Masters Series: Why I'll Never Worry About What the Government's Going to Do Next

Why I'll Never Worry About What the Government Is Going to Do Next
By Dan Ferris, editor, Extreme Value

The key to investment success is not a technique or a strategy.

It's not position sizing, trailing stops, options, or having inside information. It's not even the ability to value a business (a skill without which you're virtually guaranteed to lose money in stocks).

The key is not "buy low, sell high," or "be greedy when others are fearful and fearful when others are greedy"... though both adages will certainly help.

The key to investment success is a simple, powerful truth...

It's the reason U.S. stocks appreciated 1.5 million percent during the 20th century.

It's the reason great investors are great... And it's the reason you can set yourself up for the biggest, safest gains the market has to offer.

You see, understanding this truth is what allows you to buy when stocks are down and everyone is scared... and sell when stocks are overvalued and everyone is complacent...

To succeed in the stock market, you must believe that shopping trumps politics...

That's the simplest (and maybe the crudest) way to say that what happens in the business world is more important to your daily life and the daily lives of everyone in America than what happens in the White House or the Capitol.

The amount of shopping for hamburgers at McDonald's is more important than the debt ceiling debate. The amount of shopping for beer at the local convenience store is more important than any contest for the Republican presidential nomination. And the number of shoppers occupying the aisles of Target and Wal-Mart is more important than the number of protestors occupying Wall Street.

Save your hate mail. I already know what you're thinking...

"Dan has lost his mind. Politics is everything to investors. America could be ruined with so-and-so in the White House... and with so-and-so running Congress."

In reply to this phony concern, I ask you to remember the 20th century... The panic of 1907, Prohibition, the income tax, the founding of the Federal Reserve, the Great Depression (in which half the country's banks failed), World Wars I and II, the outlawing of gold, the Korean and Vietnam Wars, the oil shocks, the end of gold-backed U.S. dollars, the great inflation of the 1970s, the market crash of 1987, the savings and loan debacle and recession of the early 1990s, and the Internet bubble and crash in 2000...

Some of those things scared the hell out of investors. But you'd have made a lot more money if you bet against them lasting forever and for the primacy of commerce.

Despite all the horrible things that happened in the 20th century – despite it being the deadliest century in history (in terms of lives lost) – U.S. stocks... as tracked by Dimson, Marsh, and Staunton in their excellent book, Triumph of the Optimists... appreciated about 1.5 million percent.

If you want an idea that'll help you cut through the noise and make great, winning bets when everybody else is throwing up, this is it.

Knowing that the Dow Jones Industrials' value was highly unlikely to be permanently impaired would have helped you scoop up high-quality World Dominating Dividend Grower stocks near the bottom in late 2008/early 2009. Many of those stocks rallied more than 100% in the next three years... and kept paying the world's safest dividends.

Opportunities to appreciate the importance of business over macroeconomic issues abound in the roller coaster that is the market. For example, take the European debt crisis of 2011... I can hardly think of a noisier event. People thought Europe would fall into a depression. It dominated the financial media for months.

Yet during that time, Warren Buffett was buying European stocks. That's right. The chairman and CEO of Berkshire Hathaway – and one of the richest men in the world – put more than $1 billion of Berkshire's money into eight European stocks.

During a special, three-hour TV appearance, CNBC's Becky Quick asked Buffett why he bought those eight stocks. His answer shows how the primacy and dynamism of business trumps the relatively static, less important business of government...

I just thought these eight companies were cheap. And they obviously were affected by the European crisis. And in the end, those eight companies I bought are going to be there five, 10, 20, 50 years from now.

And there may be something else that's bothering the world 10 years or 20 years from now. There's always going to be something that's bothering the world. These companies will do fine regardless of what happens in Europe, and there will probably be plenty that happens in Europe.

Notice the words, "... something else that's bothering the world."

That's the stuff that terrifies the herd out of being able to make money in stocks... and has made Buffett a huge fortune. Buffett effortlessly looked past the crisis in Europe and focused instead on the fact that those eight businesses were "terrific companies that were cheap."

He's telling us what's most important to us as investors... owning a terrific company that's cheap and will still exist five, 10, 20, even 50 years from now (like a World Dominating Dividend Grower) is far more important to you as an investor than the European crisis or any other government-created crisis, regulatory regime, or tax scheme.

People will continue to drink Coke, use computers, and buy necessary household goods at reasonable prices. Buffett knows this as well as anyone. That's why he likes to own big stakes in Coke, IBM, and Procter & Gamble, among others, in his holding company, Berkshire Hathaway.

I'm sure there are folks out there who are out of U.S. stocks permanently because they believe the U.S. is going straight to hell in a hand basket. It's not true.

Yes, we have problems, many caused by goofy politics... But they're no match for the vigor of the marketplace.

Shopping trumps politics. Business trumps politics. The best way to invest accordingly is to buy World Dominating Dividend Growers.

Good investing,

Dan Ferris