The Ninja Lessons (Dojo)

A dojo is a Japanese term which translates as “place of the way.” A dojo is typically used to signify a formal gathering place for students of any Japanese martial arts, and of course ninjas in training. Investing also requires a practical and methodical approach and is accomplished through learning and training. Whether you prefer an index investing or dividend investing approach, each method has a proven and systematic method for success.

Ninjas don’t buy mutual funds or rely on their investment dealer or financial advisor for their success. Ninja’s know they must invest for themselves. With an arsenal of index funds, index ETF’s and dividend stocks, the Ninja have powerful tools available for investment.

Ninja ready to investThe Ninja does not give his or her hard earned money away to investment advisors, who sell commission based mutual and/or actively managed mutual funds. Ninjas know that information on index investing and dividend stock investing is available to help them along the path. They are ready for a DIY (do it yourself) approach, to pay less fees and obtain higher returns.

Here are the Top 9 Ninja Lessons I’ve learned along the way:

Lesson 1: Don’t buy Mutual Funds

The majority of mutual funds are nothing more than dogs, which make more money for the fund managers who run them and the brokers who sell them.

Dividend Ninja KarateMost mutual funds charge up-front or rear load-commissions of some type and usually have high MER’s (management expense ratios). Included in the MER are kickbacks called Trailer Fees, which go right into the pocket of your investment dealer or firm. In addition, most of the top ten holdings in these mutual funds are just big blue-chip dividend stocks you can buy for yourself with a discount brokerage account. Did your mutual fund pass on the 3% to 5% per year in dividend income onto you?

Mutual funds have long proclaimed that you are paying for expert management and a diversified portfolio. But don’t let that old adage fool you. Most of these mutual funds all hold the same top-ten holdings. These are the big banks, resource stocks like Suncor (SU), a utility like Enbridge (ENB), and a telecom like Rogers Communication (RCI.B).

The stats also prove that the majority of mutual fund managers fail to beat the market (i.e. the TSX Composite Index) and in fact underperform it. If your advisor or broker is only selling you commission based mutual funds then say goodbye and walk away. It’s time to invest in fewer fees and better results.

Lesson 2: Build a Core of Low MER Index Funds and ETF’s

Instead of buying expensive and underperforming mutual funds, you can buy no-load index funds or ETF’s that simply track the market.  You won’t do any better than the market, but you won’t do any worse either.

Using a passive index strategy, you can buy all kinds of low MER,  and no-fee index funds and ETF’s. And you can start with as little as $100 through TD e-series funds. It’s a great way to get started and build your portfolio, without having to invest a lot of time or expertise.

Also, see the indexing section on my resources page to learn more!

Lesson 3: Diversify

Putting all of your eggs into one basket is always a recipe for disaster.

Many retirees lost half their investment portfolio value in the 2008-2009 crash by only holding stocks or growth mutual funds. Many endured great stress during the crisis and sold their equities. When times are good people easily forget about asset allocation and diversification – but they are essential.

Ninja throwing starsEveryone lost money or watched their portfolios plummet in 2009. But investors who had a cushion of bond funds did okay, since most bond funds returned over 4.5% per year, and helped cushion the loss in stocks.  Even with the threat of looming interest rates, and a supposed bond-bubble, bonds are still going to provide you with income and stability.

Stick with the adage of bonds and fixed income = your age, and the rest in equities. So in my 40’s I should have 40% in fixed income and bonds, and the rest in stocks. This adage helps to reduce your exposure to the stock market as you get older, and gives you a cushion in the event of another 2008 & 2009 crash. The older you are the less time you have to recover from significant market declines.

Lesson 4: Buy Quality, Even if it’s Boring

Once you have about 25K or so, you’re ready to start adding some dividend stocks. Stick with big name brand companies! These big blue-chips give you money back (dividends) for owning them. People like Warren Buffet amassed a fortune buying tried-and-true, and often boring stocks. These boring stocks are the Dividend Aristocrats and Dividend Champions.

They are household name-brand and blue-chip stocks that pay dividends of 3% to 5% or more per year, raise their dividends, and have seen their share prices increasing as well. So don’t waste your time and money chasing speculative penny-stocks, or implementing risky trading strategies. Build upon your index fund and ETF core, with the addition of dividend paying and boring stocks.

Buy and hold for the long term, and you will be the tortoise that beat the hare to the finish line!

Lesson 5: Don’t Chase High Yields

Stocks that have a dividend yield of over 5% are not always worth the added risk.

Sitting Ninja

Big blue chip companies do not need high yields to entice investors, their products and services are their selling point. Most of the time a stock has a high yield since its share price has crashed, or it has a high debt load etc. A high dividend yield is a red flag that a company is in trouble – so stay away.  In addition, a high dividend yield stock does not have the room for future growth, or an increase in share price, since it must make its dividend payments to shareholders.

You can learn more about the risks associated with high-yield stocks in these two posts:

Lesson 6: Don’t Buy at 52 Week Highs

Even with blue-chip dividend stocks, you should try to avoid buying at 52 week highs. While I’m not a proponent of market timing and invest money when I have it available, I don’t want to overpay for a company either. Chasing a high performing stock from the previous year doesn’t necessarily mean it’s going to be a winner the following year!

You’ll likely lose money if you buy too high. So buy quality, and don’t overpay for it. If you are really interested in a stock that is trading near its 52 week highs, then be patient. Likely you will be able to pick the stock up a few months down the road at a cheaper price. Buying more shares of a company means creating more dividend income – it all adds up.

Lesson 7: Bad News Investing: Profit from Crisis

The opposite of buying high is to buy low. You don’t need to research the balance sheets of various stocks to find a gem, they come right to your doorstep. The business news is always looking to make headlines. All you have to do is have cash on the sidelines, do a little research, and buy in when a company gets hit with bad news.

These days a lower than expected earnings report can send a stock crashing 15% in a day. As long as the company is solid, has good fundamentals, you can wait patiently for a few days and buy yourself a bargain. Read more on this, and you will recognize some of these big companies that were bargains:

Lesson 8: Sell Your Losers

Ninja selling a loserThere are two types of investors, those who buy-and-hold and those who are traders.  If you are trading your stocks whenever you may have a 20% or 30% gain, then you will end up selling your winners, forfeiting your current dividend income, and keeping your losers. Keeping your losers just doesn’t make for a solid investing foundation.

Additionally, most value stocks end up being value-traps, simply because investors do not understand all the variables. If you have purchased a stock for whatever reason, and its returns are dragging down your portfolio, then sell. You can use these proceeds to buy a more solid dividend paying company, which will give you better returns in the long term.

Lesson 9: Keep Your Winners

If you’re a dividend investor, that means holding your positions and accumulating your dividends regardless of share prices. While it sounds simple, sometimes doing nothing is the hardest thing for investors to do, especially when prices are rising.

In the long run, holding my positions and continuing to accumulate and reinvest my dividends will pay off for the best long-term returns. I’ve already seen that with the companies in my portfolio I’ve held the longest – they have the highest ROI (Return on Investment).

My stocks which I view as businesses are the “cogs in the machine” that continue to drive my income through “dividends”.  My bonds and bond ETFs are much the same. If I start breaking down the machine and selling off the parts, then I will no longer have a machine.  I’ll simply have a pile of cash without any cash-flow! This is a point Lowell Miller drove home in his bestselling book, The Single Best Investment.

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If you buy a good blue chip dividend stock at a low price, then there is no reason to sell – just sit back and collect those dividends, and let the winners win.  When prices are lower then top-up on the dips. In the long run, a buy and hold strategy will pay you the largest returns!

Thanks for reading! 🙂

6 thoughts on “The Ninja Lessons (Dojo)”

  1. Great advice on mutual funds. I dumped mine after considerable thought even tho I had a low mer -1%. If you want a fund it would be better just to mimic the fund with their top 10-25 holdings with no management fees!

    • Agreed!

      I made that exact point in my UBC Seminar last year for Canadian MoneySaver. Index Funds is also another way to go, such as TD e-series, for those who don’t want to pick stocks (and prefer indexing).

      Check out the 2MP portfolio by Rob Carrick. It holds the top 2 holdings in each of the 10 TSX sectors. He wrote the article back in November 2013.


  2. Great points. I wish I did not have the mutual funds I have, but I do not want to deal with the tax issues right now, but I am itching to get rid of them.

    Keep cranking,

    Robert the DividendDreamer

  3. I sort of disagree with Lesson 3. My mother 89 years old, my wife 73 years old and me 68 years old have portfolios of all stocks and some REITS. We went through the financial crisis just fine. Our Investment Policy Statements forbid any investment with the word “fund” in it. That includes ETFs. We also prohibit anything that can be described as a financial product. We do indulge in bonds or debentures from time to time. If you are interested, I would be willing to share details.


    • Hey John, good strategy and pat yourself for getting through 2008-09 crisis and doing fine.

      So what’s your opinion about asset allocation for ETFs Stocks and Mutual Funds?
      I’d be curious to know how you did well without expertise of bank mutual fund managers.

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