Case Studies
Jedi Mind Trick: Why I Grew a Mustache and Why You Should Too
As the owner of a small internet business, I’m constantly looking to improve my sales process. I’ll come up with an idea, and test it on an audience. I’ll use whatever resources I have available. This usually means testing on my friends. A few months ago, I became curious about how effective sales tactics were in manipulating consumer behavior.
And I’m using the word “sales” here very broadly. On a basic level I believe “sales” simply describes convincing someone to take action. It could be convincing someone to opt into your newsletter or convincing someone to exchange money for a product.
Rather than sell a boring product, I arbitrarily decided to try convincing people to do something different – like grow out a mustache.
Due to genetic circumstances, I don’t have that much facial hair due; however, I’ve always admired a manly stache. Just look at a picture of Burt Reynolds and you’ll understand why.
At the same time I had some pretty lofty ambitions. I mean… what if my sales tactics really caught on… wouldn’t it be great if I could start a global movement – maybe even inspire a mustache revolution.
I realized that this was the perfect opportunity to realize two goals at once.
Case study – How I used sales tactics to convince my friends to grow out a mustache
Dividend Investing: The Rich Man’s Guide to Making Money in Your Sleep
When markets get iffy, dividends look spiffy. (That was a terrible rhyme)
One of the reasons I started this blog was to explore different sources of passive income. And one of the best and most popular methods to earn a passive income is through dividend investing.
What is Dividend Investing
A dividend is a sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits. These dividends provide investors with a steady income stream that is not dependent on market fluctuations. The money represents spendable cash that can either be reinvested or used.
If the dividends are reinvested, overall investments will increase at a compounded rate. The individual will own more shares that earn dividends, which will increase the total income stream. At the same time, stock values are known to historically increase, so the shares that are purchased with the dividend money will also increase. This adds to the overall investment value, making it a double win for any investor.
In addition, stocks that pay dividends are usually less volatile than those that do not. The fact that the stock has reliable dividend returns presents less risk to an investor. This is especially important when the market is declining because investors will not be able to get needed returns from price appreciation. Investors tend to buy dividend stocks during this time, an action that further stabilizes the stock price and allows it to fall less than the equity market in general.
Case Study: Dividend Income Portfolio
While the explanation above paints quite the rosy picture for dividend investing, I’m looking for more concrete evidence that dividend investing can be an effective passive income stream. So I decided to run a little test.
The Goal: To measure how well a dividend income portfolio can perform, using compounded annual rate of return as a metric.
The Experiment: Starting with an imaginary balance of $100,000, I’m picking 10 dividend stocks recommended by one of my favorite investing blogs www.jubakpicks.com. The stocks will be equally weighted with $10,000 invested in each.
The Criteria: Stocks are selected under the condition that they will appreciate in price and pay more in income than the current yield on the 10-year U.S. Treasury. That’s a moving target, of course, but at the time of this post, the 10-year Treasury pays 3.22%
Disclaimer: I’m backdating my data to get a measurement of performance for the past 20 months. Back in 2010, the environment was very different. A lot of stocks were still selling at depressed prices and offering exceptionally juicy dividend yields. The stocks listed here are for reference only and not meant to be taken as investment advice.
Dividend Income Portfolio
Dividend Income Return
One way is to determine ROI is to look at how much cash the portfolio throws off. Many investors don’t reinvest this cash but instead use it as income or to supplement income. From my starting point of October 2009, this portfolio of 10 stocks, equally weighted, and with $10,000 invested in each one for a total of $100,000 has thrown off $30,870 in cash. That’s a 30.87% in approximately 20 months. If you convert that to a compounded annual rate of return it comes out to 17.5%.
Again, it’s important to keep in mind that you’re looking at a stock market that has rallied pretty much non-stop for the last year so many of the hefty yields of yesterday have been turned into much more modest payouts.
A second way to look at the performance of a dividend income fund is to see what happened to the principal. Did I lose a good part or any of my original $100,000 in order to get that kind of return. In this case, with no dividends reinvested – I’m taking all the money out to spend on women and booze – and simply rolling over the money from each position into a new position, the original $100,000 has grown to $151,451 as of May 3.
However, you can’t simply add those two numbers together and say that’s been the return on the portfolio. For one thing, the rate of return changes as your principal changes, so future dividend earnings will reflect this. What this does prove to me is that if implemented correctly, dividend investing can be a great passive income strategy. With dividend income, you reap the benefit of having your overall portfolio value grow, increasing the net value of your assets, while at the same time earning a very respectable income.
Best of all maintaining this portfolio requires minimal work. You can invest the time up front to research for bargain companies, or in my case piggyback off of the research of a successful investor. After that you only need to follow-up and make periodic checkups on the overall health of the companies you’ve invested in.
Even today, based on the sector investing philosophy I’ve shared before, I think you can find better than 10-year Treasury yields at risk that is less than the market perception. Currently stocks in the energy and industrial sectors have lagged through all of 2010 but it looks like the market and economic cycles have turned in a way that give these stocks a good chance to appreciate in 2011. Higher yields always come with more risk. But you can minimize that extra risk with good stock picking.
###
Do you use dividend investing to diversify your passive income portfolio?
Disproportionate Returns and How to be a Winner
Disproportionate returns describes situations where everyone else is so horrible that, by being even half-decent, you can dominate everyone else and win.
Here’s a case study from my friend Kenneth, who crushed a “Best Man” speech by doing just a little bit more than everyone else. With just marginally more work than other speakers, he distinguished himself from the million other crappy best man speeches that happen at every other wedding.
Best Man Speech Winning
“Back in April a friend of mine from college asked me to be the best man at his wedding. I had never done this before but I said yes. The wedding was this past Saturday and when I finished my toast the wedding singer took the mic from me and said “No notes, no cheat sheet and that was one of the best toasts I’ve ever heard.” I got a lot of compliments for a brief, ~250 word speech.
After my buddy asked me to be the best man I went to trusty google and researched best man toasts. They were all crap. They all used the same jokes and the speeches were showing off how clever the best man was, not talking up the groom.
I broke up my speech into five parts…
I wrote out my speech in about half an hour one day during a break from studying for my professional engineering exam. Before I ever started writing it I thought a lot about what I wanted to say. I thought about it in the shower, on the way to and from work (sometimes at work). It wasn’t always my top thought but it was often in the background.
After writing my speech I left it alone and then opened up the text file just over a week before the wedding. I read through it, made some changes and printed it off. I took the speech with me as I traveled for work the entire week prior to the wedding.
Note: I especially love his last mile magic. 99% of people will not take this step, but it’s what separates people from being just pretty good to jaw dropping outstanding.
The morning of the wedding I spent 30-40 mins walking around the living room giving my speech to the dog without my text. When I slipped up I started over and I tried to keep my pace the same as how I wanted to do it in front of the audience.
Throughout the day if I had a moment I ran through the text in my head. I had no choice to remember it as I purposely left the speech back in the room. All told, I think I spent about two hours working on that speech over the course of seven months, including 30 mins of practice the morning of the wedding. The result of which was a lot of “that was the best toast I have ever heard at a wedding” compliments. I thought it was going to be just ok as I had not spent a lot of time on it but compared to everyone else, my little bit of work went a long, long way.”
Other Low Hanging Fruit for Being Awesome
Let’s take some examples where everyone else is so terrible that you can dominate by being even somewhat competent.
- Negotiations. Most people are awful negotiators (especially for jobs and especially in America). That’s because nobody teaches us how to negotiate — indeed, we’re actively taught that it’s “weird” and “awkward” to negotiate. By contrast, I find it “weird” to lose $10,000 because you didn’t take 5 hours to practice your negotiating pitch beforehand. By simply starting a negotiation, you stand out from 80% of other applicants.
- Writing effective emails. Most people send out dozens of emails per day. Yet when was the last time they studied the best emailers to learn techniques to (1) get busy people to respond to them, (2) cut down on back-and-forth emails, and (3) get what they wanted via email?
- Conferences. Most conferences are boring and bad. But so are most conference go-ers, who don’t do their homework beforehand, eat with their co-worker, and miss the prime benefits of networking. (The book Never Eat Alone has a magical chapter on how to be a master networker at conferences.)
- Exercise. Go for a 30-minute run every day and you’ll be in better shape than 90% of adult Americans. Stop debating minutiae about health and get off your ass.
- Holding onto expensive purchases for years (even decades). We love to buy expensive things like houses and cars, then turn around and sell them 5 years later. This is literally one of the most poisonous financial decisions you can make: Not only do you incur huge transaction costs, but you condition yourself to think that buying and selling expensive goods every few years is normal.
- Earning money online. As Erica Douglass recently said, “If you earn $1 online, you’re doing better than 90% of people.”
###
