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An Immense Investing Advantage Anyone Can AchieveBy
Wednesday, October 12, 2011
When the market indexes rise and fall 1%... 2%... even 5% in a single day, day after day, you need to remember that it means nothing.
These moves are random, meaningless events, no matter what the empty talking heads on CNBC tell you.
But how you react to those random events means a great deal.
Beginners often jump in and out of stocks based on one or two days of price action. They lose money. And they get frustrated. Don't be one of them...
The best way not to be a frustrated beginner is to learn to hold stocks long enough to make some money.
This is an easy advantage to gain, since nobody has it... According to the New York Stock Exchange Factbook, the annualized NYSE turnover for the month of August was 122%.
That means all the outstanding shares listed on the NYSE will change hands 1.22 times every 12 months at August's frenzied pace. This high rate of turnover implies an average holding period of less than 10 months for NYSE-traded stocks.
If you can't hold on to a stock for more than 10 months, you're never going to make any money. It takes a few years for most good ideas to work out. Some stocks, bought at the right price, should be held for decades.
Take the World Dominating Dividend Growers I've been telling you about. These businesses dominate their markets, generate huge cash flows, and pay out regular, growing dividends. They're often overlooked because the current dividends they pay are on the small side – say, 3%. But these companies are such powerhouses, they can raise those dividends year after year.
When my readers bought Intel back in 2009, they were earning a 3.6% yield on their shares. Now, about three years later, they're collecting more than 5.5% – an incredible payout from a dominant company. If Intel's dividend keeps growing at this pace (16% a year), investors who bought in 2009 will see a 10% yield over original cost in about four more years.
Understanding the benefits of holding on to safe stocks will give you a major advantage over other investors. And it's ripe for the picking. Simply hold stocks longer than 10 months and you're way ahead of most investors.
Remember what famed investor Peter Lynch says: "The key to getting rich in stocks is not getting scared out of them." Refrain from getting scared out of stocks long enough, and your odds of making money go way up.
Of course, the whole notion of not getting scared out of stocks depends on buying stocks that are inherently not scary. If you own an overpriced and vulnerable company – like Netflix was earlier this year – getting scared out of it is the right thing to do. If you own a World Dominating Dividend Grower like Wal-Mart, it's silly to get scared out of it just because the price falls a bit.
And it's easy to see why you shouldn't get scared out of World Dominating Dividend Growers. Take Microsoft (NASDAQ: MSFT), for example. It has a 90% share of the global software market. And it has proven frustratingly difficult to compete with. There's no reason to expect that to change any time soon.
It's grown around 10% per year for the last 10 years or so. It generates more cash than any business I know – nearly $25 billion a year (and growing!). The profit margins are consistently thick, year after year, like clockwork. It's got the safest balance sheet in the world, with more than $50 billion in cash and less than $12 billion in debt.
Microsoft deserves the triple-A rating that Moody's recently stripped from the U.S. government. It increased its dividend by 25% this year. And it's incredibly cheap. The most useful way to look at it is enterprise value to free cash flow (EV/FCF). That's how a business owner would judge the price. And at 7.6 times EV/FCF, it's dirt-cheap.
It shouldn't be hard to buy more or simply hold on to a stock like this even when the market is whipping around and churning up fear.
A lot less can go wrong with World Dominating Dividend Growers than with other stocks. You can depend on these stocks more than any others in the market. So if you're looking for an advantage over other investors, buy these stocks... and hang on.
Good investing,
Dan Ferris
Further Reading:
"If you share my belief that the world is going to go through some tough, volatile times in the coming years," Dan says, "I encourage you to become familiar with these World Dominating stocks. They are the ultimate income investment for the rough years ahead."
You can catch up on the basics of Dan's most controversial income investment idea here...
Market NotesA HUGE MOVE IN THE SOLAR ENERGY "BUSINESS" While all is well with "basics" leaders like Philip Morris International, it's a different story for solar energy stocks... a group we've heaped abuse on many times.
To recap, many novice investors are enamored with the idea of investing in "clean energy" companies... most of which sport such terrible business models that we like to call them "perfectly hedged." They lose money in good economic times and bad economic times. Their share prices are able to sink in both bull and bear markets.
We typically point to the constantly terrible performance of the big clean energy fund (PBW) to illustrate our point. But today, we look at the market action of First Solar, one of the leading solar-panel producers. It's a stock our colleague Porter Stansberry has long labeled a "disaster in waiting."
Early this year, First Solar shares traded for $160. But Chinese competition and the industry's terrible profit margins have helped knock a digit off that price. Shares have plummeted to less than $60. Green energy? No thanks... just give us the basics.
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