Meet Scott Sterling – World’s unluckiest DGI investor

Scott Sterling world's unluckiest DGI investorAfter retiring from a respected soccer career, former Yale Bulldogs goalkeeper, Scott Sterling, turned his hand to DGI investing. But was he as successful at investing as he was in his soccer career?

This is a guest post by Miss S. Market, virtual journalist from the DividendLife Journal.

Intrepid (and entirely fictional) reporter Miss S. Market, tracked down Scott Sterling to interview him about his post-football investment strategy. Scott is the Yale goalkeeper famous for saving five penalty kicks in a row. If you’ve not watched this seminal moment in sports history, here’s Scott defending against the North Carolina Bluejays in a nail-biting game which went to penalties.

July 11th, 2017 – Yale outpatient hospital.

SM: Scott, it’s an absolute honor to be sitting here, interviewing you. It’s something I’ve wanted to do for a long time after hearing about your investing story. You look great and I must say, your nose looks so much better now. How are you doing today?

SS: I’m doing great, thank you.

SM: Awesome! Isn’t it amazing what plastic surgeons can do these days? But I want to talk finance. And more specifically your investment strategy. Can you tell me about that?

SS: Sure. After I retired from soccer in early 1996, I was receiving income from royalties and licensing deals from major sports companies such as Nike and Adidas. This provided me $2,000 to invest every month. With television deals my investable income increased every five years by $1000 a year. But I needed to put my money to work, so I decided to invest it.

SM: Totally. Money. Check. Need to Invest. Check. So what strategy did you pick?

SS: I chose dividend growth investing. I decided to invest in companies which had grown their dividends for a long period of time.

SM: Ooh, I like it! So DGI over Total Return then. So what companies did you invest in?

SS: Procter & Gamble.

SM: PG – a solid company there. Any others?

SS: No, just the one. At that time, I was using a lot of their healthcare products while my face was being reconstructed.

SM: Oh, that’s a bold move I’d say! But you didn’t buy shares straight-away, did you?

SS: No, I took my time researching and it wasn’t until 12th January 2000 until I felt ready and confident enough to invest. By that time, I had saved $96,000 in cash from royalties and sponsorships.

SM: Nice! Wait January 2000? Wasn’t that when the stock market crashed?
SS: Well yes, it started to drop the very next day after my purchase. I wasn’t paying too much attention but the shares I bought lost 46.88% over the next 18 months.

SM: Ouch! Well it could have been worse I suppose, like 47% percent. You didn’t sell then?

SS: No, if I’m one thing it’s that I’m stubborn. I held onto those shares like I would a football. The shares recovered their price within five years but it took me, personally, a longer time to recover, before I felt confident investing again.

SM: How long did it take, if you don’t mind me asking?

SS: About 2,897 days. I wasn’t really counting.

SM: So, that would put your next purchase at…

SS: December 18th, 2007. I had saved $298,000 by then.

SM: Another large purchase!

SS: Well the share price had gone up a lot and clearly people wanted more of it as it just kept going up. It was time to jump back in and ride the share price higher.

SM: Time for a crash you mean? Didn’t the stock price subsequently collapse about, oh, 39.35% over the next two years?

SS: Yes. That was hard to watch.

SM: Almost as painful as being hit in the face with a football! But you stayed invested.

SS: I stayed invested. I was learning as an investor and you must take the long-term view. But my shares were pretty bloodied up for a while there.

SM: A bit like your nose I’d say. So, what did you do?

SS: I kept holding. The share price recovered much sooner than before – it only took another five years. The stock went crazy so I waited for the right time to buy.

SM: Fantastic! That time was one of the greatest bull markets so I imagine you could take advantage of that by buying more shares?

SS: No, not really. I wasn’t confident in buying more until 24th December 2014.

SM: How much money did you have to invest?

SS: $384,500.

SM: Wow. So that’s another third of a million of cash invested. Great job! Wait…wasn’t…

SS: Yes. The stock market crashed again the next day.

SM: Just when you don’t expect another crash…boom! Like a football in the face! How did you feel?

SS: I couldn’t believe it. But I was getting kind of resigned to crashes by then.

SM: As I recall the price dropped roughly 26.93% over the following nine months?

SS: Yes, it was a bit of a roller coaster. Mostly downwards.

SM: And you’ve not sold or bought any new shares since then? I see that the stock price still hasn’t recovered.

SS: No, I have $170,000 on the sidelines waiting for my next purchase.

SM: Well let’s take stock of where you are, if you’ll excuse the pun. Over the last 21 years you’ve received $948,000 of investable income which is fantastic! And you’ve invested $778,000 of this with $170,000 remaining.

SS: Yes, that’s right. It’s amazing how much money passes through your hands over time. Totally unlike footballs when I was in goal.

SM: So true! And your JNJ shares today are worth $1,103,101 for a total of $1,273,101 when your remaining cash is included. That’s still fantastic!.

SS: I’m happy with the results. I’m earning about $34,546.22 in dividends each year. Eventually I’ll be using the money for more plastic surgery.

SM: That’s money passively earned and well spent if you ask me! I think your story is amazing and shows that you can still come out ahead over the long-term, despite being totally unlucky.

SS: Thank you. Although I’m confident that my next purchase will be much more successful.

SM: Let’s talk about that. Any future plans? What are you going to do moving forward?

SS: I’m not ready to retire just yet so I’m going to continue to hold onto my existing cash until I see another good purchase opportunity. PG’s still quite under-valued at current prices in my mind.

SM: Sounds like a good idea. Let me know when you’re about to buy so I can short the stock.

SM: OK well thank you for your time Scott, this has been very educational and best wishes on your continued reconstruction!

SS: Thank you!

This is Miss S. Market, writing for the DividendLife Journal.

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Editorial – Numbers, charts, & lessons

Here’s a summary of Scott’s purchases over the time period in this article.

Date Subsequent Crash Amount purchased
1/12/2000 -47% $96,000
12/18/2007 -39% $298,000
12/24/2014 -27% $384,000

The following chart shows the adjusted closing price of PG since 1996, including the times when Scott made his purchases.

Scott Sterling world's unluckiest DGI investing purchasesScott’s purchases were pretty much the worst possible times to buy shares. After 21 years he still came out ahead.

Total Cash Income $948,000
Cash Invested $778,000
Total Dividends Paid $190,652
Capital Gains $134,449
Cash Not Invested $170,000
Total Networth $1,273,101
Forward Yearly Dividends $34,546

However, had Scott simply bought shares each month, the results would have been quite different.

Scott Sterling's imaginary net worthThe above chart compares the results of immediately buying the shares each month as soon as the investable income was available, vs Scott’s original outcome. The differences become apparent even in the first five years when Scott was building up cash reserves.

Scott’s Outcome Fully Invested
Total Cash Income $948,000 $948,000
Cash Invested $778,000 $948,000
Total Dividends Paid $190,652 $412,336
Capital Gains $134,449 $634,025
Cash Not Invested $170,000
Total Net Worth $1,273,101 $1,994,361
Forward Yearly Dividends $34,546 $63,160

Don’t sell because of a crash

Although Scott was unlucky in the timing of his purchases, one of the main reasons he still came out ahead was because he didn’t panic and sell any shares because of the market correction.

Selling and hoping to buy again later means you need to be correct twice – once when you sell and again when you buy.

Time is your friend

The earlier you start investing, the more time there is to build up capital gains and dividends to buffer against a subsequent loss.

The more money you can invest the better, so having a high savings rate will improve your outcome.

Stay invested

Simply investing whenever money became available, had a much better outcome. Smaller and more frequent purchases will average out over time. Some will be made at higher prices, some at lower prices. And each purchase will start producing income which can be re-invested.

Unless cash is being maintained as part of your asset allocation, building up a lot of cash while waiting for “the right time” is likely to lose out in the long term.

Disclaimers

Investing in only one stock assumes a crazy amount of risk and was done here for illustration only.

For this example Scott didn’t need to withdraw any money during the market crashes. It’s possible that a crash could happen just after you retire. Having cash and/or bond reserves can help mitigate its effect and provide more options. Dividend income isn’t a guarantee.

This example uses real data from the past 21 years. There’s no guarantee these results will repeat in the future. It’s important to consider your investing timeframe when deciding to invest in the stock market.

This post was inspired by the post, World’s worst market timer, at awealthofcommonsense.


Quote of the Day

If you’re a goalkeeper, it doesn’t matter what you save the ball with – if you keep it out, it’s not a goal.

6 thoughts on “Meet Scott Sterling – World’s unluckiest DGI investor”

  1. Lovely write up! 😀 The real difficulty is to pinpoint the “right” stock of course, but generally speaking if the horse is a good one, maths, inflation and time are all on DGI’ side… 😛
    Ciao ciao
    Stal

    1. Hi Stal,
      Yes, I wrote this article more for fun so it’s unrealistic and not intended to illustrate typical DGI behavior. It’s better to diversify and invest in many more companies or an index over a long period of time. Time in the market is better than timing the market.
      Best wishes,
      -DL

    1. Hi DFG,
      It’s great that you’re investing in your childrens’ future already. With a long time horizon those investments will reap dividends – both figuratively and real 🙂
      Best wishes,
      -DL

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