James J. Hill, founder of the Great Northern Railway, earned the nickname of “Empire Builder” as he began buying out struggling railroads and uniting them into a booming transcontinental network. Hill analyzed down-and-out railroads to suss out hidden value. Once he identified potential, he bought the railroad at the down-and-out price and then unleashed his logistical genius to build the business into a money-maker on rails. His legacy lives on in the iconic Empire Builder route, which still runs from Chicago to Seattle.
I created Dividend Builder out of the ashes of my own down-and-out trading strategy. My first few trades featured small positions and small gains and losses. Then overnight, one of my positions, WATT, shot from $16 to $30. I then had a few lucky strikes with blockchain and crypto-related tickers. In my head, I was already drafting my two-week notice. I had it all figured out and would be making a good living buying and selling penny stock on my phone.
Off the Rails
My happy profit train derailed in early 2018. I had fits and starts and a few breakthroughs, but the grade ran steadily downhill. My experience mirrors much of what Joe shares in the first paragraph of his My Trading Strategy post.
The run off the cliff happened in December of 2018 when the market made a huge correction. Since I had so many penny stocks in my portfolio, the correction had an outsized impact on me. It took my breath away to watch the value of my portfolio plummet 36% in a matter of days. The damage would have been salvageable if I had been buying quality companies at quality prices. Instead, my portfolio was filled with penny stocks, struggling oil companies, and quality companies at inflated prices.
Laying Tracks for Dividend Builder
Swing trading speculative stock was not working. It was becoming clear that I did not have the experience or the time to devote to jump in and out of volatile positions to capture profit. I was giving away profit. And, I was left holding a lot of bags. This means I owned a lot of shares that were no longer worth as much as I had paid for them. Shares that did not pay dividends and had little chance of recovery. After a year of losses, I was ready to make a change.
My new plan was not as rock and roll as day trading or swing trading. I had slowly developed a respect for the craft of dividend investors I read on Seeking Alpha. At the same time, I was toying with the idea of closely following one or two profit-making, dividend-paying companies with the intent of buying up shares when they dipped to a level of support. I would buy the shares and hold long term to collect dividend payments or sell for capital gain if the price rose to or above resistance. Delta Airlines (DAL) and Ford (F) were two such companies. I transferred a fresh five hundred dollars into my Robinhood account, dedicated to this new strategy. In the spirit of fiscal responsibility, I determined I would funnel no new funds to my broker until this strategy proved itself.
The new strategy worked! Not only did it start providing steady growth, but it also reduced my stress levels. All my holdings had to be in quality companies. I did not need to worry about missing a key spike or drop during the day. If needed, I could hold on to these stocks for years. I had stumbled into a strategy that blended the patience of position trading, the opportunity of swing trading, and the reliable income of dividend investing. The Dividend Builder strategy was born.
My next Trading Journal post will feature a review and the results of the first year of performance for my Dividend Builder strategy. I’ll share how my five hundred dollar investment fared in Dividend Builder – A Year of Results.