For Traders or Investors Alike: 3 Steps to Investment Success

The secret to stock market investing is that there is no secret. First, you need to find stocks that represent quality companies. Quality companies are those that can compensate you for the period between the time that you buy and the time that you sell. While there are many companies that pay a dividend there are only a few that have been able to increase their dividend through good times and bad. Our focus on Dividend Achievers allows us to concentrate on quality regardless of stock market gyrations.
In our focus on dividends, we have found that the use of company numbers can be manipulated while the dividend payment is either paid or not paid. Of all the financial fraud that has ever existed in the corporate world, I have never known of a revision or recall of dividend payments. The dividend history is the only measure that doesn't lie.
Second, in order to buy low and sell high, an investor needs to focus only on those quality companies that have reached a new one year low in their price. This does not mean that the stock should be bought at the new low. Instead, the investor should determine the viability of the organization as a going concern. Fundamental analysis is one approach that can be used to determine if other investors will realize that the company of interest is undervalued or underpriced. However, fundamental analysis alone should not be the measure to justify our purchase of any stock.
Third, the measure that should be used to determine if a stock should be bought is the amount that the investor is willing to lose given the worst case scenario. We always assume that We’re going to lose at least half of whatever we've invested. This way, we’re mentally prepared for the unexpected. In the best case scenario the stock goes nowhere, in which case we’re very satisfied collecting the dividend. If the stock goes up then we’re pleasantly surprised. If the stock goes down then we’re ready to do one of two things, sell or make the purchase of the second half of our investment cash. We usually hold no more than 5 stocks at a time and try to be 100% invested at all times. Also, we attempt to exceed a return greater than what could be obtained with "guaranteed" returns like treasuries, CDs and money market accounts.
The concepts that we have just outlined are backstop measures. This means that we have given ourselves a wide margin for error before we have committed the full amount of investable funds. This wide margin of error has turned out to be a considerable margin of safety at the same time based on my personal experiences of healthy gains during 2008. This method of investing has kept our money growing during periods that we didn't expect it to. Our success with this approach has been very much to our satisfaction.
I hope you are able to examine the premise of the over-simplified breakdown of our Dividend Achievers investment strategy. Hopefully you can benefit from some, if not all, of what we have learned. -Touc
  • Quality can be found in dividends, a history of increased dividends don't lie
  • Fundamental analysis is used to anticipate other investors reaction, not for the purpose of determining when to buy a stock
  • Since we're no Warren Buffett, we seek a wide margin for error not a wide margin of safety
  • More background on our investment strategy can be found at "About This Site."

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