Diversification isn’t always the goal. Successful investing is. Read how I let one holding represent 25% of the Freedom Portfolio.
I believe in and have told others to diversify, diversify, diversity their portfolios. I understand the need for multiple holdings, multiple industries and even (maybe) multiple countries for my positions.
I now find myself in a position of what I call strength in my portfolio in that I am highly confident it will meet my financial goals and continue my enjoyment of life with Financial Independence. That strength and confidence comes from VIOLATING the principal of diversification.
Warren Buffet is famously quoted as saying, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” I am not saying I am an expert, but I do think I’ve spent enough time analyzing my holdings, their industries and the markets that I’m comfortable with ONEOK, Inc. (OKE) representing 25.37% of the Freedom Portfolio.
I bought my first position in OKE in April of 2016 as a new position when I bought 342 shares at $28.92 for a $9,890.64 investment. I thought of a position back then as a $10k holding. I figured getting into each position at $10k would be guard rails insuring diversification.
What happened? I watched ONEOK as an equity position increase in price from that initial $28.92 per share to a high of $74.87 in December of 2019. A 250% return on a dividend investment in three years. Awesome!
During that 3 years OKE also returned $2,568.74 in dividends. For holding it just 3 years and a quarter, OKE returned a quarter of my investment in income. Income I reinvested each quarter compounding my returns.
Fast forward to this year, OKE crashed just like the rest of the market and hit a low of $21.81 per share. A horrible event if I had sold. Instead, I took a hard look at the company again, read a lot from the community and decided to invest more. This time I was going in hard and invested $69,971.56 for another 2,564 shares at $27.29. Was I crazy? I just threw everything I knew about diversification out the window. I also thought I was making a critical move for my family’s wealth building future.
In June of this year, I invested another chunk and bought another 315 shares at $31.58 for a total of $9,947.70. I just could not resist the 12-14% percent yield on a company I was willing to buy at a 5% yield. Talk about cheap. This fit all my criteria for what I consider a core holding.
Altogether, I have $89,809.90 invested in OKE right now representing 3,577.7094 shares including 356.709 from reinvesting dividends. OKE is currently trading at ~$38-42 range per share giving me a total position around $143k for a 62% total return in just 4 and a half years. ON A DIVIDEND INVESTMENT!
Folks, that is winning.
Looking forward, I see no real issues with OKE continuing to meet their dividend. Each Quarter I will see almost another 100 shares through reinvestment or $3,500 per quarter moving forward in dividend income. I will keep reinvesting for the next five years until I start drawing the income from the Freedom Portfolio.
If OKE reaches a price that would push the yield down to a more normal 3-6% range, I would probably find other stocks to reinvest the dividends into but for now I’ll stick with the 10% yield. If some information comes up that would change my mind about OKE’s prospects in their business or they cut their dividend I’d probably consider rebalancing but for now I have the confidence OKE will continue to be a very large part of my life in Financial Independence.
What are your thoughts on diversification?
Do you think you would ever let a single holding represent a Quarter of your portfolio?
Got a similar story of a home run you’ve hit?
Did the downturn in the Spring help or hurt you in the long run?
Thanks for reading.