EP #210 | Investing with Lara.

In this episode of Dividend Talk, we sit down with Lara, better known as “Green Pepper,” for an insightful conversation on dividend investing. Lara shares her journey into the world of finance, discussing how she discovered dividend growth investing and why it became her strategy of choice. We explore her personal investment philosophy, the reactions of friends and family to her financial goals, and her thoughts on why the investing community is predominantly male.

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If you prefer listening on the go, you can catch this episode on Spotify, Apple Podcasts, YouTube, or wherever you get your podcasts. But if you enjoy reading, we’ve got you covered with a detailed summary of the key points below.

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News of the Week – Celebrating Warren Buffett’s 94th Birthday

Warren Buffett, the legendary investor and chairman of Berkshire Hathaway, marked his 94th birthday this week. Despite his age, Buffett remains actively involved in the world of investing, demonstrating remarkable clarity and energy. His daily routine includes monitoring potential investments and staying informed through news, a testament to his enduring passion for the business.

Buffett’s long-standing career and the steady compounding of his investments have captivated many. As eDGI pointed out, Buffett’s ability to remain sharp and influential at 94 is a dream for many investors. The celebration of Buffett’s birthday not only highlights his incredible career but also serves as a reminder of the power of compounding and long-term investment strategies.

Insights and Quotes from Buffett

One of Buffett’s notable contributions to investment wisdom is his array of memorable quotes. Derek shared his favourite: “Someone’s sitting in the shade today because someone planted a tree a long time ago.” This quote reflects the importance of patience and long-term planning in investing—a key principle that Buffett himself exemplifies.

Lara also highlighted the significance of Buffett’s quotes and philosophies. The idea that “time in the market beats timing the market” resonates deeply with many investors, reinforcing the value of staying invested over trying to time market movements.

A Look at Buffett’s Legacy

Buffett’s impact on investing is immense, not only through his own achievements but also through his modesty and approach to business. Despite his success, he remains humble and focused, qualities that have endeared him to many. His strategic prowess, from early career deals to recent investments, underscores his exceptional skill in the field.

European DGI noted that Buffett’s investment strategy includes not only buying stocks but also structuring deals with favourable terms, such as those seen with his oil and gas investments. This strategic approach has cemented Buffett’s reputation as a shrewd and successful investor.

Main Topic: Lara’s Investing Journey

Starting with a Background in Finance

Lara has always harboured a keen interest in the financial markets. However, her active participation in the stock market only began in 2020, just before the COVID-19 crisis hit. The decision to invest in stocks stemmed from a significant life event – the sale of a house, which provided some extra cash. Lara and her family decided to invest this money in the stock market, despite having limited prior experience. They soon faced their first major challenge: the COVID-19-induced market crash. Despite this rocky start, they maintained their composure, believing that the crisis would either be resolved with a cure or lead to larger issues beyond their stock portfolio.

Adopting a Calm Approach to Investing

Interestingly, Lara’s initial foray into the stock market was marked by an unusually calm mindset. Unlike many first-time investors who panic at the slightest fluctuation, Lara and her family approached the situation with a level-headed perspective. They had decided early on to only invest money they could afford to lose, which allowed them to stay calm during the market downturn. Rather than selling off their stocks in a panic, they took advantage of the falling prices and bought more.

The Influence of Early Experiences

Lara’s interest in investing was not entirely new. Although she didn’t grow up with a deep understanding of the stock market, she was influenced by her father, who also owned stocks before he passed away. This early exposure, combined with a growing curiosity about the economy, eventually led Lara to explore the stock market more seriously.

Discovering Dividend Investing

Initially, Lara’s investment strategy was quite simple: invest in companies they knew and liked, such as BMW (BMW.DE). The moment they received their first dividend, however, was a game-changer. Lara recalls the excitement of receiving even a small amount of money from dividends, which made her realise the potential of long-term investing in dividend-paying stocks. This experience shifted their focus more towards dividend growth investing, although they didn’t start with that strategy in mind.

Learning the Ropes

The transition from casual investing to a more focused strategy wasn’t without its challenges. Lara and her family learned through experience, including the importance of selecting the right companies. For example, they initially invested in companies they admired, such as a gaming company, only to realise later that admiration alone doesn’t guarantee financial success. This experience taught them the importance of looking beyond personal preferences and focusing on the fundamentals of the companies they invest in.

Facing Investment Challenges

Like many investors, Lara experienced her share of disappointments. One notable example was their investment in CD Projekt (CDR.WA), a gaming company that failed to meet expectations. The company’s highly anticipated game, Cyberpunk 2077, was a flop, leading to a significant drop in the stock price. This experience underscored the importance of not relying solely on personal interests when choosing investments.

Women in Investing: Breaking the Historical Barriers

Lara also reflected on the historical challenges women have faced in the financial world. In Germany, for example, women were only able to open their own bank accounts without a husband’s permission in 1962. Despite these challenges, Lara sees a positive trend of more women becoming interested in investing. She noted that at a recent financial fair she attended, there were many intelligent women actively participating in discussions about the stock market.

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Top Five Dividend Growth Stocks

Lara has carefully curated her portfolio to include some of the best dividend growth stocks. Her top five picks are:

Broadcom (AVGO): Lara considers Broadcom an amazing stock, given the industry’s stability and growth. The company has consistently raised its dividends over the last five years, with a personal dividend yield of 9% for Lara.
BMW (BMW.DE): Despite the cyclical nature of the car industry, Lara believes in BMW’s long-term potential, especially after acquiring the stock at a favourable price post-COVID-19 crisis.
Munich Re (MUV2.DE): A reinsurer with a stable economy, Munich Re is another favourite. It offers a solid dividend yield, making it a cornerstone of Lara’s portfolio.
Deutsche Telekom (DTE.DE): Lara appreciates the company’s stake in T-Mobile US and its potential to benefit from the growing demand for AI and data centres.
Hochtief (HOT.DE): Although not widely known, this German construction company is on Lara’s list due to its involvement in building data centres, a sector poised for growth with the rise of AI.

Watchlist and Future Investments

Lara’s watchlist includes several companies she wishes to add to her portfolio:

Mondelez International (MDLZ) : Known for its popular brands like Milka chocolate, Lara likes the company’s revenue growth and pricing power.
Airbus (AIR.PA) : Airbus is another company on Lara’s radar, as it stands to benefit from both Boeing’s challenges and global political instability.
Sixt (SIX2.DE): Despite its cyclical nature, Lara finds Sixt’s business model promising and is particularly attracted to the potential for special dividends.

Listener Questions

Fortuna Düsseldorf or DEG?

Sebastian inquired about a preference between Fortuna Düsseldorf and DEG. Lara revealed that DEG, the ice hockey team, is the preferred choice over Fortuna Düsseldorf, the soccer team.

Stock-Based Compensation and Cash Flow

Jean-Christophe asked if stock-based compensation affects the analysis of cash flow. Derek, EDGI and Lara agreed that while stock-based compensation is a standard practice in tech startups, it should be minimal in more mature companies. They noted that stock-based compensation should be a small part of the compensation package and preferably offset by share buybacks.

CSL Limited (CSL)

Hussein asked about CSL Limited (CSL). Derek mentioned that CSL, known for its specialty roofing in the construction industry, had a strong run-up in share price and a modest dividend yield. Although they found the company promising, they were hesitant due to the low dividend yield and current high share price. They suggested waiting for a pullback before investing.

Market Volatility and Sentiment

Manny inquired about market volatility and its impact. EDGI discussed how they focus on identifying great businesses rather than reacting to macroeconomic news or market sentiment. They mentioned that volatility can be an opportunity if approached correctly but warned against reacting to short-term market movements. They provided an example from 2016 where Amazon’s acquisition of Whole Foods led to exaggerated market reactions.

Lessons from History

Mike asked about historical parallels in today’s financial markets. EDGI and Derek noted that while history can offer insights, the current market environment is complex with many variables, including fluctuating interest rates and geopolitical issues. They emphasized that understanding the broader market context and focusing on long-term investment principles remains crucial.

Alexandria Real Estate (ARE)

Thomas asked about Alexandria Real Estate Equities (Ticker: ARE). The hosts admitted they hadn’t explored Alexandria in-depth but acknowledged its popularity among investors. They suggested checking out resources from Dividend Seeker for more detailed analysis and mentioned that Alexandria is a REIT, which requires paying out most of its gains as dividends.

We hoped you enjoy this episode and we see you all next week!

EP #210 | Investing with Lara.