The FINER Thing in Life
* That FIRE (Financial Independence Retire Early) approach to investing? Forgetaboutit!
* We all need that FINER thing in our lives. That’s Financial Independence Never Ever Retire
* We will detail our system for creating a business for your lifetime to pass on to your successors.
Enough already with retiring early. If you are doing what you love, constantly increasing your family’s wealth and well being and dealing with the people you care most about what sense does retirement make? Look at Warren Buffett. That guy’s 91 and still going strong managing a lifetime of businesses he has acquired. I’m not quite that old but gaining fast. I’m a proponent of the Make Your Family Rich System as detailed in my book “Make Your Family Rich; Why to Replace Retirement Planning with Succession Planning”. The MYFR System is surely the FINER thing in our lives.
Focus on Dividend Champions
My family owns a stable of great American companies. Our family business is owning and managing those businesses. Mostly, the companies we own are the 140 Dividend Champions (DCs) which are the businesses that have increased their dividends in each of at least the last 25 years. You know many of them. It’s JNJ, PEP, CAT, IBM, CLX, CL, PG, PPG; you get the picture. Many of the DCs are in the S&P 500 but there are a number of smaller companies like TR. Yep, that’s Tootsie Roll Industries, Inc. which has increased the income to its owners in each of the last 52 years! No trick there it’s all a treat; thanks TR.
The DC list is maintained on Seeking Alpha and Wide Moat Research by that really smart, hard working young fellow Justin Law. The data base was originally developed by another great guy, David Fish, who regretably passed in 2019. Justin promptly picked up David’s baton and has maintained the legacy. Two really terrific guys!
We Keep Score By Income
My family has a unique investment philosophy. First, we keep score by income. Markets go up and markets come down. As the old saying has it, markets take an escalator up and come down on an elevator. We saw that elevator effect last spring in the Covid collapse. We can’t do anything to control the market swings. Sure, we can try to time the market but how has that worked for you? But we can control our income. We do that simply by limiting our investments to DCs. We are also fortunate enough to be able to DRIP our dividends. So, every month our income increases. By keeping score of our success by income we are in the green every month. By the way, that included last March at the worst of the Covid collapse. DRIP simply means Dividend Reinvestment Plan whereby our dividend income is automatically invested in additional shares of the DC firms we already own. Almost all DCs have DRIP programs.
Let’s talk about performance scoring a bit more. In every game someone decides early in the design of the game how to keep score. Take football for example. Mrs Football decided to keep score by the number of points. Let’s say the Giants gain only 100 yards but get a field goal and three points and their rivals, the Falcons, gain 300 yards but score no points; the Giants win, right? Is that fair? Didn’t the Giants really outperform the Falcons? Then consider our presidential election system. Ask Al Gore and Hillary Clinton if they think the electoral college system makes sense when they won the popular vote but lost the election because they did not score enough electoral college votes. Blame it on Alexander Hamilton and the way he persuasively proposed keeping score in presidential elections as documented in Federalist Paper #68.
Look, a bunch of guys a long time ago decided we should keep score on our investment performance by the value of our portfolio. We don’t control the value of the businesses we own and we keep score by our income which we do control by investing in DCs. Do we also keep an eye on value? Do we get anxious when the market declines 30%? You bet. But do we sell? We call that the Gnu Effect when folks feel compelled to sell because market values are collapsing. You have seen all those gnus or wildebeests out there on the Serengetti. They all stampede when a pride of lions shows up. Those gnus end up falling off a cliff or drowning in a raging Zambezi river. That’s what investors tend to do when there is a major market decline. We don’t do that because, even in a major decline like March 2020, our income keeps increasing.
Sell the Dips
The market pundits are always telling you to Buy the Dips, right? We don’t do that either. We Sell the Dips. That’s out of the money puts. Selling put options is a great way to generate additional income and buy great businesses at even lower prices than on days when they dip a lot. Options tend to scare folks. Used properly they are a fabulous tool and earn the investor solid returns on available cash. Check out our article “The Make Your Family Rich Method is to Sell the Dips; Options, that is” on our Seeking Alpha blog for clear, simple explanations of why and how to sell cash covered out of the money put options. It can be a bit confusing at first requiring the use of some new vocabulary. But the results will be well worth your effort.
Perhaps most importantly we think planning and arranging succession trumps retirement planning. Our family has acquired and manages a portfolio of great American companies. We think of ourselves as owning an asset management business the assets of which are the DCs we have acquired over many years. I have trained the next generation consisting of my son Matt and daughter Erin on the MYFR System. They manage the system day to day now and they receive a fee for their work very much like a financial management fee. They will eventually inherit the asset management business. When they do inherit the business I am confident nothing much will change. They know the system works so why change anything? They do the periodic trading which is mostly selling put options on DCs that dip on any given day. Matt and Erin report their activity in their daily Diary which they maintain. Once on seeking alpha click on pkeogh and access our blog. We meet periodically by phone to adjust parameters and exchange family information and market views. The book Make Your Family Rich; Why to Replace Retirement Planning With Succession Planning is really the blueprint for managing our family’s asset management business and my childrens’ asset management business plan.
The New Teen Investing Book
Recently I published Hey Kid, Wanna Own Great American Businesses? That book is targeted at the teen asset management business owner. I have three grandchildren and Hey Kid is the manual and workbook for training them in our family’s system. With the availability of partial shares and zero commissions why isn’t every teen investing in great American companies? In time, the grandchildren will succeed me and their parents in managing and growing the family asset management business. In the meantime, over the years I have funded a business for each of the grand children acquiring DCs as the assets owned by each of their businesses. I have started training them and send them regular letters notifying them of the actions taken in their accounts and go over the math and rationales for each transaction.
Where does all of this leave the old man? I’m now mostly Dad, the Chairman of the Board. Probably not that different than Warren Buffett in his relationship to Berkshire Hathaway. I am financially independent and will never ever retire. I’m living that FINER life working with the people I care the most about and doing the things I have always found rewarding. FIRE? Achieve financial independence and retire early? Not a chance.