Categories

Personal Finance Retirement Planning

Tools

  • Economy & Politics
  • Investing
  • Personal Finance
  • Related Posts


    It Is Time For Our Best Ideas For Our Health Care System
    Flood Of Students Demanding Loan Forgiveness Forces Administration Scramble
    MIA In The War On Cancer: Where Are The Low-Cost Treatments?
    New Heart Assist Pump Allows Minimally Invasive Approach
    New Drugs Offer Hope For Migraine Prevention
    Stop The Wheeze And Get Screened For Free
    Researchers Identify New Anti-Depressant Mechanisms, Therapeutic Approaches
    Mumps Vaccine Proven Ineffective
    Sleeping Away Infection: Penn Researchers Find Link Between Sleep And Immune Function In Fruitflies
    Narrowing Of Neck Artery Without Warning May Signal Memory And Thinking Decline
    Ginseng Can Treat And Prevent Influenza And RSV
    Safer Alternatives To Nonsteroidal Antinflamatory (NSAID) Pain Killers
    Cardiac Disease Linked To Depression
    HHS Set To Destroy Inexpensive Health Insurance Plans
    Mercedes, BMW Chase Ultra Rich Clients With New High End Cars


    The No. 1 Way To Manage Your Retirement Account

    Some people will tell you it’s great to buy stocks when the market makes a new high.

    Some people will tell you to be cautious when the market makes a new high.

    Some people will tell you it’s great to buy stocks when the market hits a new low.

    And some people will tell you not to bet against the trend.

    For people who trade the market, I’m sure some of these ideas are useful. But if you’re an investor looking to compound your wealth for years (like in your individual retirement account), there’s an unconventional, very profitable and worry-free approach to "the market" and its highs and lows.

    This approach means you can stop worrying about the market and start making money.

    You can use all sorts of indicators to try to forecast market movements. But in the end, no one actually knows where the market will go.

    If you’re looking to put serious money to work over the long term, you’re much better off trying to find cash-gushing businesses with big competitive advantages and rock-solid balance sheets, run by managements that know how to allocate capital effectively.

    If you can find one that consistently pays out a little in dividends and reinvests most of its cash flow at high rates of return for many years, you can build a fortune no matter what the market does.

    For at least 95 percent of the investors out there, this approach delivers much greater profits — and much less stress. And it works in any market.

    For example, in early 2009, I urged readers to buy shares of Intel (INTC.) At the time, I pointed out that Intel was the "World Dominator" of semiconductors. I pointed out how Intel consistently generated high returns on equity, consistently raised its dividend and sported an incredibly strong balance sheet.

    At the time, the market was in turbulence. Everything in America was up for sale at "panic liquidation" prices. Investors were scared. Most were bearish on stocks and expected shares to continue to decline. But what "the market" was doing wasn’t a concern. We were concerned about buying a great business for a good price. Valued as a World Dominator, at 25 to 30 times earnings, Intel was worth $23 to $28 per share in 2009. But when we bought, it was trading for less than $16 per share.

    We’re up 70 percent on the stock, and we are earning 5.9 percent in dividends on our original purchase price. We own one of the world’s best businesses, and we’ll probably never sell the stock.

    Now consider another recommendation, Johnson & Johnson.

    Johnson & Johnson (JNJ) is the World Dominator of consumer products, like toothpaste, headache pills, mouthwash and bandages. Like Intel, it consistently generates high returns on equity, consistently raises its dividends and sports an incredibly strong balance sheet.

    When we bought Johnson & Johnson, the broad market was near a yearly high and up 70 percent from its 2009 low. But I couldn’t have cared less about those numbers. I was just looking to buy a world-class business for a good price. At the time, we could buy Johnson & Johnson for less than 10 times free cash flow.

    We’re up 60 percent so far, and we are earning 4.3 percent in dividends on our original purchase price. We own one of the world’s best businesses, and we’ll probably never sell the stock.

    What we all want is an investment that increases in value every year, regardless of the stock market’s action. If you had that, you could invest money regularly, perhaps each month, confident the value of your investment would grow enough to outpace inflation and keep your money safe from loss.

    With that kind of confidence, a person with a regular income can sock away a little money every year, no matter what the economy or the market is doing.

    Fortunately, there’s a simple, easy-to-understand secret that unravels the mystery of investing and removes the headaches created by the market’s ups and downs. It comes down to buying great businesses for good prices.

    Once a long-term investor realizes how futile it is to try to predict the stock market’s direction and resolves to simply buy and hold great businesses for the long term, that investor takes a major step forward.

    Those businesses are called World Dominators in my book. They grow their value (and often their dividend payments) every year. And when you buy them at the right price, it doesn’t matter what the stock market does from month to month.

    It only matters that you hold the business and let it build wealth for you, worry-free.

    Good investing,

    — Dan Ferris

    This article originally appeared on Wednesday, July 24 at DailyWealth.com.

    Dan Ferris is the editor of The 12% Letter, an income-focused research advisory which looks for the market's best dividend-growth stocks. He is also the editor of Extreme Value, a monthly investment advisory which focuses on the safest stocks in the market: great businesses trading at steep discounts. As a result of his work in Extreme Value and The 12% Letter, Dan has been featured several times in Barron's, the Value Investing Letter, and numerous financial radio programs around the country.

    | All posts from Dan Ferris

    Discuss this Story:

    Comment Policy: We encourage open discussion. Comments including racist statements, profanity, name calling or spam will be removed at our discretion. We use filters for spam protection. If your comment does not appear it is likely because it violates the policy.

    Even After Doctors Are Sanctioned Or Arrested, Medicare Keeps Paying
    Charting Death (and Life) In America 
    Statins May Help With Dementia, Parkinson’s, Cancer, Stroke And More
    Finding Safe, Guaranteed Income
    What Companies Want From College Grads
    Online Scams Lure Shoppers With ‘Luxury’ Handbag Ripoffs
    What Pre-Retirees Should Be Asking About Taxes
    Can Limiting Divorce Make Marriage Stronger?
    You Probably Won’t Be Surprised At What Millennials Plan To Do With Their Tax Refunds
    Rising Food Prices Pinching Consumers
    Attention Retirees: You Can Still Have Fun. Here’s How
    U.S. Housing Starts Up But Miss Forecasts; Permits Fall
    A Coke Exec’s Lessons From An Unlikely Visitor
    Is Your Business Persona Working For You?
    Preventive Care Without Cost-Sharing
    Disability Benefits On A Fast Track
    7 Life Hacks For Retirement
    5 Retirement Busters And How To Manage Them
    Pay TV Subscriptions Expected To Rise Through 2019
    Getting A Big Tax Refund May Not Be A Good Thing
    This Is The Easiest Way To Pay Less In Taxes
    6 Money To-Dos You Can’t Afford To ‘Pass Over’
    The Most Dangerous Food
    Why Your Savings And Retirement Will Soon Be Gone
    Beyond Ratings: More Tools Coming To Pick Your Doctor
    Longer Nurse Tenure On Hospital Units Leads To Higher Quality Care
    Using Protection Trusts To Help Heirs
    ‘Body Hack’ App By Math Researchers Shortcuts Jet-Lag Recovery
    Getting To The Root Of Parkinson’s Disease
    Diet Soft Drinks May Increase Cardiovascular Risk
    Read more from Personal Finance...

    Liberty Investor Digest

    Get today's most important
    financial headlines all in
    one place by email!



    Sources


    close[X]

    Sign Up For Liberty Investor Digest™!

    Get Liberty Investor Digest FREE By Email!

    Input your name and email address in the fields below and get today's most important financial headlines sent straight to you inbox!

    Privacy PolicyYou can opt-out at any time. We protect your information like a mother hen. We will not sell or rent your email address to anyone for any reason.