Nominee Author’s “Income Factory” Helps Investors Navigate Turbulent Markets
When Steven Bavaria first introduced his “Income Factory” about five years ago, he received negative feedback for suggesting that “market price growth” was not necessarily an essential part of a long-term investment strategy.
But recent market turmoil and financial uncertainty have heightened interest in its Income Factory philosophy, which focuses on “creating your own growth” by reinvesting and combining high-return investments rather than “wish, wait and hope” that the often unstable market does it for you.
Bavaria says the big advantage of its strategy is that during volatile market times, like last year, a typical “growth” portfolio sits dead in the water while investors receive cash dividends of just 1% or 2%.
Meanwhile, a revenue factory, equally uninspiring from a price growth perspective, is generating cash distributions at a rate of 9% or 10%, according to Bavaria. Investors can reinvest this cash in additional income-generating stocks, funds or other assets at attractive prices and above-average returns in the current environment. So even though the market prices of their assets are currently falling or going nowhere, the revenue they generate continues to grow, month after month.
“That means when I get my dividends every month, I can reinvest them and basically give myself a raise,” Bavaria says. “So I know that my true ‘wealth’, as defined by the income my wallet (i.e. factory) produces, keeps growing, even if the market value doesn’t yet reflect it. .”
Bavaria, which moved to Ponte Vedra earlier this year, managed to attract 13,000 subscribers to investment website Seeking Alpha, published a book (“The Income Factory: An Investor’s Guide to Consistent Lifetime Returns”) by McGraw-Hill, and more. recently launched a subscription service, Inside the Income Factory, for Seeking Alpha readers who want more frequent personal access to the author and other Income Factory practitioners.
The approach has resonated with thousands of readers of Bavaria’s book and articles who have embraced Income Factory strategies and achieved more predictable investment results with less angst and drama.
The key to reducing “angst and drama” is the wider range of investment “bets” Income Factory investors can choose from to execute their strategy.
“The stocks in our Income Factory don’t have to outperform,” explains Bavaria. “All they have to do is keep paying the interest and dividends they are already paying.”
He calls it a “non-heroic” investment. If it were a horse race, “heroic” investments that expect above-average growth over time (i.e. investing in stocks) are the equivalent of betting on horses to win the race, or at least place or show, which means they have to do much better than the average horse in the field.
Income Factory horses (i.e. bets on credit) need only to “finish the race”, i.e. stay in business and make the interest and dividend payments that they are currently performing.
Which is the safest bet – asks Bavaria – betting on specific horses to win, place or show, or betting on the whole field of horses to just finish the race? His bottom line: Credit bets are much easier and more predictable to win than equity bets.
Freedom from the financial media
Bavaria encourages investors to break free from Wall Street and the financial media’s obsession with daily, minute-by-minute price changes and instead focus on what really matters: growing a revenue stream.
In his book, he compares CNBC and other commercial channels to ESPN’s sports coverage.
“Getting audiences hooked on 24/7, non-stop sports coverage has been profitable for teams and networks, and fun for many sports fans,” he says, “but this kind of Obsession with minute-by-minute changes in stock prices and indices sends the wrong message to long-term investors, even as it increases viewership and advertising revenue for networks.
Bavaria says the idea behind the Income Factory is simple. When Ford Motors builds a new plant, no one pays attention to its market value or how much the plant is worth from week to week or month to month. Instead, Ford is focusing on how many cars and trucks it produces and how to increase that production in the future.
In The Income Factory, Bavaria, a former banker and international journalist, takes a similar approach.
He likens an investment portfolio to a factory whose job it is to produce a “river of cash” that can be used to fuel its own growth by reinvesting and capitalizing, without depending on the “market” to do so. He challenges the idea that an investment’s success depends on market appreciation, demonstrating that “math is math” and that 10% cash return and 0% growth produce the same total return than 0% cash return and 10% growth.
According to Bavaria, the biggest mistake investors make is losing their temper and becoming defensive during downturns. They can “get off the investment train”, as he puts it, and then find themselves “standing on the platform when the train starts and leaves the station”.
Having your own ever-growing stream of income through financial market turmoil, the kind we’ve seen recently, he says, allows many investors to “stay the course and not commit the typical mistakes that so many investors make in turbulent times, which they regret for years afterwards.
Bavaria is a financial writer whose books include “The Income Factory” (McGraw-Hill) and “Too Greedy for Adam Smith” (an expose on CEO compensation practices). He and his wife Betsy live in the Del Webb Nocatee community. He is a graduate of Georgetown University and the New England School of Law. A former head of the Bank of Boston and Standard & Poor’s, he was also a reporter/editor at Investment Dealers’ Digest.
The book is available on Amazon: amazon.com/Income-Factory-Investors-Consistent-Lifetime/dp/1260458539/ref=tmm_hrd_swatch_0?_encoding=UTF8&qid=&sr=