I had the occasion to teach a 3-hour adult continuing education course last night for a bunch of very fine folks. There were 10 present, and at least 3 were repeat attendees. I presented The 5 Principles of Successful Stock Market Investing.
I opened with a brief presentation of the book, The Single Best Investment by Lowell Miller. It’s free right here:
as an on-line PDF file. Either bookmark it as a favorite, or better… download right onto your own machine and own it! It’s only necessary to read the Introduction, and the first 4 chapters to really grasp the concept Miller espouses, of ‘Creating Wealth with Dividend Growth’.
I’ve somewhat improved upon his concept by insisting upon safe-dividend growth, that starts from a lower level, but most safely grows at a considerably higher rate of speed. This kind of safe-dividend growth investing involves the purchase of the very highest-quality companies.
We went right into The 5 Principles… those being 1. Always know what kind of a market we are in, so as to temper your expectations. There are Bull Markets, Bear Markets and the Transitioning Market. We looked at examples of each, and how that this present market may be transitioning from a Bull to a Bear as it did in ’01 and ’07, or, it may be just unsettled, and may yet resolve back to the upside as it did in late 2011. So, far it is truly unfolding most like it did in ’11. But the ‘jury is still out’.
Defining what market we’re in is determined by the price of the Standard & Poors 500 in relation to its own 50 and 200-day simple moving averages, and made mention of 2 free sites where these can be found.
The Second Principle is to Know What to Buy. Easily half the listed issues on the exchanges are speculations, and not investment grade. More than a quarter are of the smaller, aggressive growth variety. These speculative or aggressive growth issues may be okay to attempt to trade, but they are not for investment purposes. These make up 85% of the market. Another 4% are stodgy old behemoths not capable of growing any faster than the economy itself might be. It is that last sliver of some 11% of all listed issues, where the real quality, and reasonable and sustainable growth somewhere in the teens are to be found. I select from among those that are at least $5 billion in market cap, pay a dividend, and that dividend is in the top 10% for its dividend safety.
There are the companies that safely raise their dividend at a rate in keeping with their earnings growth, and give us the spectacular portfolio dividend income increases I have been detailing each month.
The Third Principle is to Know When to Buy. It is possible to time the market… at least to time when market risk is low, and to know when to be brave and step up to be a buyer. I call these ‘Low-Risk Market Entry Opportunities’. I was able mark 2 recently. Those being the Friday, the 21st and Monday the 24th of August, and the most recent being the end of September around the 28th and 29th. I was so pleased to learn that one of those present last night had been reading my blog, and took advantage the most recent opportunity to be a buyer. I’m all about helping others attain their income goal.
Fourth, is to Know When to Sell, and described how that back in May I let Grainger WorldWide go, symbol GWW, explaining how that it was no longer meeting my expectations. I got out at $248 a share, and now it is at $202. I didn’t know it would continue down. I just knew I didn’t want it anymore, and was still able to sell out with a profit, besides the income it had been paying me all the time that I owned it.
Fifth, is to Have a Goal. My wife and I have an income goal. It is to replace 100% of what we have coming in at this time. Between my Soc Sec and her state pension, there would be a considerable short-fall or gap. So, since we want income in retirement, we’re investing for income now, and measuring the progress of its growth. Since starting to invest in this fashion late May of 2011, for the past 4 and 1/2 years, we are already better than 1/4 of the way to our goal of filling that gap… and we are racing toward our overall goal, with an expectation that we can hit our target by the time my wife retires.
This blog is really all about recording our effort toward that goal, and to show others they can, and should, do the same.
For some free charts, you can go to investors.com, put your pointer over Research in the upper left area, and a drop-down menu will fall. Move your pointer over the menu and click on IBD Charts, and charting will come up with 50 and 200-day simple moving averages already in place. To track the market, plug in the symbol SPY for the ETF that mimics the S&P Index, to see this potential transitioning market from a Bull to a Bear. Or, go to stockcharts.com, find and click on Free Charts in the upper left area, and under SharpCharts type in $spx for a chart of the actual index with simple 50 and 200-day moving averages. Free is good!
Open an account with eOption with a minimum of $500, and at just $3 a transaction, you’re going to keep your costs to an absolute minimum. And, if you ever want to… you can write me.
It’s 7:00 EST and the futures are trading up overseas, by 1 to 3 tenths of 1%. A rather modest amount, but they are pointing to a more likely positive opening at 9:30.
My thanks to all my readers and students… there were some 240 here yesterday. As one in class last night asked, ‘Do you just give all you know away?’ And, my answer is Yes, it is my privilege to share with all who want to learn that it is possible to become a very successful investor. There are 5 Principles of Successful Stock Market Investing. Apply all 5 and you really cannot fail!
Here’s to your investing success!
Harold F Crowell