Next year I will be 70 years old.
It’s not entirely a coincidence that this year has focused somewhat on fitness.
I bought a Fitbit and started tracking and focusing on my daily step count. Quite regularly, I do a particular coastal walk a few minutes’ drive away, timing myself on a specific route. And recently, I joined an informal running group and timed myself for a 5K distance.
Central to all of these activities (well, aside from doing them in the first place) has been a process of data collection and analysis.
Fitbit makes it easy for you: you can download your personal statistics in spreadsheet format, which makes recording your progress a breeze. My regular walks have become faster and easier. They may yet become careers. And looking at the 5K data, the progress is noticeable.
That’s what I do. That’s how I think. And that’s how I address specific improvements in other areas, like the electricity consumption of our homes, for example.
Data-driven
You won’t be surprised to learn that I take the same data-driven approach to investing. In fact, readers with long memories may remember that I mentioned spreadsheets and graphs in previous columns.
And it’s an approach I’ve also seen taken by other investors, some of them with several decades of investing experience under their belts.
What are they tracking? What follow-up? Whatever we want, in short. In other words, whatever suits our own circumstances and investment strategies. That’s the beauty of a spreadsheet-based approach, as opposed to a tool like Microsoft Money or one of the proprietary portfolio tracking tools out there.
The use of the word “strategies” in the previous paragraph is also not meaningless. I firmly believe that investing should be strategy-driven and have some goals in mind. In which case, it is rational to measure progress toward achieving that goal.
Data I capture
It’s no secret that I’m an income investor today. And that’s why, since 2005, my main spreadsheet has been income-focused, measuring my progress in creating investment income from a portfolio of individual stocks.
The first ‘tab’ of the spreadsheet records progress within a given year: total new cash added, total dividends received, net share purchases, cash at year end, and some totals columns designed to report a series of performance calculations: stock valuation, total new cash, and total cost purchased.
So it’s pretty obvious that I’m capturing yield as a percentage of capital valuation, yield as a percentage of new cash invested, and yield as a percentage of cost purchased. Another column (and probably the least important) captures earnings relative to year-end valuation. Finally, one column captures notable comments for the year in question, and I also capture the total annual dividend payments by company.
And, as I say, I have all this data and analysis going back to 2005.
An additional tab displays and plots scheduled dividend payments throughout the year, to aid in planning. Another tab tracks a detailed sector breakdown, to help maintain diversification and balance. An additional tab records the total portfolio. And a final tab records each transaction, so you could, if you wanted, run a pivot table on it. Until now I have never wanted it, it must be said.
Steady as you go
So how am I doing in terms of return on investment?
Thanks to the spreadsheet, I know. Objectively, not subjectively. Objectively and with true clarity.
Dividend income has increased year over year. The performance on the purchased cost is satisfactory. The yield as a percentage of equity valuation fluctuates as equity values fluctuate, but it is also satisfactory. And capital values have fluctuated, but global financial crises, pandemics and unexpected results of national referendums tend to have that effect.
In other words, stick with it as you go. I have an investment strategy and my spreadsheet tells me it’s working reasonably well.
Other spreadsheets track other aspects of my retirement income planning. In general, I am following the planned course.
stocks continue to gain
But should you even bother? Of course, retail investors are waking up to these opportunities. But from what I’ve read, these are wealthier, more sophisticated investors, often with prior experience in the bond market.
I think the best thing, by far, is to stick with stocks. Many blue-chip UK shares outperform bonds and gilts, and also offer capital benefits.
Last time I looked, the FTSE 100 was trading on a price-to-earnings (P/E) ratio of 13, and the FTSE All-Share on a P/E of 14. The US S&P 500? 20. The broader Russell 2000? 25.
I know where I see the greatest prospects for an upward rerating.
Why not?
You may already have such a spreadsheet, designed to meet your particular needs. I know many investors do this.
But maybe you don’t have such a spreadsheet yet, and I know many investors don’t.
“It’s too late,” I hear you say. “I started investing several years ago. “I am not sure I have saved all the documents.”
It doesn’t matter: all the investment platforms I know of keep records of investors’ trades, even if they have since moved their investments elsewhere. The information is available and you can access it and create your spreadsheet, as if you had maintained it from the beginning of your investing journey.
Don’t have Microsoft Office? There are alternatives, such as Libre Office. And even a free online version of Microsoft Excel, maintained by Microsoft.
If there is a will, there are means. What can you lose?
