How To Build Stock Market Wealth ‘Right Where You Live’
Key Takeaway
The BIG Picture
“Every income earner, and every consumer, should be a dividend receiver and Wealth Builder. All the ‘building ingredients’ are already ‘on-site’
Introduction
Each of us is usually an income earner and, even if we are not, chances are, we are a consumer. In this Newsletter #5, we focus on ourselves as people living in a residence which is encircled by product and service providers even if, up to this point, it was not obvious to each of us
All homes are connected to, and we, inside, are ‘literally surrounded’,(within the house), by the products and services which we, and our neighbours in all directions use every day, bar none. Within this context, this Newsletter speaks to the fact that many of the world’s best companies are among those right there in your house as a provider of one or more of these products or services. It also posits that, we as householders need look no further than ‘right here’ in our own house, for companies in which to invest.
We are literally surrounded by them ‘when inside’! Because many of them are preferred dividend payers, it means that you, and I, are enabled to build stock market wealth ‘right where we are’, in our own house! Better still, since many of these goods and service providers are also permanently connected to our house we can, with appropriate poetic license, call them our ‘permanent residents’ and declare, with much truth, that we can now build some personal, and family wealth, ‘right where we are’
A: Three Great Reasons
It is true that successful stock market investing is not as easy as sleeping late on a rainy Sunday morning but, neither is it much more complicated and, as has been demonstrated in this Newsletter #5, owning a house provides a great illustration of this. In any case, the experts who have built their reputation studying the market have laid out the theories and operations-guidelines for us to follow to build our own, and, if we do, this will help us to build some wealth while sleeping well at nights.
Maybe the most important guideline they laid is that we become long term investors, meaning holding our positions for at least twenty years. This they recommend for many reasons but, maybe, the most important three are;
- ‘Long term’ helps us to disregard the well-known periodic rise and fall in market values while allowing us to visualize, and focus on the hoped for success in our future. Importantly, too, we usually do not have any control over the factors that cause these value variations
- Apart from saving us the anxieties of everyday investing, it also saves us from the ‘hidden costs’ of frequent trading transactions which, over time, can eat up substantial portions of our present and future wealth
- ‘Long term’ frees our mind from “the noise” of the market and enables us to become more productive in the things at which we are good, and over which we have more control
Accordingly, it is up to us, with the guidance of our Registered Investment Advisor (RIA) to run on the tracks that they have laid, meaning that, we need not be experts ourselves and try to reinvent the ‘investment wheel’. Just work with ‘the wheel’ they gave us, with any little tinkering that may be necessary along the way
B: So, who are our ‘permanent residents’?
Our own individual ‘permanent residents’ will be a function of
- where in the world we live, and
- the extent to which our providers are incorporated as companies listed on a recognized stock exchange.
Note#1: We will explain, and you will recognize the importance of this “listed connection” in a later Section of this Newsletter. The important point to understand, though, is that many times, if a listed provider is not in your own local community, chances are, there is one in another country, or online, to which you may have access. For example, while your local supermarket may not be listed, depending on your own circumstance, you might be able ‘to buy the supermarket shares’ in Walmart, even though you might not be a living in the USA.
Following are illustrations of some of these providers grouped roughly on the basis of
- Product use,
- Service offering, and
- How B1 and B2 relate in practice in our daily life
Examples of B3 are
- Supermarkets providing foodstuff and related products for our tables
- Manufacturers providing things like Pharmaceuticals, bathing soaps, toothpaste, and all the other items we need for personal use
- Industrialists providing motor cars, trucks, busses and bicycles
- Enterprises providing computers and other electronic gadgets which take the drudgery out of work
- Other manufactures producing Beers and carbonated beverages
- Other producers and manufacturers who provide all the other products that everybody, everywhere, use everyday (3Es) to satisfy all of our various personal needs. (We will deal with importance of these 3Es in another Newsletter)
Examples of B4 are;
- Banks providing banking services
- Investment Brokers providing investing services
- Companies providing electricity, water, telephonic services
- Merchants providing electronic and word processing services
- Engineers providing engineering services
- Carpenters and myriad other workmen providing their services (labour) for the ever-widening array of activities that other people, and commercial enterprises need to have done
B5-Illustrations
- Wherever in the world you, and I live and work, the expectation is that we will visit the supermarket to buy our supplies. The reality is that this supplier(s) will become a ‘member’ of your household and retain ‘his/her membership’ for as long as your household remains at this same location. If this supplier is listed on a recognized stock exchange, the thesis of Newsletter #5 is that, if he is a competitive** dividend payer, we should become one of his shareholders, and dividend receivers, and thus, in effect, ‘force’ him to ‘pay his way’ in our house. See at Note#1 above.
- Similarly, let’s say the main bank in your town is named Bank ABC and that is where you and you and I do our banking. In that case, the same thesis at 5a applies I.e. we should become
- Become its shareowner
- Receive its dividend, and
- Either consume it, or (as we will always advocate)
- Use it to reinvest in the payor to buy more shares and,
- through the power of compounding,
- keep growing our share count, and thus
- vii.increase our investment value over time
C: How can we prepare ourselves to meet our ‘permanent residents’?
After all, they were ‘there’ before us!
And, in a way, it’s therefore for them, our ”permanent residents’ to “show us around!”. This is where our RIA, yours and mine, come in, to do the introduction. As we already know, every one of us can now become a safe and successful stock market investor ‘without leaving home!’ Almost by default! The strategy is now to ‘form a bond’ with at least one of these ‘permanent residents’ in the house.
Two of the four ingredients for success are already present in your house**. These two are
- An asset class that ‘throws off’ a periodic cashflow i.e. your particular ‘permanent citizen’ who is listed on your stock exchange of choice
- Time (as measured in decades) meaning the decades in the lifetime of you, the householder
The other two outstanding ‘ingredients’ to complete the investment success cycle are
- The wealth-building awareness-mindset that is oftentimes not present and so, as a result, many householders ‘do not see’ their own ‘acres of diamonds’ i.e. dividends ‘thrown off’ in their own house, by their ‘own permanent resident’ and
- The wealth-building-discipline to re-invest those ‘thrown off’ dividends back into the ‘resident’ that paid them. This reinvestment, along with C2 (Time as measured in decades) are the compounding foundations of wealth creation
D: What will you do with the wealth you create?
As is clear by now, each of us, as house buyers, and subsequent home-makers can, in collaboration with our own preferred ‘permanent resident’ initiate a wealth-building programme right there in our own home.
Two points are recognized and are worth making. They are;
- The younger we are when we buy, and meet our ‘permanent residents’, the more years we will have to collaborate with the one of our choice in creating some wealth ‘right where we live’ Note#2 Every householder will meet many different ‘permanent citizens’ but, again there will be a reality check that dictates that he, or she, might only be able to ‘collaborate’ with one. Note#3 Collaborate means householder buys shares in his or her preferred ‘permanent resident’ and begins the process of building some wealth according to C1-4
- Unfortunately though, whereas the younger you buy a house the more years you have to live in it (and convert those decades into wealth-building), usually, the younger you buy, the more difficult it is going to be to find the ‘extra cash’ to invest and usually, what economists call a trade off’ will have to be made between the benefit of more years versus the more difficulty in finding what to invest
E: Summary
Newsletter #5 demonstrates that it is possible for each of us to build some wealth right where we live. In our own homes! And, assuming the dividend benefits are competitive, we can invest in the shares of all, or any of the providers of goods and services to our home. These providers we call ‘permanent residents’ because, you guessed it, they are permanently connected to us, either Iike our computer or cell phone or, to our house like the light and water connections.
Happily, so long as each, or any is a listed company on a recognized exchange, we have the option to ‘collaborate’ and, in effect, ‘get paid’ (dividends) for hosting them.
Finally, in the event we ourselves predecease our wealth-building objective, we must put strategies in place to ensure that it does not die with us but that the revenue stream flows forward and for specific and beneficial purposes.