The 2023 Investing Lesson from the Southwest Airlines Fiasco

Income Investing, Investing Strategies

I am sure you are aware that last week, Southwest Airlines Co. (LUV) canceled more than two-thirds of its scheduled flights, with the cancellations continuing for days after the winter storm that initially triggered flight delays and cancellations. You might know someone whose holiday travels were completely disrupted by the shutdown of most of Southwest’s operations.

The lesson I see from this event is that the more complexity there is in a system, the lower the system’s ability to handle disruption.

There’s a lesson there for those of us looking to maximize our investment income in 2023…

Modern airline schedules are incredibly complex. Airplanes must be at the right airport and right gate within a very small window of time. Airline crews have to be on time, with everyone present—a plane won’t fly if the crew is missing its pilot or a flight attendant. Plus, flight crews can only work a maximum number of hours before getting mandatory crew rest.

If the airline does not have any slack, such as spare aircraft or on-call aircrew built into the system, a service disruption can quickly snowball across the entire operation. It is apparent that Southwest did not have any slack in their schedules for the holiday travel season.

You might be asking yourselves: how does this apply to investing?

It is my experience that the same can happen with complicated trading or investing strategies. When something goes wrong, it affects your entire investing plan. For example, JPMorgan Chase & Co. (JPM) reported that the average retail trader is down 38% year to date.

A big problem with most investing strategies is that they rely on the expectation of significant capital gains within a specific timeframe. A bear market, such as the 20% plus losses of 2022, can put you years behind and may push you to be overaggressive to try to catch back up. Making bigger and more aggressive bets to catch up can easily (and likely) lead to even more considerable losses.

To have an investment strategy for the long term, that strategy needs to be predictable, flexible, and simple to employ.

“Simple” doesn’t mean you won’t have to do research. What it means is that when your research finds a good investment, you can put your money to work and not have to monitor the results constantly.

Dividend-focused strategies are predictable. For any dividend-paying stock or fund, you know when you will be paid and how much you will receive. Good dividend-paying companies will grow their payouts over time.

With high-yield investing, as in my Dividend Hunter service, the investment goal is to earn income. We track results by tracking income. It’s a simple concept, but it takes a mental shift to understand that share prices will take care of themselves, and you can add to your high-yield investments at any time to grow your income stream. A decline in share prices means future income is on sale.

Another approach, dividend growth investing, lets you generate attractive total returns with confidence that if the stocks you own keep growing their dividends, you will also realize share price appreciation. I use this strategy with my Monthly Dividend Multiplier service, where the goal is mid-teens compounding annual growth.

That growth target will double your money every five years. It’s sort of boring (as dull as making money can be), and there are times when it seems nothing is happening when suddenly, a few years in, you see how much your portfolio has grown significantly.

Main Street Capital (MAIN) is one stock that fits both strategies. MAIN currently yields 7.5%, and the company has grown its dividend by about 5% yearly. Since its launch in 2007, MAIN, with dividends reinvested, produced an average 15.7% annual total return, turning $10,000 into $91,407.

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