Recent Buy

I recently found a buying opportunity in a sector where valuations have fallen significantly - the energy sector.

For those of you that are not familiar with the company, BHP Billiton is the world's largest diversified resource company. The Company is engaged in the exploration, development, processing and production of a number of minerals and raw materials. The company also has oil and gas operations.

BHP Billiton is cyclical and profitability is dependent on the price of the raw materials that the company extracts and refines - mainly iron ore.

I tend to be restrictive when it comes to energy companies since they are dependent on the underlying commodity and the fact that it is difficult to create competitive advantages in the industry. However, I am willing to make exception in this case because of the following qualities I associate with BHP Billiton:

- BHP Billiton has one of the lowest production costs per tonne of iron ore by virtue of its efficient facilities in Australia.
- The company has the most diversified commodity portfolio in the industry.
- The balance sheet is among the strongest in the sector.

These qualities make the company well equipped to cope with a further decline in commodity prices, mainly iron ore. BHP Billiton's dependence on commodity prices and the lack of a wide moat means that the price is important.

Valuation
The price I paid is the below my Price Cap of $43 dollars. My Price Cap is based on the following assumptions:

• I estimate that BHP Billiton will have an average dividend growth rate equivalent to about 3% going forward.
• I deem sustainable EPS to be roughly 5 dollars and sustainable P/E-Ratio to be 11.

After the purchase our passive income is approximately 2340 dollars on a annual basis. You can find my latest portfolio allocation in the main menu. I plan, in a not to distant future, to post a longer analysis about BHP Billiton Plc. Until then have ha nice day!

Monthly Report - November

Time flies when you're having fun and another month has come to an end. If October was an exciting month November wasn't as thrilling for us who want to buy good companies at reasonable prices. However I managed to find a purchase candidate.

Purchases During The Month
This month I added 28 shares to my position in Deere & Company at the price of 85.50 dollars. The company is currently trading at 9.88 times the last four quarters earnings.

The reason for the low valuation is that Deere & Co has a cyclical buisness and is dependent on economic conditions in the agricultural sector. 

The company has had its record year in 2013, and my guess is that last year was the peak of this cycle. However, this doesn't deterrent me since Deere & Co (DE) is a qualitative and established company. I believe that DE will continue to grow over it's dividend the coming years. 

The the dividend payout ratio based on EPS (TTM) is a low 27.4% at the moment. You can read more about the purchase here: http://long-terminvest.blogspot.se/2014/11/recent-buy.html

Development of Our Passive Income
After purchasing Deere & Co the portfolio yield increased slightly and yield of cost is at the present time 4.83%.

The passive income is, when I write this, approximately 2 390 dollars annually, covering about 4.8% of our annual living costs. This is how our passive income has developed relative to the first 10 years of our long-term savings goals:

The diagram above shows that we already have reached and passed the target for 2014, with one month left of the year. Provided that nothing catastrophic happens, it looks like we are in a good place heading into next year. There is still a long way go though until our passive income reaches awe-inspiring levels.

The blog
During the month of October the blog had about 3 000 page views, totaling around 3 300 since its inception this month. Not that many page views compare to my Swedish blogg, but it's nice that people are starting to finding the blog.

The Month ahead
In November, almost all the companies on my watchlist became more expensive. The only company that looks cheap at the moment is Bonheur, but the uncertainty is much greater there than for other companies. 

My appreciation of sustainable EPS and future dividend growth for Bonheur is dependent of how the price of oil develops and the condition of the company's fleet. I will postpone any purchase decision, partly because the company already accounts for a significant portion of the portfolio and partly because I want to see how Fred Ohlsen (FOE) and other business segments develops in the future. I will describe the company in greater detail in coming posts.

What Advice Would You Give Yourself As a First Time Investor?

I got a question a while back from a young aspiring dividend investor on my Swedish blog. The question was about what stock I though would be a good first building block in his future portfolio. The question got me thinking about what advice I would have appreciated when I just had begun investing back in 2006.

Travel Back In Time

I will, for a moment, pretend that I have access to a time machine with which I can go back in time. If time travel was possible, what would my present self say to the novice I was back then? The dialogue I in such a hypothetical senario could go something like this;

Be patient - you (past me) have time on your side so do not stress. It rarely pays of to be in a hurry when it comes to investing. Investing should be boring and not very exciting or else you are taking on to much risk. 

Define clear goals of what you want to accomplish by investing in stocks. Formulate them in accordance with the SMART Criteria. A smart goal should be:

S = specific
M = Measurable
A = Accepted
R = Realistic
T = Timely

When you have your goals set, start reading as much as you can about stock investment in general and stock analysis in particular. Read, read and then read some more. 

Start your own investment blog and make an effort to analyze companies on your own. There is nothing that's as useful as forcing one's self to articulate thoughts and actions connected to the investment process. Writing a blog will also make you more inclined to stick to your strategy and achieving your goals.

Do not try to predict market movements - it most likely will lead to increased brokerage cost and low returns. Be systematic in your approach and invest for the long-term. Spread out your share purchases (once a month).

Avoid IPOs were management promises shareholders riches and glory - If it seems to good to be true i often is.

Don't invest in obscure companies with a brief history. A better option, when the market feels expensive and there isn't any clear candidates, is to put aside money in a money market fund or savings account with a decent interest rate until prices fall. 

Because prices will fall, even if it does not feel so right now. Although no one can't predict when that will happen a bear market always is succeeded by a bull market.

Do not put all your eggs in one basket, instead invest in stable companies in different industries and markets in order to lower risk.

Opt for stable companies with stable dividend history. To find stable dividend candidates it might be a good idea to start from reputable bloggers watch lists or stock screeners such Google finance or Morningstar. Seeking Alpha is another great source if you're looking for safe dividend plays.

That's the advice can give you at the moment past self. Good luck and take advantage of all the time you have on your side and save for the long-term.

What advice would you give your past self if you had my time machine?