Investing mechanically with index trackers is boring

My retirement investment strategy has been relatively unchanged since I started this blog in 2009.  When you boil it all down around 90% of it is nothing more than a diversified portfolio of assets that do nothing more than track indices through the use of low cost ETF’s and funds.  Each month I add to this portfolio with new money and all I do is buy whichever asset class has been performing the worst (ie whichever class is most underweight).  Should an asset class ever deviate from its target holding by 25% then I would either buy or sell back to nominal holding.  This however seems to happen very infrequently because of my continual new money entering the portfolio

Let me demonstrate just how boring this all is.  It is the morning of the 3rd of October 2014 and already all of my mechanical index tracking investing decisions for the month have been completed.  This is what has occurred:

• Last weekend, as I do every weekend, saw my Excel spreadsheet that shows my financial position and compares it to my long ago mechanically set target allocation updated.  Boring and absolutely no brain power required.  Total time spent 10 minutes.
• My employer paid me on the last day of the month, Tuesday.  Total time spent to ensure money had cleared in my account was 5 minutes.
• I’m a big believer in the Pay Yourself First mantra and I’m ruthless at it.  This means before I pay any bills, before I buy any food, before I do anything I Save Hard.  So with money in the bank and one eye on my Excel spreadsheet I knew I needed to allocate to cash and so 100% of my savings were moved over to RateSetter.  Total time to move my money and set-up an auto investment in their 3 year market at 5.0% was 5 minutes.  Again, boring and absolutely no brain power required.  
• Over the next few days my employer will get around to salary sacrificing a big chunk of my salary into my employer selected defined contribution pension fund.  I know that my current set-up will have 20% of this invested into an Emerging Markets Index Tracker and 80% will go to an Index Linked Gilt Tracker.  Next weekend I’ll login to make sure that my employer has completed the transfer and the investment is correct.  Total time will be 5 minutes and again it will boring plus require absolutely no brain power.

By next weekend I will have spent 25 minutes managing what is now a very large amount of wealth.  I am also done until next month.  However while it’s incredibly boring and requires no brain power boy is it effective.  Having been at it for a few years I now honestly believe that this strategy is all that somebody needs to build wealth successfully.
The other 10% of my strategy ignores my latest thinking and modifies the strategy slightly with time consuming pursuits centred on trying to squeeze a little extra performance by altering allocations based on Cyclically Adjusted PE (CAPE) values as well as trying to build a dividend income stream that will mean I don’t have to sell down assets in early retirement through the use of a High Yield Portfolio (HYP).  That 10% of course takes plenty of effort.  In the last week alone I've invested about 10 hours.  The end result was a HYP purchase in the form of bhp billiton (ticker: BLT).  This was funded from old money and recent dividends sitting in my Hargreaves Lansdown account.  This now brings my HYP stamp collection to 10.

Why billiton?  Let’s quickly compare it to my already well published transparent criteria:

• The bhp billiton business model is easy to understand.  From what I can see its discovery, acquisition, conversion and the marketing of natural resources.
• I prefer large and non-cyclical industries.  It’s certainly large with some $67 billion in revenues.  As a commodity company I do however acknowledge that it is very exposed to commodity price changes.
• I already own Sainsbury’s, SSE, AstraZeneca/GlaxoSmithKline, Vodafone, HSBC, Pearson, Royal Dutch Shell and Amlin.  Billiton therefore adds a new sector for me – Mining.
• I’m looking for shares with dividend yields somewhere between the current FTSE 100 yield of 3.56% and 150% of the FTSE 100 yield.  On a trailing yield of 4.6% billiton gets a tick.
• The company should have an unbroken history of continually increasing dividends plus dividends that increase at a rate equal to or greater than inflation.  This criteria extends to 5 years but I know that billiton has been doing this for at least 7 years.  Over the last 5 years, when priced in dollars, the dividend is up 47.6%.  Over the same period inflation is up 18.0%.  Another tick. 
• A dividend cover of greater than 1.5 for all HYP type shares except utilities where I think that greater than 1.25 is ok.  Here billiton passes with flying colours sitting on 2.1.
• ‘Creative accounting’ can make earnings and hence dividend cover look good.  I therefore also set a greater than or equal to 2 criteria on Operating Cash Flows compared to Dividends.  At 4.1 I see no problem.

With a clean bill of health (even with demerger plans that will “unlock shareholder value” being worked on) I therefore grabbed a median holding this week at a purchase price of £17.10.

So 25 minutes invested in the month for probably 99% of my return and 10 hours for 1%.  A great example of the Pareto Principle at work.

As always DYOR.