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Are You Obsessed with the Market? Or Do You Actually Want to Make Money?By
Friday, December 16, 2011
Amateur investors focus on "the market."
Wealthy, successful investors focus on "great businesses... bought at great prices."
If you held a gun to my head and asked me what sums up the difference between stock market winners and stock market losers, that's probably how I'd do it.
When great investors take care of the "great businesses at great prices" thing, they could care less about what "the market" does.
A short story about Intel can show you why...
In April 2009, at the bottom of the worst stock market collapse in generations, I told readers of my Extreme Value advisory to buy as much Intel stock as they could afford. Intel is one of my favorite "World Dominator" stocks. It's the largest semiconductor maker in the world... It literally dominates its industry.
Intel's size and scale has allowed it to sport consistently thick profit margins, low debt levels, and pay out an ever-growing stream of dividends. Intel has increased its dividend every year since 1993. It has also bought back enormous amounts of its own stock, which makes each existing share more valuable.
Because everyone was terrified of stocks in early 2009, the stock was dirt-cheap... We recommended it at $15.27 per share. This was around 17 times earnings. Elite, "World Dominator" businesses are generally worth 25-30 times earnings. We got in line to receive Intel's $0.56 per share annual dividend (a 3.7% yield at the time)... which, again, was growing.
As I write this in late 2011, Intel is now trading north of $23 per share. This has provided us with a 50% capital gain. And while that capital gain is excellent, I'm more impressed with the current yield on original purchase price that Intel is providing us.
Intel's annual dividend has grown to $0.84 per share... which is a yield on our original purchase price of 5.5%. This is an extraordinary yield on one of the world's safest, best businesses.
So tell me... if you were one of the forward-thinking investors that bought Intel in early 2009 and you're now receiving a 5.5% (and growing) dividend, do you really care if "the market" drops 10% in a month?
Do you care if a bunch of manic herd followers decide that Intel shares should trade for $21 instead of $26? Do you care if Wall Street's trading computers send Intel up or down 3% in 30 minutes?
Heck no.
If you focus on buying great businesses at great prices, you don't suffer the worry and stress most investors suffer each day. You sleep well at night knowing that Intel is one of the most dominant companies on the planet... a company that relentlessly raises its dividend. You don't care what the market thinks.
Warren Buffett, the greatest investor in the world, once said that they could close the stock market for five years and he wouldn't care.
That's because Buffett – like all great long-term investors – focuses on buying great businesses at great prices. They don't worry about moving averages or "support and resistance" levels. They don't focus on mindless CNBC chatter. They don't worry where the price of a potential investment was three, five, or 10 years ago. They focus on getting a great value for their investment dollar and then compounding their wealth safely for many years.
If you're struggling to make consistent returns in stocks, keep this Intel example in mind.
Ask yourself if you're obsessed with what "the market" is doing... or if you're genuinely looking to buy the world's greatest businesses when you can get them at bargain prices.
When you take care of the latter, the former doesn't matter.
Good investing,
Dan Ferris
Further Reading:
Last week, Dan shared "the surest strategy to making money in stocks over the long term." Following this simple lesson will put you ahead of 99% of your fellow investors. Read more here: The Simple Secret of Consistent Stock Market Profits.
"Beginners often jump in and out of stocks based on one or two days of price action," Dan writes. "They lose money. And they get frustrated. Don't be one of them." According to Dan, the key to becoming a successful investor is a simple change of mindset... Read more here: An Immense Investing Advantage Anyone Can Achieve.
Market NotesTHE RIGHT WAY TO VIEW GOLD'S BULL MARKET This week, gold plunged 8% in just three days... and closed at its lowest level since July.
This ugly price action has many folks up in arms. Latecomers have lost big. Anti-gold advisors and bloggers have gleefully declared the bull market over. It's during times like this that we urge people to take a deep breath, remember why gold has climbed for 10 straight years, and look at the "long view."
Regular DailyWealth readers know the two major reasons gold is rising. One, Western governments in the U.S. and Europe have taken on debts and obligations that cannot possibly be paid with sound honest, money. They will be paid with devalued, debased paper money. Gold and silver, being "real money," rise as a result. And two, the relatively poor countries of Asia are growing richer. They have a centuries-old cultural affinity for gold and silver. And they are buying IN SIZE.
As for the "long view," you can find it in today's chart. It shows gold's price action over the past 10 years. Note that gold has had a heck of a run. And since no bull market heads higher without plenty of "shakeouts" on the way up, it's only reasonable to see declines like we've seen this month. Taking this "long view," we see that gold could fall all the way down to $1,300 per ounce and remain in the cozy confines of its bull trend.
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