Monthly Dividends

Looking forward to the year ahead, I have summarized my expected dividend payments and put it together in a nice, motivational format. What do I mean by that? Being a numbers guy, I crunched the numbers. Let me summarize the highlights:

On average, I will receive 8 dividend payments per month. 3 of those are coming from monthly dividend-paying companies. 5 are from quarterly, semi-annual or annually paying corporations.

This also means that, on average, I receive a dividend payment every 4 days. In reality though, due to the payment structure of most companies, it’s rather every 2 weeks.

The total expected dividend growth for the year 2020 is anywhere between 15% (conservative assumption) to 40% (optimistic assumption). I put the pessimistic one in my budget first, better to be positively surprised later.

My annual yield on the currently invested amount will come up to 4,53% – after taxes. This might go down if I add more capital to the portfolio, and it will increase if my dividend estimates should move higher than expected. As I do have some plans to balance my portfolio and to do some adjustments, I am pretty confident that my dividend yield might reach over 5% by the end of 2020.

Compounding interests and monthly dividends

Now, in the 4th year of investing, I start to see and feel the power of compound interests. It’s just growing. Some shares rise, some fall. But the more I diversify, the more the portfolio can balance and bounce in the right direction.

And then, all paid-out dividends are being re-invested and create just more income.

This becomes especially obvious with companies that pay monthly dividends. These few cents, that come up on top every few months when I re-invest into an existing or in a new position, really start adding up.

By 2021, and with adding 3 more monthly dividend payers, I should receive a dividend payment every 3 days. Every single one of these dividends will be, on average, a double-digit one, enough to potentially cover all my regular daily and monthly expenses. Even without living too frugally.

Not enough yet to cover the rent, but enough for everything else.
A major step closer to FIRE.

The markets are not ready to stop

Of course, this is also due to the fact that we have a robust economy and the Wall Street party didn’t stop yet. Most experts out there and I, don’t think that there is a high risk of recession in the US at the moment.

But at the same time, I am hesitant to deploy more cash into US-Dollar-based companies. There are just too many uncertainties with the impeachment, the drama with Iran and the rising tensions with China and Russia to keep a very high level of confidence.

So instead, and with the exception of the 3 monthly dividend payers, I will go for European stocks. Mainly the UK and the Netherlands, as many of them pay quarterly dividends. Regarding the UK, I have the suspicion that BREXIT might turn out not as bad as expected, which would push the British Pound back on track. The UK also doesn’t have a withholding tax on dividends, which is a great bonus.

The Netherlands charge me a 15% withholding tax, but it’s still moderate and given the highly innovative nature and sharp business acumen of this small but scenic country, I see some opportunities to invest there.

The 3 monthly dividend payers that I am looking at are by the way the following ones:

  • STAG Industrial (STAG)
  • Gladstone Commercial Corporation (GOOD)
  • Realty Income (O)

Disclosure: This article may feel, sound and be interpreted as financial advice, but it’s not. Investors are required to do their own due diligence, and accept risks that are associated with stocks and market investments.

2020 is here. It’s time for some predictions!

Ah, we did it! 2019 has passed and 2020 has started, and I believe that this year will be a very exciting one. Let’s do some stock predictions for the new year.

The stock market will continue to thrive

I know, some people just see bad things on the horizon, but I am pretty confident that 2020 will be another great year for investors. Mainly, because I believe that the US and Europe will finally find the courage to move on to new frontiers.

We are now starting to get into a generational transition. Plenty of Boomers will retire or be forced out of their VP and CEO seats. Some may pass away. And the new generation is going to do things differently. More disruption, more change, and more opportunities.

Some established companies may suffer, but those willing and eager to change will thrive. Among the most interesting players we may find:

  • Waste & Garbage. All companies that deal with trash. The world is getting trashed and while the old CEOs across the globe seem to care very little about it (they care in their public relations statements but not really in their day-to-day operations), the new generation will take things more seriously. This is a huge business opportunity.
    My personal stock investment for 2020 here will be Waste Management (WM).
  • Energy. Not all forms of energy will be favored. I expect most oil and pipeline companies to do very poorly in 2020, except for those who have already started to transition to the new age of renewables, who embrace technological improvements and start to integrate energy storage systems, virtual power plants, and micro-grids in their business plans. There is tremendous potential for growth in a business that will be always needed.
    My personal stock investments for 2020 here are E.On (EONGY) and Shell (RDS.B).
  • Chemicals. Yep, we need to replace all those nasty oil products with something, and chemical companies will be key to help with this transition. Those who invest steadily in research & development will thrive. Those who don’t change will go down among strong headwinds from governments, regulators and public demand.
    My personal stock investment for 2020 here is BASF (BFFAF).
  • Medical / Health. The rich world is getting grey, and with rising average age, there is also a rise of health-related issues, thus higher demand for all kinds of medications and health-care. There are only a few major players and it’s also a very hard business to get a foot in for new competitors.
    My personal stock investments for 2020 here are GlaxoSmithKline (GSK) and AbbVie (ABBV).
  • Construction. I know, not the most exciting field BUT all that money earned in 2019 needs to be deployed somewhere. With growing urbanization and infrastructures across the globe facing utter needs for improvements, this area will thrive for years ahead.
    My personal stock investment for 2020 here will be Caterpillar (CAT).
  • Technology. 2019 was great for technology stocks, and it will continue being so in 2020. If someone would tell me that there is a growth-limit to technology companies, I would seriously question his or her mind. Whatever the last 20 years have taught us is that we are just on the brink of the edge of discovering what technology can do for us and how far we can push it.
    My personal stock investments for 2020 here are Apple (AAPL) and The Trade Desk (TTD).

Note the differences in the bold letters between “are” and “will be” for each of the mentioned stocks. “Are” means that I already have them in my portfolio. “Will be” means that I have them on my watchlist and am planning to purchase them sometime in 2020.

I have also initiated some speculative positions in a few stocks that I think have very interesting potential, although I put very little money in it. On average only 350 Euros per company. These companies are:

  • Virgin Galactic (Space Discovery and Travel)
  • SailPoint Technologies (Digital Identity Management)
  • EnWave Corporation (Dehydration Technology)
  • Paragon KGaA (Automobile technology)

Also, I am looking to initiate small positions in:

  • Zoom (Video Communications)
  • KeySight Technologies (Electronics test and measurement equipment)
  • SmartSheet (Cloud-based data collaboration)
  • iRobot (Robotics)
  • Omron (Robotics)

These are or will be all speculative investments with very small stakes. I consider them to have an interesting potential versus risk ratio. Most of them don’t pay dividends and I don’t expect them to be my key to passive income. But I do think that they may greatly contribute to reaching my FIRE target in the long-run by an exponential rise in value.

Let’s see how much of all this will become true!

 

 

2019 wasn’t too bad

The year is coming to an end, and despite all the chaos around the globe, it wasn’t a bad year after all. No financial crisis, no armed conflicts on a global scale. Considering all the projections from 2018 it could have been much worse.

I feel like this year passed way too quickly and personally, it was a tough one. When I changed my place of work, I had to separate from my family for more than 7 months now. This situation will remain the same for about 3 more months. All this time I am living in a hotel and doing nothing else but focusing on work. Not always easy and mentally pretty draining, but the tough time is almost over and in January I will be moving out to something that I will be able to call “home” for a while.

The Financials

Financially, 2019 was good. I won’t hit several of my self-imposed targets, but they were maybe a little bit too ambitious. Still, my savings/investments and my dividend income grew significantly by almost 30% and everything is already set to grow at the same or even higher rate in 2020. With a few additional investments I might reach a growth of even 50% in my passive income next year, coming ever closer to my FIRE target.

I have also put a little more cash into two stock accounts here in Thailand. One is for more wife, the second one is for my daughter.

The account for my four-year-old daughter is only investing in 3 ETFs. One focused on dividends, one invests in SMEs, and one that follows the Thai SET index. The current volume is only about 1.500 Euros. I will grow it in 2020 to reach a volume of something around 5.000 Euros. In time, the dividends should serve the purpose of covering her pocket money. The SME-focused ETF which doesn’t pay dividends should continue growing to become her very own FIRE fund in due time. Should she want and/or need one.

For my wife, it’s a different story. I want her to have her very own passive income. I am therefore investing in individual stocks here in Thailand which pay dividends in different months. This will not only help us both to be financially independent, but it will also give us the advantage of having income in both currencies, Euros and in Thai Baht. Depending on the economy, we will then be able to take advantage of the best opportunities in both markets.

Brick & Mortar Business

This year was also an opportunity for me to diversify a little further and to get into some real estate business. I supported my parents financially to invest in a small bed & breakfast business. We are renovating a small house on our land in Poland and plan to set up 4-5 rooms for short-term stays. The income from this beautiful small rental business should secure their retirement, and increase the value of my property in Poland by a solid margin at the same time.

Last but not least, I also identified another potential opportunity in Japan. I will fly in March with a friend to the city of Fukuoka to identify a potential investment in a small bed & breakfast hotel in a hot spring town nearby the city. Given the economic situation in Japan and the diminishing population, many business owners and local governments turn to foreign investors to take over abandoned or decaying properties at bargain prices and I think this could a risky but very interesting opportunity.

The great thing about Japan: Foreigners can set up companies and buy land under their own name. So in comparison to China or Thailand, it’s actually a much more investor-friendly environment. Not to mention that Japan is such a beautiful place to be. I will report more details on this after the trip. Stay tuned.

2020 Forecast

In a few months, I will turn 40 years old. It pretty much feels like a performance peak, with my career, salary, and energy levels all aligned, and I will make sure to make the best of it. Some sacrifices along the way are painful sometimes. Especially seeing my daughter only once every 4-5 weeks for the last 7 months took a high toll, but this should be resolved within the first quarter of 2020 and I see a very promising year ahead as a whole.

“Nobody ever wrote down a plan to be broke, fat, lazy, or stupid. Those things are what happen when you don’t have a plan.” – Larry Winget

Many of my friends and family are always telling me that I tend to plan way too much. They are probably right. But for one, the quote above is pretty motivating to me. Secondly, I like to think that I plan for things that matter, and for things that make a difference for me and for my family’s future. I can’t imagine not having a plan in life.

And yes, step by step, year by year, I can see the change, the improvement. With every improvement, new opportunities are coming up. Let’s see what 2020 will bring!

In this spirit, I am wishing all my readers and followers a Merry Christmas and a Happy New Year! And if you don’t have your plan for 2020 set yet, now is the best time to getting to it.

How to prepare for a market crash

The stock market has been going up for quite some time now, and every now and then we can read about some market analysts predicting the next crash or crisis. The common consensus is that it’s not whether a market crash will happen, but only when it will happen. And I fully agree. It would be foolish to think that markets can only go up. Someday, something will happen that will send share prices to rock bottom.

How investors can prepare for a market crash

And yet, every long-term investor out there will tell you the same thing: Staying in the market is the only right choice. Peter Lynch comes to mind with his fairly accurate quote that “far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Yet this doesn’t mean that there is nothing that could or should be done. And in my case, I follow the strategy of long-term focused investors. I invest in dividend-paying companies. Especially in those which have a track record of paying out dividends even when a recession hits their profits.

The rationale behind it is two-fold.

For one, I want to make sure to have a steady cash-flow coming in, no matter what happens around the world. Those companies that not only survived the financial crisis back in 2007 and 2008 but also managed to keep or even to increase their dividends are great picks in my view.

In my personal portfolio, this would be companies like AT&T (T), Royal Dutch Shell (RDSB), AbbVie (ABBV), or GlaxoSmithKline (GSK). Other reliable candidates are the likes of Starbucks (SBUX), Apple (AAPL), Imperial Brands (IMBBF), Vodafone (VOD), E.On (EONGY).

Communications, Utilities, Medical, and Consumer stocks have proven reliable partners over the years to keep generating cash-flows no matter what. This kind of companies are called SWANs, because they let investors Sleep Well At Night.

Secondly, having a steady and continuous cash-flow allows an investor to take advantage of market corrections. While others might sweat and crumble watching their portfolio value crashing down, investors with large passive income from dividends get into the unique position of having the opportunity to buy company shares at rock-bottom prices. Following Warren Buffetts mantra of “being greedy when others are fearful”, this strategy has proven to provide outstanding results in the long-run.

Not giving into emotions

All this is easier said than done. And yes, I have been there. On a few occasions, I have watched some of my shares dropping as much as 70% or even 80%. When the value of your portfolio drops down from 50.000 Euros to be only 10.000 Euros – it really does hurt.

You can’t sleep. You get nervous, you get easy to panic and it seems that you get constantly into a bad mood.

This has completely changed since I started to focus on dividend-paying stocks. While I still have some shares that are rather speculative and pay none or very tiny dividends, the majority of my investments are in those stable and long-term focused business models.

Stable investments help us to keep our emotions in check and thus to make smarter decisions. And in the long-run, there is no smarter financial decision than to be invested.

Disclosure: I own shares of all the companies mentioned in this article.

What to do with your Christmas bonus?

I am sitting at Starbucks (SBUX) and listening to some old Christmas jingles. Yes, even the Starbucks in Thailand is playing American jingles as Christmas is drawing near.

For many hard-working employees out there, this time of the year is not only an opportunity to spend some days with friends, family and to eat more than we usually do. It’s also the time when many employers pay a Christmas bonus. And the big questions is: What to do with it?

I know Apple (AAPL) got the new iPhone out and the Camera is really great. Plenty of people seem to think so because it’s constantly sold out in all the shops around here. I pre-ordered my iPhone 11Pro and just got it a week ago. It is awesome. It is also very expensive. So the question is, should you really spend so much money, or is there a better way?

Buying without spending

Me buying the iPhone was not a spontaneous decision. I was using my iPhone 6s for almost 5 years now and it was simply time. However, I also didn’t pay for it in a lump sum.

I got it with a 1-year contract which reduced my purchasing price by around 6.000 THB, almost 180 Euros. Then I put it on my credit card to collect cash-back-points and turned the total amount into an installment plan for 6 months. It will now cost me roughly 150 Euros a month, 6 months long, at a 0,79% interest rate – and it will be covered entirely by the dividends from my investments which I receive monthly.

So in the end, I didn’t even touch any of my cash to get it, and I will enjoy the benefits of the phone hopefully for another 5 years.

As for the Christmas money, well, I don’t get any. There is no such thing in Thailand. However, IF I would work in a place where a Christmas bonus is a thing, I would have done exactly the same. And the Christmas money would go straight in my investment account.

Conscious spending

There are many ways how we can get great things without actually spending money on them. A little preparation, creativity, and thinking. That’s all it takes.

And if you don’t receive monthly dividends just yet, then, even more, you should start investing now. The sooner you can start receiving and/or increase your passive income, the more money you will have left to keep increasing your assets and preparing for a worry-free future.

Disclosure: I have shares of Apple.

A journey of a thousand miles…

…begins with a single step. There might be twists and turns, ups and downs, but once we start walking and frequently check our compass, step by step we get closer to the finishing line.

Reaching the goal of financial independence requires a substantial amount of money in savings and investments. Getting there is not easy and requires time, perseverance and patience. But no matter how hard it may seem, it’s not impossible.

Many of us are top-line millionaires

If you are blessed living in a thriving economy, you are most probably a millionaire – stretched over your lifetime. The math? It’s not too complicated. Let’s say you earn 2.000 Euros a month which is really not a high salary.

Not accounting for any bonus or extra payments, this comes up to 24.000 Euros a year. Put this into a context of 40 years of work and you have 960.000 Euros right there. Almost a million. No salary increases, no bonuses, nothing added to that.

Of course, there are taxes to be paid, living expenses, medical bills. Whatever. Your total income over those 40 years in this scenario is almost a Million Euros. In business, we call this the “Top Line”.

The deciding question is how we approach this top-line and what we do with it. All the expenses that we have along the way will reduce our top-line. The money that is left over is called “the bottom line” and this is basically the amount that we have to save and to invest.

It’s not about how much we earn

Having a high salary can help us to reach financial independence more quickly. And yet, during my short career in a bank, I observed that most people with high salaries were seldom the ones with the highest numbers on their bank accounts.

It was usually the quiet, medium-salary people who had the best credit scores and whose accounts would show the occasional million Euros. And I always wondered how that could be. How could someone with a very regular income of only 2.000 or 3.000 Euros a month amass a Million in their late 40s or early 50s?

The answer: They controlled their spendings, they invested regularly in the stock market or real estate, and they kept a comfortable but modest living standard.

  • When they got their first salaries and started to develop their careers, they would immediately start saving and investing.
  • When they got salary increases, they would increase their savings and investments first, before thinking of buying non-assets.
  • They wouldn’t succumb to peer pressure and buying shiny things or branded clothes just to show everyone that they can afford it. They would rather buy just another asset to watch their portfolio grow.
  • They would seldom use credit cards or take loans for anything.

Some might live very frugally, trying to find hacks and get creative about how and where money could be saved or re-gained. Some might push for a stellar career and higher salaries. And there is nothing wrong with any of that. They might reach their goals earlier on.

But the point is that even with modest salaries, it is possible to save, to invest and to take our future in our own hands. The first step to get there is to learn to control our spendings.

Assets and Liabilities

These two words rarely come up in conversations. Even with my friends and colleagues, unless initiated by me, I have seldom noticed anyone popping them up into a regular chat. I guess there are good reasons for that. They sound complicated. They sound very “financial”. They just don’t fit in the “what are you planning for the weekend” talk. They also don’t really fit in the “what do you do after work” conversation. And yet, when it comes to financial knowledge, these two words are the most crucial terms and in my humble opinion, everyone should learn their meaning as early on as possible.

What is an asset?

Obviously, if one is about to learn something, one should always try to learn from the best. The book titled “Rich Dad Poor Dad” by Robert Kiyosaki was my personal eye-opener. It takes the most simple and accurate approach to define assets and liabilities with one-line definitions:

“Assets constantly generate money and put it in your pocket”.
“Liabilities constantly take money out of your pocket”.

That’s it. It doesn’t get simpler than that. And yet many have trouble getting the concept. Especially the traditional souls out there who dream about buying a house or condo might have some challenges with this definition.

I as house an asset?

The definition is clear in terms of what to do with your money in general. A car is not an asset. It uses energy, depreciates in value, you need to pay taxes, insurance and chances are that even if you use it to earn money with Uber, your net-balance will remain negative.

Stocks and bonds are assets IF they generate cash-flows and add on value. So personally, I consider dividend-paying stocks, REITs, and index-ETFs to be assets. Other stocks that are highly speculative and don’t pay dividends I consider to be just that: Speculations.

But how about a house? Is a house an asset? The answer to this question is: It depends. Unless purchased for a commercial purpose, they don’t generate cash per se and if purchased with a mortgage or with any other form of a loan, they actually take money out of our pockets, month-in, month-out.

Now you can argue, that you won’t need to pay rent and the money saved is equivalent to a handsome return on investment. It is a valid comment and one could definitely have debates about it. The reason why I would still hesitate to count it is due to the structure of mortgage payments. Especially during the first years of a mortgage, almost every penny you pay to the bank is actually only covering bank fees and interest. Very little is going into the actual payback of the loan. You are therefore actively spending money on it.

Furthermore, a house is good for a couple of years, but you do have additional costs associated with it which will grow even larger as the house gets older. Repairs, refurbishments, taxes, insurance. These factors play a big role and can massively diminish your return on your investment.

Buy assets, avoid liabilities

Once you have the understanding of assets and liabilities, all you need to do is to focus. Keep buying assets. Try to avoid liabilities. Following this simple rule will lead you straight to financial independence and out of the rat race.

3 Things you should know about FIRE

The dream of financial independence and early retirement has gained a lot of steam in recent months. But despite the popularity of the movement, there are some important points that need to be understood and which I would like to point out.

It’s easy – and it’s not

Frugal living, saving as much as possible, investing. The concept is simple and easy to understand, easy to copy. In theory. Putting in practice, there is a lot of sacrifice along the way and even after all the hard work, chances are that you won’t be living like a king, but will need to maintain a frugal mindset for the rest of your life.

Here is some overview on how to get started: Let’s say you purchase stocks or ETFs that will generate a yield of 5% annually after tax. You might do better. You might do worse. But from my investing experience so far it’s a pretty realistic expectation to have.

Let’s do the math then, which means that for every 1000 Euro invested, a 5% annual return will generate 50 Euros each year. Let’s put that in lines:

  • 1.000 Euros invested = 50 Euros / year
  • 10.000 Euros invested = 500 Euros / year
  • 100.000 Euros invested = 5.000 Euros / year
  • 200.000 Euros invested = 10.000 Euros / year
  • 500.000 Euros invested = 25.000 Euros / year
  • 1.000.000 Euros invested = 50.000 Euros / year

You can play around with the numbers, the %, and your saving targets, but I think this pretty much explains the whole challenge: You need to save and invest a lot to get to a point that you could seriously relax. And even if you get to the point that you have a Million Euros on your account, a return of 50.000 per year is hardly an amount to live on to consider oneself rich. Comfortable? Yes. Rich? No.

If your target is really to completely retire early, not only would you need to save up a lot, but you would also need to maintain a frugal and simple lifestyle to make sure your income and your wealth don’t get drained too early on. The last thing you would want is to turn 70 and see how others retire on their hard-earned social security while you start to worry about your funds and income. Because if you retire at 35 or 40 and didn’t pay much into the system, then it would be blatantly wrong to expect the system to cover for you later on.

Most who achieve FIRE keep working

Given the staggering amount of money required to really and fully retire early, most people don’t go all the way. Because it’s too hard and it takes a too long time. BUT what many do is to turn to their passions and their actual idea of looking for a purpose once they reach a point of feeling secure enough to do so without going broke.

Say you have saved and invested 200.000 Euros and receive a 5% annual return after tax, 10.000 Euros a year. That’s not enough to retire. But living in the right place, it may be enough to pay your rent. Having “shelter” secured, you might not feel the pressure anymore to chase for a high paying job that would be required to protect you and your family. You could choose another profession or challenge that may suit your personal goals much better, and even if you would bring only another 25.000 Euros a year back home, that could be already enough for a decent living with the good feeling of doing something that you actually really appreciate.

I am also not sure if the actual goal of a “real” retirement would fit with the character of any FIRE aspirant. Because to get to the point that you could actually retire on your savings and investments is really hard work. It requires dedication, patience, and real commitment. Something that you see mostly in career and goal-oriented personalities. Now they might not be always the corporate types, but considering how much work and effort they put into reaching their goal, it’s hard to imagine that they would be able to stay idle right after hitting their target. There are simply too many exciting and interesting things to do in the world to waste time on doing nothing.

It’s really about time and independence

In reality, investing and generating passive income, escaping the rat race… it’s a mind game. Because with every step along the way, with every additional income you create for yourself and with every day you get closer to become financially independent, you are reducing the burden on your shoulders. The burden and the responsibility to yourself, to your loved ones, to society.

Financial independence empowers you to make conscious and responsible decisions, without the seductive element of money attached to it. When you live frugally and have a minimalistic mindset, when you know that you have “enough” and don’t need to compromise your values, your convictions and your personal goals for profits and gains, then you can act true to yourself at all times.

You can also take the time to think things through. To consult with people who matter and you will have more opportunities to do “the right thing”, which more than often goes not well along with the profit and benefit-oriented thinking of many corporations and individuals out there.

I am not sure how many other people out there see it this way. For me, this should be the ultimate outcome. I intend to keep working until I die, but not in the traditional sense and not on other people’s terms. I don’t want to deal with CRAP any longer than necessary and this is why I follow the FIRE movement.

Having said all that one thing should also be very clear: Without those companies which are striving for profits, without all those people who prefer to have a regular working life and who actually appreciate going to an office every single day, FIRE wouldn’t be a thing at all. Otherwise, how would we expect a 5% annual return after tax on our investments?

Why investing in Pharma makes sense

Today, let me dive a little into the topic of income-investment and why I believe that every income-focused investor should have some pharma stocks in his or her portfolio.

As my readers know, my goal is to escape the rat race with the help of investments in the stock market. With my eyes targeting financial independence, having a passive stream of income is crucial. One way to get it is to invest in dividend-paying companies. The strategy is called income-investing and it is a reliable strategy of building up passive income, large enough to be able paying bills (and more) once the decision to retire has been made.

When it comes to income-investing ideas, how to pick a stock, and what one needs to be aware of, the pharma industry emerges quickly as a good direction to look at.

Profits for years to come

My personal portfolio contains shares of two pharmaceutical companies: AbbVie (ABBV) and GlaxoSmithKline (GSK). They are not THE biggest in the industry, but large enough to reward their shareholders with frequent dividends for many years now. And chances are good that this won’t change anytime soon.

Big Pharma is a term that is being used in a mostly negative manner. Overcharging customers, abusing their power, and either way, health should be free for all, shouldn’t it? Maybe. Maybe not. But what is pretty certain is that this industry has a tremendous cash-flow that is only increasing with a growing and ageing population.

People get sick. It’s how humans work. We get sick, we get better. For most of the time anyway. But the part of getting better for most of the time involves medications, treatments, surgeries, vaccines, anti-biotics, hospital stays. It’s a never-ending battle that will always require someone to develop, produce and distribute all those essential products that help us to have a long and healthy life.

They can do what no one else can

Some people may think that supporting Big Pharma can’t be the only way to get things done. Some smaller companies should be able to pull it off as well, right? Research, development, production, distribution. Well, the bad news is, that smaller companies simply can’t do all this. And even if they try to share the work process with other companies, chances are that they either fail or can’t make enough profit for a sustainable contribution.

There was a recent story about a company called Achaogen that comes to my mind. The company was working on a new type of antibiotics. The scientists and researchers were looking for a way to develop a new type of antibiotics, as the currently widely available versions are becoming increasingly less effective. They were largely successful in the beginning but failed after a very short time in operation. The business was just not profitable enough to sustain.

This case highlights the need for some for really large economies of scale, cross-incentives among products, and distribution scale that a small company simply can’t sustain. And we are talking only about antibiotics. How about those much larger and even more cost-intensive projects. Cancer, HIV, dementia. There are so many challenges in front of us. They require the right people, with the right education and research experience, the right equipment, sufficient funding, the right connections for distribution and the stamina to dive through ups and downs of the world without going bankrupt.

Bill Gates, for example, is working closely with many companies including GlaxoSmithKline through his Gates Foundation. When asked about the reason for this collaboration instead of just using his immense wealth to simply find solutions on his own, he said it very simply: These companies can do things that no one else can do.

This is a powerful statement for any investor out there. It says that, to a large part, there are not many alternatives. That’s a big moat to cross and perfect protection for any long-term investor.

The risks are limited

Unsurprisingly, AbbVie and GlaxoSmithKline are both considered to be rewarding long-term investments for income investors not only by me but by pretty much every analyst out there. The combination of the long-term focus, available resources, knowledge and power of distribution, together with a reliable and stable cash-flow give pharma companies excellent risk/reward ratios.

Some analysts point out that the big cash-cows might at some point disappear, especially when cheaper alternatives come to market. When patents run out. When the competition catches up. These concerns are legit. It will happen. But unlike some electronic toys or tools, health is a different story with plenty of areas that are still under development and which are almost impossible to copy in a simple and cost-efficient process. The electronic cycle for product improvement is only roughly 1 year and has very limited regulations in place. Health related products take 10-15 years to develop and are subjected to heavy approval processes and regulations. This will always keep the competition at pace, even if some profit margins might occasionally suffer or take a blow.

Disclosure: I own all stocks mentioned in this article.

Get independent and stop dealing with CRAP

There are many reasons to strive for financial independence. For me, some of them are company politics and the never-ending dealing with CRAP. It’s one of my favourite acronyms:

  • Criticism
  • Rejection
  • Assholes
  • Pressure

You can’t become a leader in any organization without it. It’s part of the deal. No matter what you do, once you are in charge of others, CRAP will be part of your daily experience. It’s to a large part the reason why people in higher positions get higher salaries. It’s not really about their skillset, but more so about their ability to deal with CRAP.

And some might even enjoy it for a while. The constant competition, attention and the feeling of winning whenever you come out on the top. But in the long-run it is tiring. Exhausting. And you are not always winning, you will be losing frequently. In fact, the amount of times that you got to pull yourself together, to get up after you have been beaten down and to push through things that might not match your moral or ethic standards, your expectations and believes, it is so much higher compared to the few wins that you collect along the way.

Some just accept it for what it is. But for others, this might lead to depression, frustrations, the occasional loss of faith in humanity, and burn-out. On top of all that, it is really time-consuming and you might start asking yourself, why you are doing all the effort. What is the actual purpose of your journey?

Serving others is the true purpose of any company out there

Tim Cook said it once and he is absolutely right. Every company, every product and every service is meant to be for someone, to solve some problem, challenge or requirement. Solving problems creates value and pricing follows. So whatever we do when we work, we do it to serve.

When you recognize this to be the case, you have the best chances to really understand the purpose of what you are doing. Knowing your purpose gives you passion, and aligning with it leads to dedication. Dedication leads to success. Success doesn’t necessarily mean a monetary reward, but it often comes along with it.

But serving others is a never-ending task. There will always be a problem. A challenge. An obstacle. A restraint, limitation or a sudden turn of events. And there are always other people. Foes and friends. Competitors. Supervisors. Investors. Shareholders. Politicians.

The more success you have, the more lives you will affect. Whether you want it or not, your actions will have an influence on the lives of other people. On the dreams, which you might elevate or destroy for those who work under you, to the pressure and constant rejection by the supervisors who you work for. Shareholders and investors will always keep you under pressure to deliver the best possible financial results. Sometimes forcing you to action things that might go against your conscience or against what you might consider being the right thing to do.

Cut the CRAP

And I think it’s all actually OK. It’s important. Going this path for a while can help you to understand how human minds work, about group dynamics, all the different agendas out there that people follow. Personal and business-wise. It will give you a deeper understanding of different perspectives, sometimes unexpected connections, incentives and occasional shocks on what may seem like irrational behaviour or unforeseen turn of events. Pushing towards success helps us to develop, to learn and to understand the world around us a little more.

But I don’t think you need to do this your entire life. There is a point when the whole thing becomes overwhelming. A burden. Your mind will be dragged down, your physical condition will start to suffer, your personal relations will get affected and step by step you might start seeing only the problems around you. Depression may follow and with it a steep fall from your high ground at work, and possible medical repercussions.

We call this a burn-out. It doesn’t happen overnight, but when you climb the career ladder, it will slowly creep into your work-life. Usually, when you notice it it’s already too late. So knowing all this, how can you avoid it from happening? The answers are, firstly by becoming financially independent and secondly, by choosing when to stop.

Financial independence comes first, because it’s the tool that allows you to go for the second step. When you become financially independent, you can cut the CRAP at any given time without the need to worry about any repercussions on your life. Your shelter, food and healthcare can remain protected. If you really think about it, you will realize that this is quite a lot, more than most people on the planet have today.

Find your inspiration

For me, CRAP is one of the most important reasons for working even harder to reach FIRE. This doesn’t need to be the case for everyone. Some people might enjoy regular work. Having their 7 to 5, the daily soap operas at the office, the feeling of belonging somewhere. Those may find their inspiration for FIRE somewhere else. But for me, after independence and freedom, CRAP is the next immediate reason on my list of motivations to get out of the rat race.