Dividend Ten

Freelance & personal finance journal

Recent Sale

I Sold Wells Fargo

Dividend Ten Recent Sale

Yeah, so what am I thinking? Am I some kind of DGI wuss?

WFC is Uncle Warren approved with a DGI community stamp of approval.

To the first point, yes, you can’t compete with the “Warrenator.” Yet to this point ironically check out what Warren said himself at 26:10 in a recent talk with Indian business school students as what he believes is the most important quality to be a great investor:

(Worth watching the whole thing, but the tl;dr version is – It’s the ability to ignore what other people think. So I think that even applies to listening to the greats like Warren.)

To the point about WFC having the DGI community stamp of approval, that doesn’t mean very much to me, and it shouldn’t to you either. I’ve seen the DGI “accepted wisdom” fall flat on its’ face with picks like KMI in the 40s last year.

So in this post what I’m going to do is give a quick run down of the trade, and my rationale.

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On 7/5/16 I sold all of my 42.316 shares of WFC for $1,974.04. In all, I realized a loss of $457.96 on the trade.

Here’s my thinking:

1. I feel 100% confident about all my positions that I currently hold. It’s important for me to have a few good ideas, versus a ton of ok ideas. The more I study, the less I like financials. Is it possible that WFC will work out brilliantly for other investors? Sure. But there’s a lot of risk here, and I don’t think dividend investors are being adequately rewarded for the risks inherent within the space.

2. What risks? Well, there’s a lot of uncertainty in the world right now. Banks are the only industry that when people lose confidence, the company simply ceases to exist. It’s called a bank run. And before you pooh pooh banks just evaporating, turns out it happens with regularity, at least 3 times in the last 30 years, most recently in 2008 which toppled Lehman Brothers, Bear Stears, WaMu, Wachovia, among others. WFC came out ok, but it too had to cut it’s dividend in 2009.

3. It’s nearly impossible to assess the attractiveness of the dividend strength of a banking stock. Since banks require money to make money, cash flow analysis is nearly impossible. What determines dividend strength (the ability to pay and grow dividends) is not past performance but future cashflow minus debts in the future. Whereas a general company relies on operating assets like property and raw materials to drive revenue to drive cashflow, banks require cash. So it’s pretty hard to understand the safety of the dividend at a bank.

4. In the spirit of preventing another great recession type catastrophe, the Federal Reserve runs stress tests. Turns out the credit card companies – American Express (AXP), US Bancorp (USB), among others can handle adversity the best. WFC? Not so much – had some of the worst results. So there’s a disconnect here from what I can see. WFC is currently priced as a premium company, when in fact it no longer is.

So that’s it. If you own WFC, chances are you could do just fine. I’m not trying to convince anyone of anything, just putting out my thinking in the hopes of learning from the choices I make & making more thoughtful decisions.

For me, I just want to feel confident in all my holdings, and right now I see financials, and WFC as being far too much risk in this crazy, unprecedented time we find ourselves in currently, with not enough compensating reward. And risk vs reward is what intelligent decisions come down to in the end.

What about you? Do you agree/ disagree? Have I completely lost my mind?

Thanks for reading!

5 Comments

  1. That’s funny. A DGI wuss. Interesting term to say the least 🙂 Nothing wrong with selling any stock for any reason you have. That’s the beauty of personal finance. It’s “personal.” Everyone has their own reasons for buying, holding or selling a position. It’s just a personal call everyone has to make for themselves. I do agree with you that there is a herd mentality among investors and our fellow bloggers too. I think I am the ONLY portfolio among our peers that does not hold one energy stock. Believe me, as oil was dropping I read all those KMI, BP, EPD, CVX, XOM, NOV, RDS, etc. etc. buys telling me these stocks were great values, yields and more. I watched many ride oil down, down, down. I didn’t invest in energy because I have some great insight or knowledge. I didn’t invest in energy because I wasn’t comfortable holding a stock in a volatile commodity based sector like oil. It was my personal decision. Right or wrong, I just didn’t want to buy into the space. So, sell WFC, hold WFC, buy, WFC, it’s all a personal choice you make for whatever reason you have.

    • Greg Gee

      Indeed. Totally agree 100%. I think the more we can question for ourselves standard orthodoxy the better. Again, we don’t have to be right about everything and every opportunity out there – we are all coming from different places. Thanks again for stopping by and sharing your thoughts!

  2. Oh man, I am just not considering buying!! Yikes! That’s the only financial stock I would consider. Hmm…Well thanks for the post though!

  3. Greg Gee

    Thanks – you could do well with it. I just don’t like the financials anymore.

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