Great post.
Indeed I don’t care if I am with or against the crowd when opening a position in my mechanical dividend strategy. However, I have the market dividend and the dividend re-investing part of my strategy that is purely contrarian.
I don’t care because there is too much randomness anyhow, nobody knows the future and what is common knowledge is already priced in. The longer I can hold the bigger the chance I make money. So I concentrate on things like cash flow and debt when selecting stocks.
I live off that strategy for more than 11 years now, seems to work. Since 2014 the CAGR is 10.55%, but I made some important changes in 2020 and since then the CAGR is 13.19%. That is with tax and debt interest already discounted. The main change was that I did not wait 2 years before selling any longer since 2020, lost a lot of money there… was a stupid rule.
My mechanical dividend strategy is a rare mix of value, carry, contrarian and momentum investment. Yes, they do not exclude one another…
- Value: I don’t buy if the enterprise value is too high compared with free cash flow. There are some more parameters…
- Carry: The dividend yield must be 2% or higher. Is not much, but man, it can grow…
- Contrarian: Dividends and market dividends are invested in positions that are still on buy and less than 4% of portfolio value. Market dividend is a stock reaching 6% of portfolio value and it will be sold down to 5%. Buy low, sell high.
- Momentum: This is only for not selling. If a stock that would be sold is in the better half of momentum I keep holding. Whatever gets expensive can get much more expensive.
You can find the complete rule set in my mechanical investment thread.