My name is Brian Bollinger, and I am the founder of Simply Safe Dividends, a website that helps individual investors responsibly build and manage their dividend portfolios.
Prior to starting Simply Safe Dividends, I worked as an equity research analyst at a multibillion-dollar investment firm that actively managed several equity funds. I am also a Certified Public Accountant.
My favorite part of my job is helping individual investors learn more about the art and science of investing, and it’s obvious that Andrew shares my passion.
While my focus is on investing in dividend-paying stocks, my investment philosophy and research process share many traits with other types of investing.
My Investment Philosophy
I do my best to adhere to a simple and conservative investment philosophy, which begins with sticking to investment opportunities that I can fully understand.
Warren Buffett refers to this as one’s “circle of competence,” and I have learned over the years that my circle is not very large!
There are over 10,000 publicly-traded stocks out there, but a reasonably diversified portfolio doesn’t need more than 20 to 40 holdings in most cases.
Since we can afford to be picky, the first line of discipline I follow with my philosophy is avoiding confusing businesses and industries.
If I can’t quickly figure out how a company makes money and why it might have some staying power, I move on. Many businesses are too complex for me, creating unnecessary risk.
After finding a company that I feel I can understand well, the real work begins. Like many other investors, I try to buy high quality companies when they trade at reasonable prices.
But what exactly does “high quality” look like?
In my opinion, high quality businesses possess the following characteristics:
• Time-tested operations
• Reasonably diversified by products / customers / end markets
• Large end markets with at least moderate long-term growth potential
• Consistent free cash flow generation
• Above-average and stable returns on invested capital
• Healthy balance sheet metrics
• At least several enduring competitive advantages that I can fully understand and believe in for the long term
Identifying advantaged businesses is very difficult and often involves a number of judgment calls.
How to Identify Competitive Advantages
According to Professor Richard Foster from Yale University, the average lifespan of a company in the S&P 500 has decreased from 67 years in the 1920s to just 15 years today.
He also estimated that 75% of S&P 500 companies will be replaced by new businesses by 2027!
Increased globalization and the widespread use of increasingly-affordable technology have accelerated the pace of change faced by businesses in virtually every industry.
Competitive advantages are proving more difficult to maintain as the world moves faster and faster, and our job as investors certainly isn’t any easy because of it. [click to continue…]