Tags: Always | Stock | Pickers | Market

It’s Always a Stock Picker’s Market

By Bill Spetrino   |   Tuesday, 22 Dec 2009 09:48 AM

In the past 12 months we have heard thousands of doomsayers who said the big banks were all insolvent, that the S&P would be near 500 in October, and one CNBC financial expert who after recommending mutual funds in October 2007 at Dow 13,000 was saying by March that at Dow 7,000 mutual funds were too risky and the future was uncertain.

This past weekend I was at a party when someone said, “Billy, it’s going to be a stock picker’s market in 2010.” Guess what? It’s always a stock picker’s market

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In this supposed “lost decade,” where the Dow is about the same as it was 10 years ago, my personal stock portfolio has compounded at almost 20 percent annually. How could that be when most stocks in that span are either lower or even?

Simple, I don’t own every stock. But combining the power of compound interest and reinvested dividends on quality companies at excellent entry points one gets a powerful dividend machine.

After studying Warren Buffett, Charlie Munger, Phil Fisher, and Ben Graham I decided on about a dozen filters and formulas which help me enter low-risk, high-reward common stocks near or around their 52 week lows. My selection process combines growth, safety, and income spiced with a slight dosage of leverage.

Don’t want to use any leverage? Your returns will still exceed double digits if you can get the proper entry points. What’s ironic is people think it’s totally normal to borrow money to buy a depreciating asset like a automobile but that it’s somehow risky to pay 4 interest to buy a stock with a 7 percent dividend.

Many market gurus will try and predict what’s going to happen in 2010 to the overall market. I do not know and neither to do they. What I do know is that many quality stocks will at some point reach the proper entry point.

In 2007, when the Dow hit its peak of 14,000, my large stock purchases in the last few months of that year were Johnson & Johnson, Anheuser-Busch, Burlington Northern, and Wal-Mart, despite the market being overvalued.

Now, despite the Dow being down more than 20 percent in that time span, an equal investment in each of those stocks while factoring in reinvested dividends would have yielded you a gain of 25 percent in about two years’ time.

If you can build a Dividend Machine whose annual dividends will more than pay all your living expenses before you retire, then you have reached financial independence. Stay focused and your dreams could come true. I know it’s possible because it happened to me.

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In the past 12 months we have heard thousands of doomsayers who said the big banks were all insolvent, that the S P would be near 500 in October, and one CNBC financial expert who after recommending mutual funds in October 2007 at Dow 13,000 was saying by March that at Dow...
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