Tags: predict | unknowable | dividend | income

Don’t Waste Time Trying to Predict the ‘Unknowable’

By    |   Friday, 30 Nov 2012 07:40 AM

I have been a professional investor for the last 19 years and have made countless capital-allocation decisions, probably 90 percent or more of which have been profitable.

I’m a fairly sophisticated investor and read hundreds of articles each week about finance. Half the stuff I read either confuses or amuses me.

Folks are asking me about how all this fiscal cliff talk, and almost certainly higher tax rates, will affect my investment decisions.

Editor's Note: Small-Town Ohio Accountant Uses Simple Forgotten Secret to Help Investors Pocket Millions

However, I do not spend time trying to predict the "unknowable," and I don't think you should either.

My style of investing is based on stock picking not market timing, and my guess is that a sudden, large market pullback would be profitable for me in the long term.

I think of the bargain prices I got in 2008 and 2009 and perhaps they will reappear in 2012 or 2013.

I have prepared my stock “shopping list" and the buy prices, which may or may not come my way.

Wharton professor Jeremy Siegel, who has done extensive research on investing, has argued that investors seeking exciting new technologies underperform boring, proven, dividend-paying companies.

Need proof? Siegel went back and looked at the top 50 companies in 1950. For a 50-year period, a $10,000 investment in each of the 50 top companies, with dividends reinvested, would have totaled nearly $630 million, compared with the $110 million in a stock market index fund.

Siegel says the three traits for the best performing stocks are:

• a slightly higher price-earnings (P/E) ratio than average (but none of the firms had an average P/E over 27 times earnings)

• an average, but steady, dividend

• much-higher-than-average long-term earnings growth

The problem is that while many experts forecast the third number — future earnings growth — it isn’t an exact science, and forecasting it separates the “number cruncher” from the real investor.

Editor's Note: Small-Town Ohio Accountant Uses Simple Forgotten Secret to Help Investors Pocket Millions

An investor’s return would be maximized if they could have the discipline and wait for the proper entry point on the stock based on his or her estimate of earnings.

All these pseudo experts talk about systems and formulas.

It’s all about one simple question: How much dividend income does your portfolio yield you annually?

About the Author: Bill Spetrino
Bill Spetrino is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the Dividend Machine. Discover more by Clicking Here Now.

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BillSpetrino
Folks are asking me about how all this fiscal cliff talk, and almost certainly higher tax rates, will affect my investment decisions. However, I do not spend time trying to predict the "unknowable," and I don't think you should either.
predict,unknowable,dividend,income
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2012-40-30
Friday, 30 Nov 2012 07:40 AM
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