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Your Broker's Worst Trick – Revealed

By Dan Ferris, editor, The 12% Letter
Saturday, September 17, 2011

Since the beginning of May, the stock market is down 12%.
In other words, for every $10,000 you had "in the market" back in May, you now have $8,800.
But while most investors have seen their portfolios shrink, subscribers who have followed my unique stock system have actually made money.
My subscribers – and (hopefully) regular DailyWealth readers – have loaded their stock portfolios with the world's safest, most profitable stocks. They've loaded their portfolios with World Dominating Dividend Growers... and companies that "sell the basics."
If you haven't taken my advice to get off the stock market roller coaster... and into these safe investments, it's not too late. Today's chart might convince you...
Below is a chart that displays the performance of Abbott Labs (green line), Altria (red line), and Coca Cola (blue line) since mid-April. Each of these companies produces basic "recession proof" products like prescription drugs, cigarettes, and soda. Each of them pays out a relentlessly growing dividend.
These three stocks are either break even during this time... or have advanced a few percent. 
Now note the black line. This is the performance of the S&P 500 stock index. This index contains many of the biggest and best companies in the U.S. It even contains Abbott Labs, Altria, and Coke.
But it also contains lots of crappy businesses I'd never invest my hard-earned money in. For example, it holds many of the banks you hear about so much in the news – the ones that have billions of bad loans on their books.
The S&P 500 also contains an airline, steel companies, and homebuilders. These businesses are almost always deeply in debt and are prone to going bankrupt.
Worse, many of these companies don't pay a cent to their shareholders in dividends.
"Shareholders" in these companies are more like "bagholders." Wall Street banks see folks who own shares in these kinds of companies as an unsophisticated and constant source of fees.
When you "churn" your account – trading in and out of lousy stocks, chasing risky speculations, and falling for the next "good story" – you produce commissions for your broker. But when you own companies like Coca Cola and Altria, you simply sit back and cash dividend checks.
So considering that these world-champion, dividend-paying companies are available to investors, I can't understand why anyone would shortchange themselves by owning lots of volatile, deeply indebted, barely-profitable businesses. It's like choosing SPAM over filet mignon.
I don't know why anyone would listen to an advisor who tells them to own anything but the world's, best, safest, most profitable companies... companies with fat profit margins, high returns on equity, world-class brand names, enduring competitive advantages, and a history of treating shareholders well by paying out ever-increasing dividends.
If you're not interested in worrying about what "the market" is doing... if you're not interested in worrying about the latest crazy plan from Washington D.C... if, instead, you're simply interested in safely compounding your wealth... in short...
...then dominant dividend payers are the only stocks you should own.
Good investing,
Dan Ferris

Further Reading:

In the DailyWealth archives, you'll find plenty of Dan's research on World Dominating Dividend Growers, including cigarette giant Altria, consumer goods giant Procter & Gamble, and software giant Microsoft.
And our editor in chief Brian Hunt calls a "WDDG"-centered strategy the greatest stock market system ever discovered.

Market Notes


After suffering one of their worst summers ever, airline stocks could be at a tradable bottom. That's the idea behind our chart of the week.
Regular DailyWealth readers are familiar with our claim that knowing what NOT to invest in is just as important as knowing what TO invest in. Avoiding weak investment ideas (like solar stocks) is critical to following the golden rule of successful investing: "First of all, don't lose money."
One sector you can lump in the "weak investment idea" pile is airline stocks. Airlines sport razor-thin profit margins, they're subject to wild swings in fuel costs, and they require lots of capital expenditures to keep the businesses running. This makes them horrible long-term investments... But from a trading viewpoint, it's worth noting that airlines go through big "boom and bust" cycles. These cycles can be traded for big profits.
Airlines spent the summer in "big bust" mode. Folks have dumped these stocks because of recession fears. Many names here, like Southwest Airlines (LUV), lost 30%-40% of their value in two months. But note this week's chart of LUV. After suffering a huge crash, LUV has "dug in" at $8 per share. If the world simply doesn't end in the next six months, LUV and its peers could stage a big "bad to less bad" rally. But remember... when it comes to airlines, "rent, don't buy!"

Airline stocks could be near a tradable bottom

Stat of the week


Decline in shares of Switzerland's largest bank, UBS, over the past four months. Just recently, Switzerland was considered a banking safe haven. Now, not so much.

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