Masters Series: Are You Obsessed with the Market? Or Do You Actually Want to Make Money?

Editor's note: In today's edition of the weekend Masters Series… Extreme Value editor Dan Ferris shares a critical secret that separates successful stock investors from the "amateurs."

Most individual investors spend their energy fretting over the market's every up and down… It's why most of them never make money in the market.

In the following piece – originally published in a December 2011 edition of our free e-letter DailyWealth – Dan explains what successful investors focus on instead. He shows how it protects them – and even allows them to profit – when the market-obsessed herd is selling…

Are You Obsessed with the Market? Or Do You Actually Want to Make Money?
By Dan Ferris, editor, Extreme Value

Amateur investors focus on "the market."

Wealthy, successful investors focus on "great businesses... bought at great prices."

If you held a gun to my head and asked me what sums up the difference between stock-market winners and stock-market losers, that's probably how I'd do it.

When great investors take care of the "great businesses at great prices" thing, they could care less about what "the market" does.

A short story about Intel can show you why...

In April 2009, at the bottom of the worst stock market collapse in generations, I told readers of my Extreme Value advisory to buy as much Intel stock as they could afford. Intel is one of my favorite "World Dominator" stocks. It's the largest semiconductor maker in the world... It literally dominates its industry.

Intel's size and scale has allowed it to sport consistently thick profit margins, low debt levels, and pay out an ever-growing stream of dividends. Intel has increased its dividend every year since 1993. It has also bought back huge amounts of its own stock, which makes each existing share more valuable.

Because everyone was terrified of stocks in early 2009, the stock was dirt-cheap... We recommended it at $15.27 per share. This was around 17 times earnings. Elite, "World Dominator" businesses are generally worth 25-30 times earnings. We got in line to receive Intel's $0.56-per-share annual dividend (a 3.7% yield at the time)... which, again, was growing.

As I write this in late 2011, Intel is now trading north of $23 per share. This has provided us with a 50% capital gain. And while that capital gain is excellent, I'm more impressed with the current yield on original purchase price that Intel is providing us.

Intel's annual dividend has grown to $0.84 per share... which is a yield on our original purchase price of 5.5%. This is an extraordinary yield on one of the world's safest, best businesses.

So tell me... if you were one of the forward-thinking investors that bought Intel in early 2009 and you're now receiving a 5.5% (and growing) dividend, do you really care if "the market" drops 10% in a month?

Do you care if a bunch of manic herd followers decide that Intel shares should trade for $21 instead of $26? Do you care if Wall Street's trading computers send Intel up or down 3% in 30 minutes?

Heck no.

If you focus on buying great businesses at great prices, you don't suffer the worry and stress most investors suffer each day. You sleep well at night knowing that Intel is one of the most dominant companies on the planet... a company that relentlessly raises its dividend. You don't care what the market thinks.

Warren Buffett, the greatest investor in the world, once said that they could close the stock market for five years and he wouldn't care.

That's because Buffett – like all great long-term investors – focuses on buying great businesses at great prices. They don't worry about moving averages or "support and resistance" levels. They don't focus on mindless CNBC chatter. They don't worry where the price of a potential investment was three, five, or 10 years ago. They focus on getting a great value for their investment dollar and then compounding their wealth safely for many years.

If you're struggling to make consistent returns in stocks, keep this Intel example in mind.

Ask yourself if you're obsessed with what "the market" is doing... or if you're genuinely looking to buy the world's greatest businesses when you can get them at bargain prices.

When you take care of the latter, the former doesn't matter.

Good investing,

Dan Ferris

Editor's note: Dan's single-minded focus on buying the world's highest-quality stocks when they're selling for dirt-cheap prices has made Extreme Value one of our industry's most-respected advisories.

Dan's portfolio is littered with big gains built on rock-solid, blue-chip stocks – including four "World Dominators" that have safely doubled subscribers' initial investments. To learn more about a subscription to Extreme Value, click here.