Terrance McGuire- The Long Term Success of Dividend Investing

Welcome to Compound Ideas hosted by Ken Majumdar of Ridgewood Investments. This podcast will feature exceptional individuals to uncover deep insights into business, entrepreneurship, personal growth, investing and multi-disciplinary thinking so that you can learn how to improve your finances, find better investments and pursue authentic, lifelong growth, wisdom and happiness. Learn more and stay up to date at CompoundIdeasShow.com.

On the show today is Terry McGuire. I've known Terry for, gosh, I would say 30, actually a little over 30 years now. Terry went to Harvard Law School with me and we were actually floor mates in the same dorm. And from that point, we've kept in touch. And about ten years ago, Terry joined Ridgewood and started our dividend growth area, which I'm sure we'll touch on quite a bit. But Terry has a lot of experience that I'm excited to share with everyone today. So, Terry, welcome to the show.

Good to be here. Thank you.

So what we do on compound ideas is we usually start with somebody arc to try to sort of understand where they're coming from, what kind of challenges they had, what kind of events or experiences shaped their life and their current thinking. So why don't we start from the beginning? Where are you from? Where were you raised? Tell us about your family. Let's start there.

I'm from Boston originally and moved around a lot as a kid. My parents were divorced when I was very young and my mom was in Boston and my dad in Los Angeles. So I spent most of the time with my mom but would visit my dad for periods of time, like over the summers and stuff. But then with my mom, we moved around a lot. She was a landscape architect and also somewhat of a landscape historian, and that had us moving all over a lot of places in the Boston area and then Rhode Island, Washington, D.C., Arkansas, all before I got to high school. So at one point it was every year was a different state. But that's kind of the background. I have two sisters and two brothers from the two marriages, so five of us in total, and we're all kind of spread out. That's kind of the basics on the family. Both my parents have passed away, but I'm fortunate to still have all my siblings, so.

Yeah, I'm sorry to hear that. That's always rough. Something we'll all face at some point. So what was that like? Like moving around so much? Were you ever like, Oh, gee, I wish I could just stay in one place? Like, I just made a bunch of friends and now I got to move again. Like, come on, you know, How was that like?

Yeah, it was exactly right. I mean, I remember like, it was yesterday. Every time I was told you know, we were moving, I can remember where I was, what was said and feeling devastated. And like a lot of things, you go through these transitions and then you get there and after a little rough patch, you're like in your new place. And so you find a new friends and new experiences. And at the time I didn't like it. I would have preferred to stay one place, but in hindsight it was a great experience. I went a period where I was in Boston, like in the city, and then the next year I was in rural Rhode Island and then the next year, like in Washington, D.C., and then the year after that in Arkansas.

Oh wow.

And so like going from those different places, it was rough, but it was like a good experience in hindsight.

How did it shape you into who you are today, if you can sort of connect the dots?

It gave? Well, it gave me appreciation for a lot of different things. It's a lot different being in a city versus the rural countryside. And certainly, you know Arkansas is very different from you know, Massachusetts. And so you gain an appreciation for a lot of things. And I still see it today. There are things that I like that draw upon my urban background and other things that tie into what I liked about being in a rural setting. And it also shows in friends. I have friends really all over the place. And that's true because I continued you know, through college and two different graduate schools and moving around a lot. My friends are really all over the place, you know, mainly in the US, but even internationally as well, particularly from the graduate schools. And so any city I visit, there's usually a few people that I, you know, good friends that I can always catch up with, which is nice.

Which move was the most uncomfortable at the time?

Oh, Arkansas. It's just a different culture than I can remember. Like the first day of school, yeah I had to walk. It was about half a mile and I didn't know where I was going. And there's like a group of kids, you know, it's like seventh grade, very intimidating. And one guy looks over at me and he's like, You ain't from around here area are ya? And I was like, Nope. But, you know, pretty soon I got right in with them and life was good. So that's all right.

And if you think back to all those places, if you could have just picked one and stayed put, which place would you have picked?

Oh, Boston. I still try and get back to Boston as often as I can. I just I like the seasons and well that's not for everyone, but it's a good place for me. I just love it. I love the seasons. I love the fall. I don't like January through March that much, but other than that, it's a good place for me. It's about the right size. I love like a places like New York. I love to visit, but it's big and Boston's a little smaller city and I just like it.

So for people who maybe have never visited Boston, what do you think is the best things about Boston?

It's a manageable city and it's not for everyone. I mean, there's a lot of historic stuff there. It's a very young city in the sense that it's a great college town. Tons of universities. So in the fall there's a real vibe of student activity and and so on. A lot of people have gone through Boston because obviously the college is there, but I've spent most of my time going either in Boston or somewhere in California, either northern or southern. I like northern California a lot, too. There's a lot of similarities. I currently live in Southern California and that has its own advantages. Certainly can't complain about the weather and the beaches and so on. And I think part of that's just being used to moving around a lot.

So now were there any experiences in high school that really shaped you, that you still remember to this day as being pivotal? And where was high school, by the way? I don't know if you went to one high school or you moved around.

I did. So I went to Milton Academy outside of Boston. And so we were living in Arkansas at the time, seventh and eighth grade for me. And the schooling just wasn't great for a variety of reasons. We decided it would be better to do that. So my mom was in Arkansas and I went away to boarding school. And so that in and of itself was a whole nother experience.

Yeah, I mean, Milton is a very well known prestigious school, too.

Yeah. And it was very fortunate for me. In fact, I'll tell you two things that came out of that one, and a very personal life experience. I really struggled when I was in school in seventh and eighth grade and going into Milton, it was awful. So but fortunately they had the resources to like, do tests and stuff, so they found out I had dyslexia. And so I think many other places I would have slipped through the cracks, but at a place where they had you know, the resources and so on, they were able to identify the problem, work with me. I had like two years of extensive, like work outside of school where I had to do a lot of things to overcome a lot of the challenges for that. So I'm really thankful for that experience and it did shape things. So it took me quite a while to like start achieving academically. So I think my first A, it wasn't even an A, it was like an A- minus. It was like junior year and like history, which I loved. And then like senior year I got great grades and then you know college, I was like, really doing well. But it's like a late bloomer because I had this challenge, like my spelling. I was the worst in all my classes ever because of these challenges with dyslexia. So it really can make a difference if people can identify something like that and do that. So that was a good experience.

Well, since you mentioned it and it's the first time it's actually come up in my conversations on the show when you were seven or eight, obviously you were, I guess, struggling with spelling. What else were you struggling with? What was that like before you were diagnosed? And how is it that they figured out what the issue was and helped you overcome it?

What I've come to learn about, like any issue that, you know, everyone has their challenges. They can be small, they can be great. But what often people do is they find a way to compensate in other areas. And so a good example is like you hear of someone loses a sense, like let's say someone loses their eyesight, they're able to make up in other ways you know, through really exceptional hearing. They use their sense of smell, they use their memory around place, and so they overcompensate in other areas. And that's what happened with me. So I was able to get away with it like I could overcompensate until I couldn't until, you know, basically what happened was in high school, they were running a bunch of standardized tests. And I would get, you know, in somewhere in the 90th percentile on comprehension or whatever. And then all of a sudden I'd get like ten percentile on spelling and they'd be like, wait a minute, there's something wrong here. And so that's how they identified. I mean, you can only hide so much, but it was a good thing because then they're able to narrow in on the issues and I had to work on that.

The other thing too, just flipping to the investment side, the other real formative experience that relates directly to our work in the investment area is I come from a family where no one had really experience in investing, so it wasn't really a thing I had a summer job, so I earned some money.

It was like 800 bucks or something and that was my money for the summer and that fall, when I got back to school, I had an economics class and we were doing one of these things where you learn about the stock market. And so I was learning about the stock market. It was during the late eighties, so this was the time of the junk bond era people may know of, like Michael Milken and others, but there were these companies that were highly levered and had paid very high interest rates, but their debt was somewhat suspect. And so I saw this and I saw there was this company that was Caleco, which did the Cabbage Patch Dolls, which were the rage at the time. And they also did these little handheld football games. And I noticed that there was a bond that you could get, you could buy it for $800. So I was in this class. We were studying the stock market, but there was like a little section on the side for like high yield bonds. And that caught my attention because I noticed there was this company I recognized, Caleco, an interest payment would pay you like 21% a year, and when the bond came due, they would cash you out at $1,000 at face value.

Now you're 800. So. So I'm sitting there like, wait a minute, let me get this right. I put an $800 in, I get 21% a year. And then when the bond comes due, I get $1,000 back? I'm like, this sounds too good to be true. So I was like, okay, So I got an account and I got the money and I put in my $800. And so I got a check and then I got a second check and I couldn't believe it. It was like, amazing. And then no more checks. Of course, what happened was Caleco went bust. That was it. I got two checks and then I lost everything else. And so to me, I mean, at any time, $800 is a lot of money. But when it's your whole summer earnings, that was a real lesson. And so I became very interested in learning about what had gone wrong and how to fix it. That's what kind of triggered this whole interest in investing. What ended up happening was I did a project for my school where I looked at different types of investing and that's where I started on this whole dividend investing thing, and that's what I've done ever since the eighties.

So what other types of investing did you look at and how did you run across this idea? Was it specifically at that time dividend growth investing or what you're doing now?

Well, I kind of backed into it, so I looked at different things. I looked at this is a long time ago, so I'm doing this for memory. But I looked at four different types of strategies. One was basically a momentum strategy, so it's kind of looking at what the current forecasts were and predictions for basically the year ahead. And what I found was whatever people are focusing on today, like two years from now is like entirely different. So I mean, I was in high school at the time. I wouldn't call it thorough analysis, but for me it kind of dissuade me from momentum type investing. So that was one. There was one that was, again, this is just from memory. It was sort of a deep value investing. So I looked at traditional metrics of low price to book, low price to sales, low price earnings, of course, you know, being a long time value investor yourself, that over long periods of time that type of investing has done very well.

Value type investing. Yeah.

Yeah, yeah. And so then I looked at a few others, but what I came intrigued by, I guess I'm kind of a growth person at heart and I came intrigued by this idea of compounding over time. But then one of the problems with compounding is that how do you realize the return on your investment? The difficulty with that is that if you don't have a way to exit out, it's hard to realize your return. And certainly one way of doing that and compounding the growth part of that is to get a dividend stream. There's a lot of decisions like when to buy, how to buy and when to sell. And then I started realizing, well, actually there's more than one component to return. There's dividends. And actually historically, over time, dividends have been a huge contributor to returns. I started looking into I was like, Wait a minute, you get cash payments and you don't have to sell. You don't have to do this at all. You can realize a lot and people have done that. There's people who hold these dividend growers over time that ultimately they get more in dividends than they paid for in the stock. And that's not unusual if you compound over many, many years. So I just kind of backed into it and then I started to participate in these dividend reinvestment programs so you could buy a share of stock and you can sign up with the company and you could take the dividends and reinvest those and send in more money and so on.

So when did you do that?

So I started that in college, and it wasn't with a lot of money. I always had jobs and I just took whatever I had. And these programs were nice because you could send in like a $10 check and they would buy like a fraction of a share and there was no commission or anything, and you could just build up little things. So I had like a little portfolio of, like, I don't know, ten, 15 companies. And there were all these companies that grew dividends and then every year they'd increase them and then you could be in their program. And so all of a sudden, like I would get a dividend which would be reinvested, but it would be like a buck fifty. But then the buck fifty turned into like 250 and then 350. And then the more money I put in, the bigger it got and then the dividends built and then they would increase the dividends.

Did you always have the habit of saving?

Yes. Always.

Because I don't think that many young people have that these days or it's less common, I think.

It's a big challenge. Yeah. I mean, as you know, working with a lot of people in the investment business, one thing I always tell people, no matter how young you are, no matter what you think your circumstances are. The reality is, I find for most people there's never a good time to invest. And what I mean by that is I meet a lot of people and they say, well, I'm out of college, but I have student debt and I have a job. So I'll tell you what, once I pay off the student debt and I get my new car or whatever, then I'll start putting away some money. But you know what? The student debt takes a while to pay off and then you get a raise. But with that raise, you need like new clothes. And then before you know it, you're like saving up for a down payment on a house. But then once you buy the house, you need the furniture and you're getting married and you have kids, and.

Basically there's always some reason or there's always an excuse or a circumstance. Yeah.

There's always some reason, Right? And so what I did, this was just me personally, is even when I was in debt, I always put aside something for investing. And that's actually really contrary to a lot of financial advisors, because basic financial advice, when someone comes in, as they say, it's first thing is put aside six months of emergency money and then second one is pay down all your credit cards. And I don't disagree with that advice, like I get it. But I also think like if you're doing all that and still going to Starbucks five times a week or three times a week, like you're not getting it, like, why don't you go to Starbucks once a week and take the extra $15 you save and start putting that away?

Yeah, it's funny because I don't even go to Starbucks ever basically, or anything equivalent, you know, like I bring food from home still, you know.

Fair enough. That's a sign of an investor right there. Like, that's one of the things. And the key is not about the amount. Like put aside five bucks a month, ten bucks a month. The point is, is you get going, you start learning. And when you have money in the market, you just pay attention and you watch it and you learn about it. And so that's always been how I felt about it.

Yeah, that's interesting. So let's go back to you got this like a little bit of investment exposure, which is sort of what you ended up working in. Now you go to Berkeley, I believe, for college.

Correct? Yeah.

So what was that experience like? Was there anything pivotal that happened during the Berkeley experience?

No, no, I just I mean, I had a great time. I was a wonderful school throughout that I was an entrepreneur. I set up a business there.

What was the business was something with like, bagels, was it?

Yeah. Yeah. I came from the East Coast where like, you know, in New York City, there's, at the time at least there was like fresh bagels everywhere. I was like a thing and I got to Berkeley and there was like nothing. There was like cold, stale bagels. And they cost a dollar at the time for like a cold, stale bagel. And I was like, you know, I think I could do better than that. There was a local bakery and I had a deal with them and they would bring delivered every morning fresh bagels in these bags. And it all worked great, except one time we would close down when the students were gone. So like over spring break or winter break. And so one time the message didn't get through. And so I came back a wall of bagels, and I don't know why they kept delivering them. And if you know anything about bagels, they last about half a day. And I called them up. I'm like, Look, I don't know what to say. I didn't order these. And they're like, Well, we're not taking them back. And so I forgot what happened to them, but.

Do you know if you ended up having to pay them or no.

No, no, no, no. They were good about it, but we couldn't get rid of them. I remember we also had those frozen pretzels and whenever we had a few extra frozen pretzels, we'd bring them by and the fraternity guys would always eat them, but no one would touch the bagels.

I think there is a way. I discovered this very late in life. I think there's a way to revive bagels that are old to make them semi edible. I think it involves something with water and microwave ovens. But you know anyway, that's a, that's a technique for a different day, probably. Okay. So you graduated, I believe your major was rhetoric, which I don't even know what that means because it's not something I've seen in other places.

It is unusual. I was a double major. So rhetoric, which is basically the study of persuasive argument. So it's kind of like an English major. But what you look at is like, why people express things the way they do. Like so Shakespeare wrote plays, but he also could have written books, he could have been a politician. So why did he choose plays and what was he trying to say and how did he say it?

That's actually kind of interesting, yeah.

So that would be an example. And then economics was the other one.

Why were you interested in these two areas? Obviously, the economics kind of you were already interested in investing, so maybe that makes sense. Rhetoric. You ended up going to law school. Was it with a view towards going to law school?

No, no, actually, just the opposite. I really had developed a very strong interest in business, and Berkeley has and it probably still has a great undergraduate business degree in business administration. But my dad was a professor. I remember before my first year I met with, he was with some of his professor buddies and we were talking and the advice that was kind of universal. They said, Well, if you think you're going to go into business, take the time at a liberal arts school to like expand your horizons and learn about other stuff. You can learn a spreadsheet later. You can learn how to do accounting at any time. And so I did that. So I think I ended up taking like one business administration course and everything else, I kind of spread things around at school.

I totally agree with that. I think people get too narrow, too quick, too focused on vocational type skills, and they don't, you know, use the opportunity, which is a pretty rare opportunity when you're in college at that point to really explore broadly, intellectually, broaden your horizons, learn to think and write and communicate, which, you know, you can never go wrong with those skills. In fact, I think they're really key to high level success in almost any career after you get past that initial stage, right?

Exactly. Yeah, I agree. It was good advice.

And right away you then wanted to go to Harvard Law School.

Well, what ended up happening was at the time, and I think it's still to this day is still somewhat true is you can go right into law school out of undergrad but business school, they in most cases prefer to see some work experience. And going back to my difficulties academically in high school, I was kind of unlike a lot of my friends who did really well in college. They were kind of burnt out. I wasn't, I was still still kind of surprised when I would get good grades and like really enthusiastic and so on. And so I was eager. I enjoyed school so law schools would take you right away. And one of the reasons I went to Harvard specifically, as you know, we were classmates. Many of us either never practiced law or practice law for a short period of time and ultimately went into other areas. Many of them is business. So in your case, you know, right into business, right?

Yeah. I became an investment banker right away.

Yeah, right away. And then for me, it was two years at a law firm and that was it. So just a different path.

So talk about that law firm experience right after law school. And then you went back to Harvard Business School and got your MBA. So bring us through that whole experience. And this would bring us through like the late nineties, I believe, right?

Yeah. So it's mid nineties. I was working at a great firm in Boston. I loved it. It was doing a lot of venture capital securities stuff, working with entrepreneurs and really enjoyed it. But at the same time I still had the interest in investing. I got permission from the law firm to set up essentially a dividend growth fund like a partnership. And so I did that and I just enjoyed it and I was like, Wow, I just got to do this.

That's probably, by the way, pretty rare. Can you imagine? I can't imagine too many law firms giving an associate the opportunity to start and run their own fund while they're still practicing law, especially today.

Yes. The only caveat was they had a restricted list because anyone who is like a client or we had a conflicts list.

Right. You couldn't invest in those guys, obviously. Sure.

And so before I did any investment, I had to make sure it didn't have to do with any client. Now, that being said, most of the clients are smaller technology companies. Most of what I was doing was kind of larger public company stuff, so there wasn't really a conflict there. So I decided I just wanted to do it full time. So I went over and talked to the folks at Fidelity and they were great. They saw I had a track record from my fund and everything and things are good, but the feedback was, well, they have like two positions and 1000 resumes and they're all you know, great people. They're all Wharton, Stanford, you know Chicago MBAs, they said. So we're looking for ways to eliminate people, to narrow down the stack. And they said to me, they're like, Look, you have a degree from a fine school, but it's a law school. We have people who have all these MBAs, like, that's a reason to eliminate you. And I thought about it. And so I said, Well, if I went back to business school, then what would happen? They said, Oh, well, then you go to the top because you'd have all this other stuff. And so I was like, Well, I'll just do that. So I went back to business school and then directly into the business.

Now talk about going to both Harvard Law School and Harvard Business School. I mean, you know, obviously these are institutions that other people I think are curious about. There's movies made about certainly Harvard Law School, quite a few movies, including some great funny ones like Legally Blonde, but obviously Harvard Business School also. So for somebody who maybe hasn't gone, what are those experiences like?

Well, vastly different. It's obviously a great institution, but it's like night and day going to the two different places. So in short, a law school, I'd say, is more like an inch wide and a mile deep where,you know you really drill down. You could spend a whole class with the professor focused on one or two students and really working with those students to drill down to a level of detail and thought that really pushes those people so that when they graduate, they really think through things at a very high level and at a very deep level. At least that's how it was when I was there. The other thing that is pretty true, even as things change and evolve, is that the courses you take are pretty similar to the courses 40 years ago too. The course is 80 years ago. I mean, there's kind of contracts, torts, civil procedure, basic areas of law, business, entirely different business constantly. Changing with the times. So the courses are changing a lot. Everyone wants to be up on what the latest trends are, so you go through these periods where for a while it was all about studying, you know Toyota and their manufacturing thing, and then it became the Silicon Valley tech model. And, you know, who knows today what it is. It's maybe crypto or maybe it was crypto. I don't know. There's just things keep moving and it's also much more kind of skipping around on a whole bunch of issues as opposed to drilling down deeply into the details. So they each were very different. Great experience for both. I don't recommend doing what I did. People are a lot smarter. Pick one or the other or there is a way you can combine them and do it all at once. But I took the long route.

Yeah, I kind of wish I had done that. I think I could have done the one extra year, but at the time I was impatient. I was like, I don't want to be in school for another year, but I think it would have really, one it would have been fun. I actually did like quite a few classes at Harvard Business School when I was at law school, so it wouldn't have been that much of a stretch to just stay some extra time. But if I could go back, I'd probably do the joint JD/MBA.

Interestingly, I did the same and we were probably in a few together where they were actually connected to the business school. One of the things that happened because I did it separately, they didn't give me any credit for those, so I actually looked into that. I was thinking maybe I could shorten the time. And they're like, No, it doesn't work that way, right?

There's an interesting connection because the law school is obviously older and it started with the case method, which spread to all law schools, and when they were starting the business school, they sort of looked at different potential educational models and I think it influenced them. The Harvard Business School, I believe, really kind of pioneered in business education using inductive learning, which is you study just a whole bunch of different cases and then draw from that body of experience and discussion and knowledge. And I think there was a connection there. That's a pretty deep and old one. Okay, So fast forward then what happens after business school? What were your job options?

Yeah, it's pretty simple. I just wanted to work in the investment business and one of the biggest challenge is actually getting your foot in the door. It's a little easier coming out of an MBA program, but if you don't have an MBA, it's tough. So coming out of MBA and from a good program, there were a lot of opportunities. I was focused primarily on Boston, but when I went through the interviewing process at the time, this was in the late nineties, the markets were doing great, tech was all the rage and there was a thing called the whisper number where I mean it's still around today, but basically the idea was if you were a young analyst, you spent a lot of your time trying to basically figure out if the company was going to beat the quarter, the estimate for the quarter or miss it, even if it was like a penny or two, that could be a big thing. So I just don't work like that as an investor. I think in terms of five, ten, 15 years. And so I was very up front in the interview process. I'd walk in, I basically say, Hey, listen, I just want to let you know, like, if this is what you need, like, we can end now because I'm just not your guy. I was just very, very upfront that I'm just not a short-term investor. I'm not going to be sitting there calling the quarter and I wanted to make sure there was a good fit. It was remarkable. So many people said, listen, have you talked to Capital Research? And I was like, well, they don't really have a Boston office. So no. And I heard it again and again. They say, you sound just like someone from capital. So I was like, I better go check this out. So I did. And sure enough, they have offices all over. But at the time you started in Los Angeles, which is like a main locale for them.

Well, that's where they were established. And that's their headquarters, I believe, globally. Yeah.

Yeah. And it was a great fit. I just went out and then sure enough, it was interesting. I remember on campus, my first person I met with from Capital, I told them about this investment fund that I had set up as a lawyer and I had a track record and everything, but of course I was doing it part time. But the track record was really good. I mean, things were going well, and so I had talked to him about it and I said, Well, of course I you know, would manage it much differently if I was doing it full time. And I remember just kind of looked at him and he said, Well, why? Why would you do anything different? It's going great. And it kind of took me aback because it's like an assumption that you need to have all this data. You need to be looking at everything all the time. You need more information. And I think it was just kind of an open question like, is that true? Do you really need that? And I hadn't really even thought about it that way. I always thought I was at a disadvantage. But we got talking and I was like, you know, you don't have to be in the center of Wall Street. You don't have to be connected to everyone else. In fact, having some distance gives you some perspective that others don't have. And so that was just a good way to start. And then things just hit from there.

So you started at capital, I would say, what, 98.

Correct. 98, yes.

And you stayed there till?

2012.

12. So that's a good long while. I believe you started at whatever that level is that you come in and then you became a partner. And capital is a huge firm, very successful. Those people who may not know capital might know the funds, American funds, which is a very big family of activly managed mutual funds that are, I think capital as a whole has got to be, I don't know, $1,000,000,000,000 or more. Right?

It's very big. It's very large, Yes.

So what was that like? What did you learn most at Capital?

It was fantastic. It was wonderful. It's a great group of people. They really put the shareholders first and really use that as their guide for all the decisions.

The shareholders of the fund. Just to be clear, the funds, yeah.

Exactly. The mutual fund shareholders. In my case, I was on the mutual fund side. There's an institutional side as well. I just really enjoyed it. I mean, they're really thoughtful about how they do things, but there was a big thing which I wanted to live in Boston, and they didn't have a Boston office, so I had a very successful career there. I was an analyst for a while. I covered technology and Global Leisure are kind of my two areas, and then I took on diversified what they call a portfolio counselor, which essentially a fund manager. And then in 2012, I decided I wanted to move to the East Coast, specifically to Boston. And most importantly, I had always been doing this dividend thing and Capital didn't have a dedicated dividend growth fund. Most of the other big mutual fund places do like T. Rowe Price, Fidelity, Franklin, they all have them. And I really tried to see if I could start something like that at Capital, but that wasn't happening and I thought it was a good opportunity. I could start in Boston, and I could also do the dividend growth focus.

So you joined Ridgewood, you started the dividend growth area. Tell us about what you're doing now, how that works, what kind of clients you work with.

So we have two types of clients. So as an RIA, so registered investment advisor, we work mainly with individuals, families, small businesses, companies and so on. We don't have a very large institutional business. It's more kind of retail client base. Just with respect to the dividend growth side, we essentially have two types of clients. I would say roughly half come to us specifically for the dividend expertise. And so they might have different strategies elsewhere, but they know of dividends or they know of me and so they place some funds with us and they say specifically, can you manage this to focus on dividends and grow the dividends over time? So that's sort of half the other half are people that come to us and they like what we do. They're interested in our investment philosophy, but they ask us to manage everything. So it's their retirement, it's their 529 kids accounts, whatever it is. And one of the first things I say to them is, as big a fan of dividends as I am, if you're going to have everything invested, you want to make sure you're spread out, your diversified. It's also we want to make sure it's appropriate to your level of risk. And so to have everything in one strategy is really probably not the best thing to do. And so in those cases, what we do is we often have a strong dividend growth component, but we supplement that with a lot of other things. And of course it depends on the client, but it might be mixing in fixed income, some real estate, international stocks, a mix of equities and bonds and so on.

So talk to somebody who isn't as knowledgeable or as passionate as you are about dividend growth investing. Explain to somebody sort of the basics that you need to know and why you're so enthusiastic after having considered all these different things. You kind of touched on a little bit, but maybe dive in a little deeper.

There's many, many elements. As our clients know, I could go on for hours about it, but in short, what it does is it takes the magical power of compounding over time, which is one of the most powerful forces that we as just regular human beings, individuals don't have to be a super hero. But you have access to this amazing thing where you can put money to work for you and let it build and grow over time. And the historic returns from the stock market have been amazing over a very long periods. As long as you can handle the ups and downs and sometimes often use them to your advantage. If you do it right, you can really create a lot of wealth just doing it that way. The thing about dividends is that these are the cash payment part of that return. And so this is where when I said we have a lot of retail clients, we have people who understand the need for cash, A lot of people are entrepreneurs, people who know about real estate. They appreciate that cash returns are really meaningful, particularly in a down market, because, for example, going back to graduating from business school, I graduated in 98 and tech was flying high. The market was doing great. Basically for the next decade, there was no return in the stock market other than dividends. It's amazing. I mean, it's amazing you can go through these periods, but in three of the last eight decades, we've had no return other than the dividends. And it's not just that the dividends are there and providing return but it's also because they give you a positive return every year.

It really makes a difference over time. And so a good example that I used to teach a class, that part of it was a segment on dividend investing. And I used to ask the students, I said, Would you prefer to have a stock that pays no dividend and grows 10% a year except one out of every five years? It goes down 10%. So you have up ten, up ten, up ten. Then you drop a little bit and then up ten. Or would you have a stock that never appreciates that's always flat but pays you a 6% yield, which would you want? And most people, they go for the 10%. I mean, it sounds pretty good, but what people forget and the thing that's so difficult with math is that when you have a down year, even when you have an up year that follows, you often don't even get back to where you were to begin with. And so that example I use, if you go down 10% and you go up 10% the next year, you're still down over that two year period. So what happens is when you go through these down periods, you end up losing all this time in the market with the dividends. You're still getting those cash inflows coming in and so you never lose that time. In fact, you have cash coming in and when the market's down, it allows you to use that cash and buy shares at a lower price. When the markets return, you have more shares to go with. And so when you pile that all together, it becomes really compelling in terms of the returns.

Well, you started your career and then the tech bubble and bust happened and now we're in this year, 2022 is when we're recording this towards the end of the year. Obviously we had somewhat of a tech bubble along with another bubbles in a few other areas because in the global pandemic, obviously there was a lot of liquidity created. Now we've had inflation, now they've raised interest rates and they've tried to contract monetary policy in order to get inflation under control because the Fed has a dual mandate. Right. Over the last decade through last year, I would say people were pretty enamored of tech and also SPACs and a lot of other things. I mean, crypto is in there as well. How did dividends hold up and what's the outlook now going forward for it, are people coming back to it? Are they rediscovering the joys of income? Where do you see the current landscape for dividend growth and investors in particular?

As you can imagine, dividends go in and out of favor depending what's going on in the markets.

And it seems like pretty much everything goes in and out of favor in the markets, right? Like there's the flavor of the month or the decade or whatever.

Correct. Sometimes they're in, sometimes they're out. Right now, the pendulum has swung. I think your description was spot on. The pendulum has swung from two years ago. No one cared about dividends. We had a low interest rate environment and tech stocks were the place to be, and no one cared if they paid a dividend or not. Interestingly, there's actually a lot of dividends in tech, but that's a separate discussion. Now, Things have swung to the other extreme, so you have a lot of people, for instance, if you watch CNBC or one of these things, people who are telling you a year ago you had to own this hot stock or whatever, now they're all talking up dividends and so on. So right now dividends are in favor, but that'll change. That will change. They go in and out. But what I always tell people is that don't worry about what's going on with other people. To me, dividends have always been in favor because I like cash and I like cash that grows. And as long as that's happening, I don't really care what's going on with anyone else. I don't care if someone likes it or not. I like the fact that I have a portfolio that spews out cash and then if things go well over time, that cash is going to increase. And what I always tell our investors is that don't worry about if the market says the portfolio is worth this much in January and this much in March and this much in June, what you've got to focus on is if that income keeps growing over time, the value of that portfolio will grow accordingly. And the other thing is it's really hard to fake over time. I mean, I know things go in and out of favor, but if you look at some of these companies that have paid dividends and increase them over five, ten, 15, 20, some in the case 50 to 60 years consecutively.

Yeah there's a dividend aristocrats is one of the categories right.

Aristocrats. Right. The aristocrats is 25 years or more of consecutive dividend growth. That's true. High inflation, low inflation, high interest rates, low in oil crisis war, all these things. And every single year they're raising their dividends. You can't fake that and you can't recreate that overnight. And that's what I would always tell companies as an analyst. They'd say, Well, we'll adopt a dividend in the future. I'm like, Yeah, but you know what? You're going to be up against these companies that have been paying out dividends every year and increasing those dividends. It's not the same thing. If you say, okay, we're going to start a dividend next year because you're putting yourself out there against someone who's been doing it for 25 years. And there's a huge difference. And so that's what I would always encourage companies is like, get started as soon as you can and start building that track record, because that's how you build loyalty with the investor.

Both you and I believe you should just be long term. Pick something that makes sense to you and stick to it long enough so that you can get compounding working for you. But the other thing is the better time to do it is when it's out of favor and uninteresting, because then you really will participate when it comes back into favor. But, you know, really, most people, they just never get started at all or they don't stick to any one strategy long enough to benefit. And that's why we are always emphasizing long term investing. If somebody is interested in exploring more, maybe getting in touch with you, what do they do to find out more? Just about, what are some great resources for dividends investing or dividend growth investing in general? And if they're interested in reaching out to you specifically to learn more how they do that.

As you can imagine, we have some very basic information on our website, which is dividend growth partners, and that has all our contact information as well. But there's also some very basics easy to read pieces on. We haven't touched on a lot of them here, but basic concepts and dividend investing. So that's a good place to start. Obviously available. If people have questions, want to reach out to us, contact me directly. I'm always happy to talk to people and part of it too is I'm always happy to have this discussion. Obviously I have a lot of enthusiasm for it, but I'm a big believer in self-selection and pointing people in the right direction so we're not the right fit necessarily for everyone. So I'm happy to have that conversation. And then if we happen to be a good fit, that's great. If not happy to try and point someone in the right direction for them.

Well, to broaden it out, is there like a great book or a great website that is a great resource for dividend type investors?

There's a whole bunch of resources out there that are dedicated to dividend investing or so on. There's many that I use. I use the SRC Green Book is a good example where they have long track records that they show. If you're into graphs and charts, it's a great resource for something like that. I personally have used Value Line for years. They always have the dividend information, so that's very helpful. There's a number of books out. I think I have every single one of them. There's probably about 25 that I've come across over the years that are decent quality books about dividend investing. So there's just a number of resources. Interestingly, Seeking Alpha, for those who are familiar with that, for whatever reason, there seems to be a very strong income focused component there. My only hesitation is, and again, this is just for me personally, there is a difference in dividend growth investing where the types of yields that I typically focus on are say, anywhere in the 1 to 4, maybe 5% range. There's a lot of things when people start talking about really seeking out income, where they start talking about investing in things that are yielding like eight, nine, 10%. I think that's really a very different type of investing and involves a whole different type of analysis and risk. So there's a lot of that on Seeking Alpha as well. They kind of group it all together, but I do find there's a lot of good information on those sources.

Okay. So last question is what are you focused on for the next phase of your investing career? And are there any books or podcasts they don't have to be investing related that you've been reading or have recently read that you found interesting or you could recommend.

For what I'm doing personally, the dividend thing is here to stay, and I like it because it's timeless. So that just continues to be a focus. It's a constant learning process in the markets. Like just when you've learned something, you have to unlearn it or think about it in a different way. And we're seeing this we're seeing this in the dividend world where a lot of resource companies are now moving to variable dividends, which is like a whole new thing that we really haven't seen in the past. I think it's great for me personally, I try and expand my investment horizons. I spent a lot of time actually focused on new emerging areas of technologies, not really in terms of investing, but learning, just learning about cryptocurrency, about Metaverse. I am a believer that these are actually going to be very important over the coming decades, and so I just spent a lot of time learning. I don't put a lot of dollars there, but again, it reminds me very much of the early days of the Internet where it just really paid off to be focused on what's going on there. So I think those would be what I recommend. There hasn't been a good book that I've been focused on, on the investing area recently, but there's certainly plenty out there.

Do you read outside of investing?

I do. I actually do a ton of audio books, mainly like mystery books. I like learning about different natural phenomena. Like so a lot of things in geology, I'm a big John Grisham fan. I mean, for example, So although I don't know, lately they haven't been good. I do a lot with the kids, actually. I have teenagers and we listen to audio books and so. We actually finished a Dan Brown book, and we just did one of the Harry Potter series. So, you know, nothing spectacular, but we have a good time and it gives us a lot to talk about, too.

Great. Well, thanks for being on the show. Thanks for sharing so many insights and your journey so far. And it's been great talking to you.

Great. Well, likewise. Happy to do it and always encourage people who are interested in learning anything about investing, you know. I have a lot of enthusiasm. I know Ken does as well to always reach out and happy to discuss things on a one-on-one basis as needed.

Great. Thanks, Terry. For more episodes of Compound ideas, visit our website at compoundideasshow.com. For more insights like these and to contribute to the conversation, go to my firm website at RidgewoodInvestments.com and click on the link to insights at the top of the page. Also, please follow me on social media. I'm under Ken Majumdar on LinkedIn @KenMajumdar, Twitter @KMajumdar, Instagram @KenMajumdar, and on YouTube we have a new YouTube channel Investing with Ken Majumdar.

Ken Majmudar is the founder of Ridgewood Investments and several other affiliated companies. All opinions expressed by Ken and podcast guests are solely their own opinions and do not reflect the opinion of Ridgewood Investments or any of its affiliates. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Ridgewood Investments and its affiliates may maintain positions in the securities discussed in this podcast.