I look about on the internet pretty much 24/7 for finance information. I have found that this man Joseph Carlson is one of the best sources of information on the internet. He has creative investing videos, but purely, he has information you want to hear. Recently Mr. Carlson released a video called “3 Ways To Compound Your Portfolio.” Even though I was pretty sure he was not going to say anything I had not already heard before, I watched the video, and he also ended up going over the ways he believes should not try to compound your portfolio. I will review his latter points, but as an aside you should watch videos on his channel.

“Buy a stock because of the dividend yield.” If you invest in a company because of the dividend yield, you need to pass the keys to the castle over. I have heard stocks with high dividend yields called “blue chips with a little bit of tarnish.” Often this is seen as a positive, but I do not believe it is. A blue chip that is tarnished is a company with fundamental problems, think AT&T. Righting those companies takes an exact mix of leadership, a board willing to take the pain, and a business model not impossible to shift. Often, the company is too bloated, too broken, and too dead. If you are buying for the yield, then you are likely buying into a company that sucks. Buying because of a high yield is buying into a value trap, you are buying halfway down the spiral.

“The company relies on defensive acquisitions.” This point is absolutely true. Again, think about AT&T, their purchase of Time Warner was one of the worst acquisitions of all time and may have ruined the company for decades. The purchase added no value to the company and saddled them with debt. On top of that, they overpaid massively. Disney’s acquisition of Fox is another example of a poor acquisition-although maybe not quite as bad as AT&T’s. Disney buying Fox was defensive, and although it did give them some value, they paid $71 billion, compared to past acquisitions like Luas Films or Pixar, Disney did not incorporate the full company, just picked up some major properties like The Simpsons and Avatar, and discarded others. Companies that have defensive acquisitions struggle to grow and are wasting resources.

“The company pays down debt.” I disagree with him on this point, debt for companies right now is at its peak because of recently historically low-interest rates, and paying down that debt is a good decision because having a massive debt cloud hanging over your head is never a great thing. His point is not that companies should not pay down their debt, but that you should buy into companies that did not splurge and take out a bunch of debt. I would disagree with his opinion. Debt, if used correctly, is a good thing. The money you get from taking on debt allows you to do so much more, and if you have good leadership, you have to trust in their ability to borrow without hindering future growth. I do not want to be in companies that do not trust themselves enough to borrow money or companies that do not see any use for more money. Grow or die.

“The company awards executives & employees huge bonus[es] and stock awards.” This point is generally true, but in rare circumstances it is false. Generally overpaying employees and executives is bad, if you own any company, paying more is not good. However, if you are a company that needs help, as a shareholder, I am willing to pay more to get the right people in place. I would rather pay an extremely excellent CFO $20 million than pay an average CFO $12 million. The company has to be willing to get the right people, but it cannot get fleeced.

Finally, “The company creates pet projects to spend cash flow on.” If you are a growing company, then yes, wasting valuable cash on unrelated ventures is bad. That rule applies to 90% of companies on the market, but for companies currently on the top: Google, Amazon, Apple, etc. having pet projects is a good thing. The most famous pet project turned massive success is AWS. Web services were minor, and then they weren't. To stay on top, you must innovate, and part of that is throwing massive amounts of spare cash at potential revenue streams. Once again, if you are a company that is not the largest in your industry, or if you have any competition at all, then you need to focus on winning your industry, not on new industries to focus on.

That should finish things up. This was a new style of essay/post/writing than usual, more of a reaction. Generally, I dislike whenever any content creator reacts to another content creator because I think it is lazy, but I feel like I added value and shared another valuable creator. Best of luck :).