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The Ultimate Stock Strategy for Today's MarketBy
Wednesday, March 30, 2011
In yesterday's essay, Steve showed how important it is to focus on dividends when looking to invest in different countries.
The study, which spanned 111 years, proved once again that to get rich in stocks over the long term, you must focus on cash dividends. It's even more "back up" for the dividend idea I showed you last month.
Remember, we're in a "sideways" market. Stocks have gone sideways since early 2000. They've fallen sharply twice (2000-2002 and 2007-2009) and rallied twice (2002-2007 and 2009-2010). The antidote to this sort of market is buying the world's best companies that pay out ever-increasing streams of income in the form of cash dividends.
You see, two things happen in a sideways market...
First, the stock market essentially goes nowhere for years. But it doesn't feel that way while you're in the middle of it... In a sideways market, stock prices ratchet up and down, making new highs and new lows within a few years of each other. So it always feels like stocks are going somewhere. But in the end, you haven't gone much of anywhere at all.
Second, from the beginning of the sideways market to the end, stock market valuations trend gradually downward. Past sideways markets have always started with stocks over 20 times earnings and haven't ended until stocks bottomed out below 10 times earnings. We have no reason to expect the current sideways market will be any different.
The S&P 500 traded in excess of 40 times earnings at the peak in 2000. It bottomed at 13.3 times earnings in March 2009 and trades around 14 times earnings today. Overall, stocks have gone nowhere for 10 years. But valuations have declined.
This is why earning substantial cash dividends is so important to investors right now...
Cash flow rules in a sideways market – cash flow paid to investors via regular dividends. If a stock doesn't pay you dividends, it's more likely the share price will go nowhere over the next several years than at any other time in history.
Since you can't depend on the market pushing stock prices higher... you can't depend on the economy pushing earnings higher... more than ever before, you need to focus on cheap, World Dominating Dividend Growers.
Over the past few years, we've introduced many of these wealth compounders in DailyWealth... like dividend machine Altria, relentless dividend grower Procter & Gamble, and Microsoft, one of the safest stocks in the world today.
Buying these elite dividend machines at the right price should be the primary goal of stock investors. It's what investors must live and breathe more than any other priority until the sideways market is over, many years in the future.
Good investing,
Dan
Further Reading:
Steve just wrote up a study that once again proved what Dan's talking about here: the incredible long-term returns possible from dividend investments. Over time, $100 can turn into over $1 million, with a super-simple yield-based strategy. Learn how it works here.
"No one has the option of stock prices that always go up. That doesn't exist," Dan Ferris writes. "But everyone has the option of dividends that always go up." Learn more about the power of dividends here: How to Earn Predictable Returns That Go Up Every Year.
Market NotesIT'S A BULL MARKET: WE TAKE THE "LONG VIEW" ON CRUDE OIL Once a month or so, we run a 10-year chart of gold and remind folks to "take the long view" on the metal... and ignore hotshots on CNBC, who analyze every tiny $25 move in the gold price. Instead, sit back, trust the Currency Trade of the Millennium to do its work, and enjoy the world's biggest uptrend.
Today, we present another "long view": the huge uptrend in crude oil. But a warning: It's not quite the same story as gold.
You see, when you take the "long view" of crude oil, you'll note how the period of late-2007 through late-2008 was marked by an insane, speculative rise from $80 per barrel to $140... which was followed by a plunge down to $35 per barrel during the great asset crash.
But when you "slice out" this anomalous action, you end up with a big, long-term trend of "higher highs and higher lows." You end up with a clear uptrend. It's a trend fueled by the stupendous consumption potential from China and India ("Chindia")... and the fact that "there are no easy barrels left." Trade accordingly!
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