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If You're Worried About Gov't Debt, Taxes, or Interest Rates, Read ThisBy
Wednesday, October 30, 2013
I've found the perfect formula to avoid losing money in the stock market...
Some of history's greatest investors follow this formula. I'm talking about folks like Warren Buffett, who is the world's greatest investor. He has grown the value of his holding company, Berkshire Hathaway, an average of 19.7% a year for more than 47 years.
Mutual-fund guru Peter Lynch also takes advantage of this formula. He managed the Fidelity Magellan Fund from 1977 to 1990, which grew to $14 billion... He earned average 29% annual returns.
But you don't need to manage billions of dollars for this formula to work for you. You can put it to work right now. TODAY...
Here's the formula...
Go ahead and read about all the "macro" stuff – the economy, the Federal Reserve, government policy, tax law, and interest rates. Form your own opinions and ideas. Even debate your views with friends and family.
Then – and this is the most important part – forget all about your macro views when you find a great business trading at a bargain price.
Buffett and his business partner Charlie Munger claim to have never discussed the economy once in nearly 50 years together. They just buy bargains.
Peter Lynch says if he spends 13 minutes a year thinking about economics, he has wasted 10 minutes.
Most investors do exactly the opposite. They read all about the president... GDP growth... and government debt... and they get scared out of buying great businesses at bargain prices.
It's bad for them, but it's good for us. Right now, it's giving us a buying opportunity in one of my favorite World Dominating Dividend Growers (WDDGs).
Remember, these are the world's strongest, safest companies. These companies dominate their industries. They have the best brand names, the biggest competitive advantages, the biggest profit margins, and they pay the safest dividends.
In other words, these stocks are different from typical stocks. They are different from "the market." WDDGs are vastly better.
But recently, macro fears about the government shutdown and the debt ceiling caused stock prices to fall. That briefly pushed several WDDGs into buying range...
Take Sysco (SYY), for example... Sysco is the World Dominator of the North American food-service-distribution industry. As a wholesaler, it sells more than 400,000 different items – including fresh produce, dairy, canned goods... paper, kitchen utensils, and other equipment – to restaurants, hospitals, hotels, schools, and colleges throughout the U.S. and Canada.
Sysco's long-term dividend-growth record puts it in elite company. There aren't many dividend-growth stocks like this in the world...
Sysco has paid a dividend every year since it went public in 1970. And it has raised its dividend a total of 42 times... every year for the last 35 years. The dividend has tripled over the last 10 years, resulting in an average 10-year growth rate of just under 12% per year...
At just under $34 per share, it trades at about 19 times free cash flow and yields a fat 3.4%. Like all my WDDGs, Sysco is the best business in its industry. It continues to gush free cash flow, pay higher dividends each year, and buy back shares. And it maintains great balance sheets, consistent profit margins, and high returns on equity.
Now that the headlines aren't screaming about government shutdowns and debt ceilings, I don't expect it to stay cheap for long.
But even if bearish headlines return and prices fall... remember this formula...
You can still read about the president, GDP growth, and government debt. But don't let those "macro" issues cloud your judgment when it comes to buying great businesses trading at bargain prices.
Good investing,
Dan Ferris
Further Reading:
Dan says high-quality businesses all share one particular trait... And it's the most important "clue" that you've found a great investment. Learn what it is right here: If You Only Look at One Number Before Buying a Stock, Look at This.
Dan recently addressed investors' biggest objections to buying WDDGs. Find out what they are right here. If this doesn't finally convince you to buy great businesses, nothing will...
Market NotesAN IMPORTANT SECTOR IS HITTING NEW HIGHS In yesterday's Market Notes, we cited strength in credit-card giant American Express as a reason to say things "can't be all that bad" for the global economy. Shipping stocks lead us to the same conclusion...
As we've described several times this year, shipping stocks rise and fall with the health of the global economy. An easy way to monitor the global shipping business is with the Guggenheim Shipping Fund (SEA). This fund's constituents haul oil, coal, grain, natural gas, and manufactured goods across the world's oceans. Danish shipping giant Maersk is the world's largest container-ship operator... And it's the fund's largest holding at about 20%.
Over the past few years, the industry has struggled with an oversupply of ships and a sluggish global economy... And shipping stocks got crushed. In 2011, SEA shares dropped 48%.
But as you can see from the chart below, SEA has rebounded. Shares are up more than 50% off their November 2011 lows. And in the past week, shares hit a new multiyear high. This shipping-stock uptrend is one more reason to say the global economy "can't be all that bad."
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