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This 30-Second Quiz Will Drastically Improve Your Investment ResultsBy
Saturday, March 10, 2012
For more than a decade, I've used a simple quiz to guide my investments.
This quiz has helped my Retirement Trader readers close 61 consecutive trades with a profit. And it's allowed my Retirement Millionaire readers to safely make more than 20% per year in regular stocks.
This quiz takes less than 30 seconds to complete. And if you start using it, you could drastically improve your investing results.
All you have to do to take the quiz is ask, "Does the company I'm investing in enjoy tremendous customer loyalty?
If the answer is no, chances are good that you should pass on the stock.
But if the answer is yes, chances are good that you've found a safe, long-term stock investment... one you can hold for years and compound wealth at 10%-15% per year.
Take Coca-Cola (NYSE: KO) for example. Coke enjoys customer loyalty because its products taste good. They are consistent. They are everywhere. And for less than a dollar, a customer can enjoy a brief bit of pleasure. Since 1995, Coke's shareholders are up 250%, including dividends.
Other great consumer brands like Hershey (chocolate) and McDonald's (fast food) enjoy this loyalty as well.
These are familiar examples of "retail" loyalty. But there's another little-known type of loyalty... This form of loyalty comes down to "switching costs" for larger companies.
You see, when company is considering moving its business from one service provider to another, it must consider the costs.
Take Microsoft, for example. If your 500-employee office is used to using Windows and Office software, it's going to be difficult for your company to ever switch to a new software.
If your company is going to switch 401(k) providers or payroll managers, there's going to be a big cost. If it's going to switch the phone system it uses on thousands of phones, there's a big cost. A company might think another service provider would be better, but it won't ever switch from its current provider because the "switching costs" are too high.
This means constant sales and insulation from competition for Microsoft, communication equipment provider Cisco, and tech giant IBM. Since 1995, IBM investors have seen a total return of more than 1,100%.
No matter what form it comes in, loyalty ensures a constant and unrelenting demand for products... which keeps profit margins high and sales growth strong. It also helps insulate a company from competition... which is a crucial attribute for a long-term investment.
Remember... in the "survival of the fittest" world of capitalism, a business must get every possible bit of insulation from upstart competitors. Otherwise, it will eventually fail and leave its shareholders empty-handed.
By now, most DailyWealth readers know that owning great dividend-paying businesses is the key to long-term stock market success. These companies get you on the road to compounding.
These businesses are almost always identified by their extreme customer loyalty. And this loyalty ensures big profit margins, steady sales growth, and extreme resistance to competition. Plus, they allow you to sleep well at night. These are the sorts of companies I look for in my advisories.
And all it takes to recognize them is a 30-second quiz.
Here's to our health, wealth, and a great retirement,
Doc Eifrig
Further Reading:
Right now, there's an even better way to take advantage of these great dividend-paying companies. Doc calls it "one of the world's greatest investment income strategies"…
This little-used strategy allows you to increase the income you earn from the world's safest, best dividend-payers by 300% to 500%. "Most folks will refuse to consider this strategy," Doc says. "It involves a modest amount of extra work and study. Most would rather gamble, buy stocks randomly because they have good 'stories,' or just flat-out stick their heads in the sand. But don't shy away because it's different. This strategy is actually safer than just buying shares outright."
Get the details here: How to Triple the Income You Collect from Super-Safe Stocks.
Market NotesCHART OF THE WEEK: THE GREATEST ENERGY BARGAIN ON THE PLANET This week's chart is another reminder that U.S. natural gas is an amazing bargain.
Regular DailyWealth readers know how new drilling technology has allowed us to access huge new supplies of domestic natural gas. This supply surge has pushed gas to bargain-basement levels.
Like its energy cousin oil, natural gas has many uses. It's used as a building block to make chemicals, fertilizers, and plastics. It's also used to fire power plants and heat homes and factories. And it's becoming widely used as a motor fuel.
To show you how much of a bargain natural gas is right now, we consult the "oil-to-gas ratio." This ratio compares the cost of oil versus natural gas.
Years ago, this ratio drifted between six and 10. Sometimes, the ratio would even spike to 14, which indicated really cheap natural gas. In January, the ratio spiked to 35. But just this week, robust oil prices and plunging natural gas prices allowed the ratio surge to an all-time high of 46. Bottom line: Natural gas is an amazing bargain... which means we're going to be using a lot more of it in America.
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Stat of the week
42
The number of cents the U.S. government borrowed for every dollar it's spent so far in 2012, according to the Congressional Budget Office.
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