Quit Trying to Time the Market

Friday, 20 May 2011 09:04 AM

By Bill Spetrino

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Many supposed experts and pundits are constantly telling you it’s either time to invest in the market or sell all your stocks and go to cash. One of my investment forum members told everyone she was going to cash and would re-eneter the market when the S&P went to 850. She claimed to be a retired trader from the Chicago Board of Trade and she dismissed me as reckless and arrogant.
 
Well, she was half right. I am very arrogant, but those who have the responsibility of managing money need to feel extremely confident, and often that’s mistaken for arrogance.
 
Do you want your surgeon or airplane pilot to tell you “maybe” you will safe? Of course not.
 
However, that poor woman who decided to “leave” my website should be ashamed that she misled others, right?
 
Wrong. Like most pundits, they keep offering up more and more short-term market predictions.
 
That is not my style.
 
In this supposed “lost decade,” when the Dow is about the same as it was 11 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, by 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, John Paulson, 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 annually 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 percent interest to buy a stock with a 7 percent dividend.

Many market gurus will try and predict what’s going to happen in 2011 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.

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