The fund managers studied were professionals at what they did on a daily basis and had quick access to diverse data streams. Even with this high quality of information, winning against the market was obviously not possible on a large scale. Thus, the idea that a collective of market information, investor decisions as well as passive products can be permanently beaten by means of one's own intellect is unlikely (cf. (31)).

On the other hand, access to these markets has become much easier. Almost everyone is familiar with neo-brokers such as Trade Republic or Scalable Capital. This lowers the hurdles and more intelligence flows into the market. Combined with the above comments on financial flow and the ETF boom, larger and larger investor flows with a corresponding knowledge collective are forming (cf. (14), (31)).

This is far from being a retail investor problem either. Looking at the performance of Berkshire Hathaway with Warren Buffet in corresponding charge over the period 2004 to 2019, Buffet's "fund" delivered an annualized return of 9.4% per year. The very broad Vanguard Total Stock Market Fund delivered 9.1%, narrowly underperforming Buffet's strategy. At first, this sounds like a win for stock picking, yet long-term comparisons from 1985 to 2004 with the S&P 500 show that Buffet achieved 23.5% and the S&P 500 only 13.2%. Thus, the gap is getting smaller and smaller (see (31)). This becomes clear when the comparison is made over the last 5 years. It doesn't take much - a simple Google Finance analysis of the indices shows two parallel price trends until the end of 2021, until Berkshire Hathaway in particular loses massively in value and both reach the same performance in February 2022. Since then, the price movements resemble an oscillating behavior and an outperformance can no longer be clearly identified (see (32)).

I do not presume to be able to assess the market better than professional stockbrokers. Therefore, I only invest in individual stocks that correspond to my preferences regarding dividends and their quality. How exactly I analyze these stocks against the dividend background, I have explained in the article on BMW and various YouTube videos. You can find the article here:

https://app.getquin.com/activity/gyAOfApOoq?lang=de&utm_source=sharing

So far I have explained why I am not a 70/30, ACWI or pure single stock investor. I don't mean to attack anyone with my comments - it's my opinion (and not investment advice of course). So why am I betting on a core-satellite strategy?

4.1 My flirtation with other investment strategies and why I ended up with core-satellite.

In 3.1, I explained why emerging markets in particular bother me about the 70/30 portfolio. In addition to political risks, I highlighted, among other things, the low growth of the overall investment strategy as well as ethical conflicts and portrayed 70/30 as rather out of character for me (see 3.1). In 3.2, I discussed in particular the absolute underperformance and the lack of a second lever for the emerging markets compared to my legacy portfolio and the 70/30 strategy and dared a comparison with my risk component in the form of the NASDAQ 100. Compared to the risk component of the emerging markets, the NASDAQ 100 has largely delivered top returns in the 2010s with comparatively high volatility. Even though the comparison may not have been entirely fair to the NASDAQ 100 in terms of volatility and number of companies included, I came to the final decision to exclude the emerging markets despite my knowledge of their contribution to global economic growth (see 3.2).

In 3.3, it was important for me to present the new world of stock picking using the example of Warren Buffet as the figurehead of stock picking. We went into fundamental dangers as well as the fact that much more knowledge collective is available on the stock market. In particular, I highlighted the fact that only dividends that meet my standards motivate me to stock-pick. I rejected an investment decision made out of overconfidence and a fixation on returns (see 3.3).

In summary, I was able to learn something from my interaction with and research on each of these investment strategies. While I was not convinced by the EM risk component of the 70/30 portfolio from 3.1, I wanted my portfolio to be sufficiently flexible and not resemble an immobile oil tanker in a storm like an ACWI portfolio. I also did not want to underestimate my personal investment risk and overestimate my capital market knowledge, so pure stock picking was and is not an option for me (cf. 3.1, 3.2, 3.3).

What struck me positively was the combination of 3.1 and 3.3. While I spent many words on the EM portion in 3.1, there was hardly a critical word on the developed country focus of MSCI Worlds. I'm sure you noticed that. Also, I did not absolve myself 100% from the temptation to achieve price gains plus dividends by means of individual stocks. I also remind you of my example of Square Enix from the beginning of chapter 3, where I achieved both dividend income and high book profits over a long investment horizon and this motivated me a lot.

So I started to get more involved with my insights and desires and built myself a core-satellite portfolio. However, I did this unconsciously and only had an understanding of above investment strategies. In consequence I implement against (33) no world portfolio with satellites, but built around my MSCI World various satellites. But what exactly is a core-satellite portfolio in the classical sense?

A core-satellite portfolio is defined as a composition of an investment strategy such as 70/30, ACWI or government bonds in the core, which reduces the volatility of its satellites with a high weighting due to broad diversification or bond principle. Why didn't I write single stocks instead of satellites? There are various designs, so I list them here briefly with 80% weighting 70/30 (see (33):

70/30 with single shares = "classic variant".

70/30 with Crypto = "Crypto variant".

70/30 with sector bets = "ETF variant

70/30 with single stocks and sector bets = "Staggered Variant".

Government bonds in core and financial products (leverage, options, knockout certificates) as satellite

If you want me to go deeper here in a future post, I look forward to your letters :)

Within this cluster I chose option A and lowered the emerging markets weighting to 0% and plan to increase the MSCI Worlds weighting to the full 80% for the reasons stated. It was important to me to reduce the volatility of my portfolio to subsequently use a security for the corresponding cash flow burden of dividends.

4.2 Why I use dividends within the core-satellite portfolio

This cash flow burden comes from the discount on the ex-dividend day. On the said day, the share is bought and sold on the stock exchange without its dividend - i.e. "ex" with the meaning "outside, without, excluding". Theoretically, this has no influence on the value in the direct sense, i.e. purely through this process, if we leave taxes out of it for the time being. If I am above my tax-free allowance, I pay the almost 29-30% depending on the federal state capital gains tax on my dividend received. So why put up with this in order to be massively disadvantaged against no dividend after the tax-free allowance? A not insignificant reason lies in the companies with the fixation on the dividend and quasi as an offer for dividend investors. Various studies showed on the basis of the principal agent theory that due to the dividend there is a constraint to waste less money (see (34), (35)).

Often online as well as in Getquin forums, moreover, the "gut feeling" or the positive confirmation by dividends is presented. So, if I receive dividends regularly, I am more willing to endure nasty crashes like the one on Friday 9/23/22 and perceive the money received from the companies as "pain money". Personally, I select my dividend companies as mentioned above with the intention to generate long-term high-quality cash flows and am therefore significantly more dependent on the stability of the companies than on their economic growth. Therefore, my interest is less in growth companies but rather in stable but boring dividend payers. I accept a possible underperformance in favor of cash flow generation (see (34), (36)).

I personally consider the alleged disadvantage of the "very limited selection of companies" to be too strong a focus on the here and now. What I dislike about the mere mention of this fact in (36) is that the key driver of the dividend growth effect as well as the product life cycle at the company level is disregarded (cf. (36)). Most people with a background or an interest in business administration or marketing in particular will still remember the product life cycle model. For me, at least, it has remained in my memory, as I also like to apply it to companies. Let's take a company like Altria for example, we see the main sales are cigarettes. It's unlikely to me that outside of emerging markets, cigarettes are going to grow particularly in sales volume in developed markets anymore. So this product is somewhere between the "cash cows" with high sales and little growth and the "poor dogs". Since Altria makes almost 85% with these tobacco products, I can condition this market position on the company if necessary. Altria would thus be cash cow in this regard and irrelevant to growth investors without future innovation or possibly a re-division with multiple products. For me, however, due to the high dividend yield and the predictable product model, worth a second look for cash flow (see (37), (38)).

That was the simple example. I have already published a short analysis on YouTube.

It gets much more exciting when we examine typical growth stocks or companies without a previous focus on dividends for their "dividend suitability". As mentioned above, this might make sense for companies that can no longer cope with the dynamic growth environment and want to increasingly focus on dividends instead of growth. Thus, the company would move from a "star" to a "cash cow" in the analysis if the majority of the products can be assigned to this category in terms of sales and market importance (see (37), (38)). Possible candidates would be purely and blindly based on dividend increases BMW, Mercedes-Benz or various other DAX companies. They have strongly increased their dividends in relation to their actual new products despite rather weak figures and, in the case of BMW, they have just increased them by >7% (see (38).

But is this really true?

From my point of view: no, because we have not looked at this on a macro level. In the article on BMW, I have already discussed why BMW is suddenly posting such dividend yields and is generally rather piqued by the accusation of sluggishness in the e-sector. The fact that significant shares of the profit are currently due to the used car market and its lunar prices should only be briefly mentioned here. For more content on this topic, I recommend my BMW article again for those interested (see "BMW vs. e-mobility - a half-hearted love"). What is clear as far as I am concerned is that the dividend is not sustainable and cannot be derived from a repositioning of BMW in the market against the background of the above-mentioned marketing product analysis. The dividend yield is therefore not sustainable for me and irrelevant for my portfolio.

I also enjoy such valuations on a larger scale as they a) reveal dividend potential and b) deviate from the tenor of perpetual growth. One of the biggest advantages of the dividend strategy is often portrayed as its biggest disadvantage: As markets rise, fat dividend ships will not be able to compete with the powerboats of tech companies (see (34), (39)). I find the metaphor and depiction very successful right now, as a storm is brewing in the form of inflation, energy crisis and rising interest rates that will eliminate many unprofitable tech shacks. The general MSCI World 2020 fell significantly more than the MSCI World Quality in the Corona Crash. I am not happy about this - because I am also a tech investor. Nevertheless, I feel well-positioned precisely because of my dichotomy in dividends core satellite and tech portfolio pur and would not want to change my orientation (see (40), (41)).

Finally, I summarize my nearly 7,000-word macro-level analysis: I also found the perfect investment strategy for me only through a continuous process of dealing with stock markets and especially their crises. For me, the continuous inflow of dividends as well as the core ETF in growth phases offers the best of both worlds (cf. 3.1 and 3.3) and provides me with maximum options for action (cf. 3.2). The reliable and flexible side income represents a continuous motivation injection for me, so that in hard times like now, at least I don't see all my profits flowing away.

Ultimately, I come to the conclusion that perhaps everyone has to take an almost esoteric journey through times of crisis to find their true investment strategy. It often depends less on the extent of the crisis than on personal perception. I have not regretted my choice to date - but I can only speak for myself. Here's to dividends!

I hope you enjoyed my article, which is almost 3x as long this time. I didn't realize this until after the fact, but each of the components of my post were incremental to understanding my investment strategy and motivation. If you enjoyed this little journey and/or would like to see posts more clearly summarized, I'd love to hear your thoughts.

Your BASS-T

IMPORTANT: This is not investment advice. It is also not an invitation to buy / sell financial products. I only describe my opinion here. You are responsible for your own decisions.

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