In our most recent series written by Jamie Cornehlsen, Denver CFA and founder of Capstone, FLOW examines how we seek out investments and make selections based on current market trends and future forecasts. Part six completes our series by taking a closer look at the specific investment opportunities that were chosen to enhance the performance of the FLOW portfolio.
When I chose the 20 investments for this portfolio, I did not choose based on how they had performed over the last month or year. Although the yield each investment presented was likely due to poor performance recently, the overall investment value was presented in each company’s ability to produce cash flow.
Despite reminding myself of this logic, the value of the portfolio declined to $140,137 within the first week of the initial investment being made — a cool $10,000 loss, or about 7% in five days of trading.
But this investment was selected for the cash flow opportunities and the faith that the chosen businesses could produce such returns. So rather than focusing solely on price, the value of the underlying business is what we will continue to concentrate on.
Identifying Success through Dividend Production
As a result, this means removing the S&P 500 as a benchmark for success. The success is created off of dividend income generated from a portfolio. Outperforming the S&P 500 doesn’t generate revenue; it’s the production of dividend income that leads to an increase in profits.
As the portfolio continues, buy and sell decisions will not be dictated by the performance of the S&P 500, or the 20 individual investments. In the future, we will either look into upgrading to higher quality investments with greater income-generating capabilities, or sell the investment if the company’s ability to generate cash flow no longer supports its ability to pay the dividend or if the price is much greater than the value.
As we progress, I will provide updates on the cash flow and will keep readers informed of the decisions I make, whether it’s upgrading to investments with higher cash flow or seeking other income-generating opportunities.