I (Dan Ferris) got back from Sea Island, Georgia last night, where I attended S&A's annual Spring Editors Conference. (Sean Goldsmith is on his way back to his new home in The Big Apple as I write this.)
Mark Ford, editor of the Palm Beach Letter (a sister publication in which S&A has a stake), offered an idea that stuck with me... He said it's not whether an idea is good that makes it successful… It's how well you articulate it to those who need to hear it.
I suppose time will tell how successful I am at articulating my ideas... But there's no doubt I'm persistent. I've been proclaiming the virtues of buying high-quality businesses that pay ever-growing dividends for years...
I truly believe that if you have money in the stock market and you're not building your portfolio around World Dominating Dividend Grower (WDDG) stocks... you're making a mistake. I think this is true whether you're an individual investor who has decided to manage his own money... or if you're a professional hedge-fund manager with 10 years of experience.
WDDGs are the No. 1 companies in their industry. They maintain consistently thick profit margins, huge advantages over their competition, generous free cash flows, great balance sheets... and they've paid higher dividends every single year for decades at a time. The list of companies that fit that profile is short and includes well-known blue-chip companies like Wal-Mart, ExxonMobil, Microsoft, Procter & Gamble, Coca-Cola, and Johnson & Johnson.
I believe you'll lose money in stocks if you don't buy WDDGs... You see, you have three ways to make money in stocks: (1) A company's earnings can rise and the valuation stays the same, (2) its valuation can go up, and/or (3) it can pay a dividend.
I predict stock prices will trade sideways for the next several years, as they've done since the great tech bubble peaked in 2000. That means with valuations going down and stock prices going sideways... pretty much all you've got left is dividends. Five years from now, everyone who looks really smart will have bought the best dividend-paying stocks available today and reinvested the growing stream of cash they pay. The sideways market will humble many people... But it'll make those who buy World Dominating Dividend Growers look like geniuses.
Longtime S&A Digest readers have heard me write about this before, but please keep reading what I have to say... Believe me, I know how much time I spend on this topic, but the e-mails I receive tell me I'm doing our subscribers an invaluable service...
I just added a brand-new WDDG to The 12% Letter portfolio. It's the No. 1 company in its industry – an industry that human beings literally cannot live without. It wrests more and more market share from its competitors every year. Its market share grew one-half a percentage point last year. I expect it to increase at least that much again this year.
This company has raised its dividend every year for 35 years in a row, at a rate of about 14% a year over the last 10 years. Dividend growth has slowed more recently, but I expect it'll return to double-digit rates as the company's market share gives it more pricing power over competitors in the next few years. It's yielding about 3.7% these days.
Wouldn't it be great to wake up one day in the next five to 10 years to find yourself earning 10% or more over your original purchase price? That can happen with this stock. And this is much, much safer than buying stocks with high current yields. Those companies almost always depend on low interest rates, so they can use plenty of leverage. That makes them essentially financial speculations on interest rates.
But not my latest WDDG. This is simply a fantastic business. You can't beat fantastic businesses for long-term investing. They just keep making money and growing their dividends.
Maybe I'm getting old (I'm 50 now), and the only thing I can get passionate about is a conservative idea. But I want to be the guy you can depend on to keep your money safe and still generate inflation-beating returns. That's why I just cannot shut up about WDDGs.
If you want to keep your money safe at the same time it grows at inflation-beating rates, I urge you to check out The 12% Letter. It's one of our most inexpensive services... And since we offer a refund on your subscription, there's not much risk. (Just like the stocks we recommend in it!) If you want to discover the world of WDDGs... click here.
I really enjoyed reading a Financial Times editorial today by Congressman Ron Paul. I'm sympathetic to his libertarian viewpoint... But let's leave politics for another day... In today's editorial, Paul wrote, "Central bankers neglect the fact that interest rates are prices. Manipulating those prices through credit expansion or contraction has real and deleterious effects on the economy."
Paul goes on to point out that some alleged free market economists abhor price controls... but wholeheartedly endorse central bankers' control over interest rates. That's really important to remember.
It reminds me of a story I read in author Jack Schawager's book Market Wizards. Schwager's collection of interviews with top traders is a must-read. In one story, a trader named Michael Marcus described a time in the 1970s with the price of plywood was legally capped at $110 per 1,000 square feet. One day, Marcus looked at price quotes and saw plywood futures fluctuating between $110.10-$110.20. He was flabbergasted. Those trades were about $0.20 above the legal limit. Yet there they were... The market was doing what it needed to do. It was raising the price of plywood.
I think the market will do that to interest rates eventually. Then, all those who thought lots of cheap, short-term loans would be a good way to take on leverage will regret their decision and blow out their positions... Interest rates are prices, and market forces always win in the end. Higher rates might not be imminent, but they are inevitable. Something to keep in mind.
I got an interesting e-mail this morning from our friends at money management firm T2 Partners. Managing partner Whitney Tilson says his firm took a 2% equity and 2% option position in Barnes & Noble, the embattled bricks-and-mortar bookseller. This came as a bit of a surprise to me because until recently, T2 had been short Barnes & Noble. T2 covered its short one morning last week... and before the day was over, it went long.
The stock closed around $13.68 on Friday (its highest price of the week)... And today, it's trading around $17.77. So T2 is likely up more than 30%.
Barnes & Noble soared Monday on the news that Microsoft planned to invest $605 million to acquire a 17.6% stake in Barnes & Noble's Nook e-reader and college bookstore businesses.
I share this with you because I believe it demonstrates an action and a way of thinking that are rare. Most people fall in love with their stocks. The thought of reversing a short (or long) bet and taking the opposite position never occurs to them. If the stock falls apart, they usually spend their time justifying the mistake and deciding it'll just take longer to be proved right. Remember… investors tend to be their own biggest obstacle toward making money in stocks.
Tilson said this is only the fifth time in his firm's 13-year history that it has gone long a previous short. It's done well the other four times, reversing short bets on Fairfax Financial, Wells Fargo, General Growth Properties, and Netflix.
Take a lesson from them and stay on top of your portfolio. Make sure you always know why you're still long or short and be prepared to change your mind when the facts change.
I (Sean Goldsmith) sat next to Jeff Clark at dinner last night at the Editors Conference... And I asked him where he's looking for trading opportunities today. Jeff said he's been going long the gold market...
Admittedly, Jeff has been on a cold streak lately. Gold stocks keep going down (despite the physical metal holding steady). But Jeff has conviction... He says this is one of the best trading opportunities he's seen in years. "Five to six months from now," Jeff said, "people will kick themselves for not buying gold stocks... They're too cheap."
And while gold stocks have moved against him recently... his gold trading typically produces stellar returns. Take a look at some of his winning gold trades from last year alone...
- 142% in seven days on SPDR Gold Shares
- 103% in 22 days on Gold Fields
- 100% in 22 days on Seabridge Gold
- 91% in 27 days on Kinross Gold
- 83% in seven days on Exeter Resources
- 82% in 14 days on GDX
- 76% in 12 days on Hecla Mining
- 62% in 13 days on Kinross Gold
- 47% in 30 days on New Gold
These types of returns are why Porter gave Jeff an "A+" in our most recent annual Report Card. In the 22 months from March 2010 through the end of 2011, Jeff produced an average return of 13.1% for his S&A Short Report readers (with very short holding periods). And 56% of his trades were winners.
To learn about Jeff's S&A Short Report and his trading strategies... click here. Right now, we're offering S&A Short Report at a generous discount. But to take advantage, you must sign up by midnight tonight.
New 52-week highs (as of 5/2/12): Intel (INTC).
In today's mailbag... one subscriber writes about his WDDGs and another offers a firsthand experience with the glut of domestic natural gas supplies. Send your messages to feedback@stansberryresearch.com.
"I'm just starting out and want to start buying 'World Dominating Dividend Growers' as recommended by Doc in Retirement Millionaire. However, it seems that all are priced around their 52-week highs. Do you suggest I buy now or wait for a pull back? Can you suggest a priority order for which WDDG to buy based on the current market??" – Paid-up subscriber Phil
Goldsmith comment: First, the WDDGs are actually in Dan Ferris' 12% Letter portfolio. (Though Doc also recommends lots of high-quality stocks that pay a growing dividend stream...)
To your question... as you know... we can't offer individual advice. As a general rule, subscribers should follow the recommendations offered by the editors in their letters... most of which include "buy up to" price limits. Paying too much for a stock reduces your potential gains... and increases your risk of losing money.
"Along with making nice profits with many of the natural gas positions from the various Alliance newsletters, here in northern UT we are getting a break in form of a rebate from our natural gas supplier Questar. Here is part of their press release...
|
SALT LAKE CITY — Questar Gas today asked the Utah Public Service Commission (PSC) to approve an immediate $42 million one-time refund to its customers. If approved, the refund will amount to about $34.50 – an annual decrease of about five percent – for the typical customer, and it will show up as a credit on current customers' May natural gas bill. "The purchase price of natural gas we buy for our customers has fallen and is expected to remain stable in the near term," said Craig Wagstaff, senior vice president of Questar Gas. "Typically, customers would see these lower prices reflected over time as rates are adjusted. With this proposal, customers will see a more immediate reduction." |
"For my household the rebate is nicer than a price decrease as our consumption during the summer is nil due to solar panels for domestic hot water." – Anonymous
Regards,
Dan Ferris and Sean Goldsmith
Medford, Oregon and Sea Island, Georgia
May 3, 2012
Back from Georgia... What to do in a sideways market... Ron Paul's economic insight... T2 goes long BKS... Sean and Jeff talk over dinner... Why Jeff Clark gets an A+ for trading...