It’s the stuff of dreams. I like to call it “mailbox money”. It’s not for everybody and it’s not very exciting, but man, it works. In fact it works really, really well. Here’s one guy’s story that collects $450,000 from his “mailbox”.
Retired since 1975, Harry is an experienced investor who has been able to survive and thrive from his initial investment decisions. When I see him, we talk mainly about the stock market, and how to be successful in it. During my last chat with Harry, I asked him whether he has ever sold a stock. His answer surprised me. He said, “No.”
Think about that. Here is someone who invested roughly $700,000 in a basket of stocks, and has never sold a single company he bought in the last 40 years. That is not to say he has not bought anything since 1975. He does reinvest his dividends in new companies, and due to mergers and acquisitions, he will come into new cash that he can invest. He told me this, “I have over five million people working for me right now, and they pay me 9¢ each to work for me.” He told me he is paid $450,000 in dividends from his initial investments in 1975. This is a man who literally survives primarily on his dividend income.
After a pretty impressive Bull Market run of over 1400 days, the S&P 500 seems to be in a sideways pattern for the moment and it has a lot of investors nervous. The old adage of “what goes up, must come down” comes into play. Is the market regrouping or headed for a major correction? No one really knows and some people like Andy Crowder really don’t care. In his mind, it doesn’t matter if the Market moves up or down, he still makes money.
The S&P 500 has entered the third longest bull market in U.S. stock market history.
What is even more amazing is that during this bull market run the S&P has gone approximately 1,450 days without a 10% correction. The steady climb higher has no doubt made almost everyone exposed to equities a winner since 2009.
But the charge upward has slowed down dramatically over the past eight months. Since the beginning of November 2014, the S&P 500 has pushed higher roughly 5%, and most of those gains came in the last two months of 2014.
The market has remained relatively flat in 2015, vacillating between slightly positive and negative. There is no doubt that uncertainty has entered the market.
So, as an investor, are we supposed to sit on our laurels and allow Mr. Market to dictate our returns?
We all look like financial geniuses when the market is going higher. Investors take all the credit for their success when the market is soaring, but blame other factors, such as geopolitical concerns or central bankers, when investments sour. The talking heads make sure the culprits are front and center to make the blame game that much easier.
A recent article by Cullen Roche compares a leveraged stock portfolio to using steroids. Cullen goes on to explain that steroids can be a very useful and effective strategy for treating medical conditions to a certain extent as long as it isn’t abused. There are similarities with using leverage on your stock picks. See the original article below…
Barry Ritholtz has a new article on Bloomberg discussing San Diego County’s firing of a risk parity firm that used to manage part of its pension. Risk parity strategies often engage in using leverage. Cliff Asness, who runs AQR, a firm implementing risk parity approaches (among others), hated Barry’s piece and called it “facile” “innuendo”. He then referred to a piece explaining why he likes leverage in a portfolio at times. So, who’s right?
Leverage is a bit like steroids. Steroids are neither good nor bad. They tend to magnify the effect of something and that can be good or bad depending on how it’s used. If you use steroids in specific targeted ways they can be an effective medical treatment. Likewise, if you abuse them they can be a destructive and unnecessary supplement.¹ Leverage is essentially the same thing. It will magnify the effect of a portfolio’s outcomes. There are very reckless ways to do this and very safe ways to use leverage. But one thing is almost always undeniable – leverage will cost you. And that’s the kicker.
Finding stocks with a clear long term upward pattern is pretty exciting for most investors and Zacks shows three stocks that you can invest in right now. You can ride the on going momentum now and/or short the stocks at a later time. See the full article at Breakout Stocks