Any declines in stock prices, should only be observed in an effort to uncover attractive opportunities to buy at cheap values. In my case, it means running my screen against the list of dividend champions (a list of companies that have raised dividends for at least 25 years in a row) with the following criteria:
1) P/E ratio below 20
2) Dividend yield above 2%
3) Dividend payout ratio below 60%
The next step is evaluating each business one at a time, observing trends in earnings to determine whether future dividend growth is possible, and evaluating qualitative factors.
Until then, my strategy for long term wealth and income accumulation is as exciting as watching paint dry.
1) Earn Money
2) Save Money
3) Invest the savings regularly
4) Reinvest Dividends
5) Keep investment costs low
6) Keep activity low
7) Stick to the plan
Staying the course is the only logical way for a busy investor. It allows you to take full advantage of the power of compounding. Frequent trading is certain to increase the odds of making a monumental mistake, that will set me back years form achieving my goals and objectives. Therefore, I stay the course, and sleep well at night. Investors who try to time the market, usually end up paying a steep price for their impatience, and do not do well over time. There is always a reason not to be invested, and the doom and gloomers are always willing to capitalize on investor fears.
I simply believe that trying too hard to buy and sell stocks, to make forecasts about the future, is usually a very difficult game to be in. After all, no one can forecast the future well. The only defenses against our ignorance about the future includes diversification, staying the course, not abandoning our strategy at the first fear of trouble, keeping our activity and guessing to the minimum, and keeping investment taxes and commissions to the minimum.
My strategy is inspired by the success of the Corporate Leaders Trust, which was a mutual fund with a relatively static portfolio for 80+ years, that managed to produce outstanding long-term performance to its shareholders. My strategy is also inspired by the success of the static portfolio of the original 500 components of S&P 500 (3), which managed to do much better than the more actively managed S&P 500 over a period of half a century.
Lastly, my strategy is inspired by Warren Buffett.
In his 1996 letter to shareholders, Warren Buffett shared the following tidbit of wisdom:
“Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly profitable subsidiaries because a small move in the Federal Reserve’s discount rate was predicted or because some Wall Street pundit had reversed his views on the market.“
In his 1990 letter to shareholders, Warren Buffett shared this famous quote:
“Lethargy bordering on sloth remains the cornerstone of our investment style: This year we neither bought nor sold a share of five of our six major holdings.”
Follow Warren Buffett's Berkshire Hathaway
In conclusion, I believe that my patience, and my ability to hold to my stock investments for decades, are my only edge on Wall Street.
Thank you for reading!
Full Disclosure: Long ADP, CVS, MO
Additional Links:
(1) http://www.dividendgrowthinvestor.com/2016/01/the-benefits-of-automatic-investing.html
(2) http://www.dividendgrowthinvestor.com/2010/11/is-buy-and-hold-dividend-investing-dead.html
(3) http://www.dividendgrowthinvestor.com/2008/07/ultimate-passive-investment-strategy.html
