I have been a professional investor for the last 17 years.
I have made countless capital-allocation decisions and probably 90 percent or more of them have been profitable.
I read hundreds of articles each week about finance.
I’m a fairly sophisticated investor and half the stuff I read either confuses or amuses me.
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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.
An investors’ return would be maximized if they could have the discipline and wait for the proper entry point on the stock based on his 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?
If they can’t or won’t answer that question, move on until someone answers it to your satisfaction
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About the Author: Bill Spetrino
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