Under the “Intent” page you can find what my main purpose is in pursuing investing.  Although it gives an accurate account of what I want to achieve, it paints a pretty broad theme.  Today I’m going to narrow it down a bit by focusing on what I want to accomplish in 2012 and what steps need to be taken to reach the main goal.  It is in the series of steps that we fulfill our journey.

Last year I ended up with just at 1213.00 in dividends.  As of right now, with my current investments, my brokerage accounts estimated yearly dividend is 2800.00.  I’m fairly happy with more than doubling my divi income this year, but I think I can do better.  I’m going to shoot for 5000.00 in dividend income by 12/31/2012.  I plan on doing this by adding to my current positions and adding some new positions as well.  Right now I have a fairly concentrated portfolio.  I’m ok with this and will discuss my thoughts on diversification in a later post.  Finding value is my primary concern with diversification being secondary.

Keep expenses under 20k.  This amount includes everything which means taxes, living expenses, travel, every dime that goes out.  I  include taxes as I have a favorable tax situation by working overseas, plus I like looking at total numbers.  I track my expenses using both Quicken and excel and can tell you every amount that has come in and gone out.  Keeping all my expenses under 20k will be a stretch goal, but I think it is something that is worth shooting for.

To have a 100,000 balance in the brokerage account.  This amount may seem arbitrary at first but it actually has a purpose.  First, the six figure amount has a psychological appeal that makes me want to work hard to attain it.  Superficial I know, but hey it keeps me motivated.  Second, it is this amount with an anticipated five percent yield that I get my 5000.00 in dividends I listed above.  Not so arbitrary after all eh?  With just over 50,000 now between stocks and cash I should be able to pull this one off if all goes well this year.

If I can achieve these goals 2012 will be a great year!

Do you have a stretch goal you’re targeting this year?  Leave me a comment and let me know.

Last year (2011) was my first full year of being in the market.  As many of you know it was an interesting year with political unrest (Arab Spring), natural disasters (Japan) and U.S and European debt trouble causing the market to enter a volatile phase in the latter part of the year.   It would test the resolve of investors of all ages and levels of experience including this neophyte himself.  I learned a great deal about my investing style and risk tolerance as well as discovering an unexpected challenge; the difficulty of holding a cash position.

It appears my tolerance for “investing” in cash is quite low.  Judging from my track record in the first year I prefer to put my capital to use as soon as it’s available instead of letting it accumulate.  With the benefit of hindsight I believe that this characteristic  may be a liability going forward and is no less of a handicap than the investor who desires to keep cash instead of utilizing it for the purchase of attractive investments.  How common are these opposing beliefs and are they really all that different?

I can’t speak with any personal experience as to the motivation of holding cash (I hope readers facing this challenge will chime in) so I will have to speculate.  I assume it has at least something to do with the perception of risk.  Having cash in hand is very tangible and the decaying effect of inflation is not felt as acutely as is investing in a common stock with the potential of seeing the value dissolve within days of its purchase.

My challenge is the opposite of our risk averse investor mentioned above, I have an emotional “need” to have my capital invested.  I’m not sure exactly why this is and will be doing some more reflection to see if I can come to a better understanding of what emotional drives are behind this behavior.  As I explore this issue I’ve decided to invest in cash for at least the first quarter of the year and possibly longer.

Although I can’t articulate precisely my motivation for holding little cash, I can explain my reason for building up higher cash reserves.  Like many of you I keep several watch lists of stocks that may be good investments and then I try to narrow this list down to the ones that meet my criteria for an initial purchase.  Several opportunities presented themselves last year, but I didn’t have the cash available to take advantage of any of them.  I know there will be other opportunities in the future for new position as well as for adding to current holdings and I want to be ready to take advantage of  it and not look back wishing I had the funds available.

At the moment it’s not hard sitting on cash as the market run up over the last few weeks have made many of my watch list items overpriced, but bad news concerning Iran, a  default by Greece or any other number of unforseen events could cause the market to go back into a depressive state.  Maybe I will be successful in taking my own stoic advice and follow reason instead of being led blindly by emotion.

So which of the above investors describes you, eager to invest or reluctant to act?  Why?

On January 6th I made my first buy of the year purchasing 360 shares of Telefonica SA (TEF).  On that day TEF hit a new 52 week low touching 16.53 a share with my entry price coming in at 16.59.  TEF had been on my watch list for several months and I had watched its price trend lower during that time as news of the EU debt woes continued to dominate the headlines and company specific news of a dividend cut combined to take its toll on the stock price.  Add in a substantial debt load and the question arises: why take the risk with this stock at all?

A fellow blogger, www.dividendmantra.com and whose example is largely responsible for the creation of this blog, asked himself the above question and answered it with a sell order.  I don’t disagree with DM’s decision in any way, I actually read both his buy post and sell post and commenting to get a feel for what DM was thinking the draw back of the stock was.  This difference in opinion is more valuable than most people realize.   However it does raise an interesting question: what makes one man’s buy another one’s sell?

I made the decision to buy TEF with eyes wide open concerning some of the challenges noted above.  After looking into some of the SEC filings and digging around on the web fo find out any news that was impacting the company I then asked myself two important questions.  First, are the current negative factors impacting the company short-term events or long-term problems?  Second, what are the prospects for the company going forward?

I think that TEF’s current problems, although real, are only short-term considerations.   Yes, the negativity over the EU debt crisis is worrisome, but ask yourself this: does the U.S. deficit of approximately 15 trillion USD cause you to worry that VZ or ATT will go out of business?  If your like me your answer is no.  Telecom is an industry in which the customers it serves will continue using those services regardless of what the economic background may be.  I’ve visited several countries and I can tell you that cell phone use is prolific across socioeconomic backgrounds.  The cell phone has become a need to many people and that trend shows no sign of stopping.

Continuing with the first question lets look at debt.  Telecoms naturally carry a large amount of debt and this is generally accepted due to the high and relatively consistent revenue that is generated from telecom services.  I will admit that TEF’s debt is on the high side of that normal range and it is my hope that management will begin to work on reducing it.  For now it seems serviceable.

Now what about question two, what are the future prospects of the company?  This is what I really like about the company.  If TEF were just another stodgy telecom confined to the mature markets of the Euro countries it operates in I would not have been willing to accept the risk.  However, TEF generates almost half of its revenue from South America countries.  It has a large and growing presence in Brazil, Peru, Argentina, Colombia, Chile, Mexico, Panama and Ecuador to name a few.  These are markets that are still developing and may benefit the company as it expands in these areas.

Purchasing at the low end of a stock price cycle does not guarantee against possible losses, but it does give a small margin of safety.  I will hold TEF for several years and add to my position if it drops again.  We have not heard the last of the EU’s financial woes so I may just get my wish.

Leave me a comment on what you think of TEF as well as any purchases you’ve made this year.