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How to Start Beating the Market

By Bill Spetrino   |   Friday, 06 Jul 2012 07:05 AM

I have been a professional investor for the last 19 years.

I have made countless capital-allocation decisions, and probably 95 percent or more of them have been profitable.

I read hundreds of articles each week about finance and have done so for the past 17+ years.

I’m a fairly sophisticated investor, and half the stuff I read either confuses or amuses me.

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

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, you would have nearly $630 million compared to the $110 million in a stock market index fund.

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

• a slightly higher 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.

Investing is 50% art (instinct) and 50% science (numbers).

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

Many preach a great track record, so how do you know if they are worthwhile?

My newsletter, The Dividend Machine, was No. 1 in performance of 19.7 percent, which was top-rated in the LO risk category by Hulbert Financial Digest, a Dow Jones-owned company,

All proven newsletters are ranked there.

Or try one simple question for your adviser: How much dividend income does your portfolio yield you annually, and can you live on it?

If the adviser can’t or won’t answer that question, or you don't like the question, move on until someone answers it to your satisfaction

Please email us at dividendfeedback@newsmax.com with your comments.

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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2012-05-06
 

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