Sunday, November 4, 2007

I'm starting this blog to focus on very smart investing. In 1953, Louis Engel, a partner in Merrill Lynch, wrote a popular book, How to Buy Stocks. He said, “This book is based on a very simple premise: that the stock market is going up...Why? Because it always has.” The book talks about investing for the “long pull.” In the last 50 years values for long term investing have not changed. These principals are used by Warren Buffet and he has done quite well.

When investing for the long term, the best indication for the long term future is the record of the long term past and referred to as track record. Many companies have track records demonstrating excellent long term growth, some for over 100 years. The easiest measures to follow are sales, EPS and dividends. Now with internet resources available to all, it is easy to get this information.

One excellent guide which is not well known was recently put out by Standard & Poor's. They are probably best know for the S&P 500, an index most people follow which includes 500 of the biggest and best know corporations in the US. A couple of years ago, they came out with a subset which attracted my interest, S&P 500 Dividend Aristocrats. In this elite group are members of the S&P 500 with a track record of “25 consecutive years of increased cash payments based on ex-dividend dates from January1.” Membership is very limited, only 56 qualify (such companies as Exxon, Citgroup and IBM are not included)! Many have paid higher dividends for 30 – 40 or 50+ years, a solid record of long term growth. With these track records for dividends, there is strong indication their growth will continue. But companies are not all equal.

Included are some of the biggest banks, drugs, insurance companies, foods, beverages & retailers, all with different prospects and outlooks. But starting with this list, it should not be difficult to narrow it to a few in which an investor sees continuing high growth rates for the future. S&P 500 Dividend Aristocrats is the type of list I like for getting very smart investing ideas.

Today's Market

As you can tell,I am basically a fundamental person looking at long term trends and values. But I also follow technicals or charts. The Dow had a great run recently, but maxed out in July at 14K. Since then it's had a very bumpy ride with a substantial increase in volatility. The performance of high volatility can be expected to continue as banks are adversely affected by mortgage and bad loan problems, housing in the US market is in a major recession and oil approaches $100 a barrel with implications for higher inflation rates in the future. In addition overseas markets, especially the fast growing Asian ones, run the risk of being adversely affected by a slowdown in the US market. While this does not look like a good time for investing, it is the time to study beaten up industries and stocks to identify which ones will ride out the storm. Bargains are coming, this is the time to prepare for opportunities to buy for very smart investing.