My friend Pete threw up his hands in exasperation as Monday's selling intensified and groaned...
"...how do I find a stock I can hold forever?!"
Like millions of investors, Pete's fed up with financial markets he can't control, and he positively hates the pit in his stomach he gets wondering whether or not it's "here we go again" time.
"Buy and Hold" Is Dead... Do This Instead
You're not alone if you feel like Pete.
"Buy and hold" is dead, which is why Monday's dramatic sell-off was so scary for so many investors, including a good number of professionals.
Just ask anybody who watched the Global Financial Crisis turn their 401(k) into a 201(k) for the second time in under a decade. Waiting for a comeback simply isn't in the cards when self-preservation is a more pressing concern.
Wall Street wants you to believe that stuff like this is a flash in the pan and that "buy and hold" is the way to get around market skittishness. Then again, they want you to believe a lot of stuff, most of which is in their own self-interest.
Buy and hold is not an investment strategy but a marketing gimmick. And it's not a short-term problem fixer either, like most investors would like to think.
The problem is even worse over longer periods of time.
Investors waiting to break even following 1929's crash and burn had to sit on losing investments for 26 years, for example. Investors who endured the bull/bear cycle beginning in 1965 had to wait 17 years for the markets to tap new highs in 1982.
In other words, investors who were counting on the markets "coming back" spent 41 of 52 years between 1929 and 1982 waiting for them to do so.
Wall Street loves this because they can prey on your deepest, darkest fears to keep you buying and selling long after the markets have changed direction. Naturally, that means more of your money in their pockets, which is why they maintain the illusion of financial prosperity associated with "buy and hope"... err... hold.
Buy and manage is a much more profitable way to go for three reasons.
First, buy and manage frees you from the emotional turmoil that devastates most investors and causes them to make costly, irrecoverable errors when the markets get choppy.
Second, buy and manage puts you in charge so you are never at Wall Street's mercy. Big traders cannot fleece you if you don't give them the opportunity to do so in the first place.
And, third, buy and manage helps you rack up big profits and keep them.
Wall Street will never tell you this because it's one of their dirtiest little secrets, but "they" don't buy and hold with their money... why should you?!
I've spent a lifetime distilling buy and manage down to three deceptively simple steps that are at the core of everything we do at Total Wealth for one simple reason - they work.
1) Line Up with Unstoppable Trends
Most investors I speak with are great at finding trends, just not the right trends. They get hung up on the latest gee-whiz bang technology or gadget not realizing that it's a "nice to have" when "must-have" alternatives backed by trillions of dollars are the more profitable choice and the truly Unstoppable Trends.
Take GoPro Inc. (Nasdaq: GPRO), for example. Millions of investors couldn't wait to get their hands on "GoPro" stock when it debuted because it was going to revolutionize content delivery.
Riiiight...
The stock has fallen more than 90% from its post-IPO high because digital cameras are a dime a dozen. Even my 14-year-old son has put his aside.
Contrast that with Becton, Dickinson and Co. (NYSE: BDX), which makes billions of single-use syringes a year and other medical supplies that customers literally "must have" or they die.
Short-term market conditions have no bearing whatsoever on Becton Dickinson's profitability nor its business model because customers have to have what they make and governments around the world will spend trillions of dollars to make sure they get it.
Becton Dickinson has returned 166% and counting versus 78% from the S&P 500 over the same time frame since I recommended it in our paid sister service, The Money Map Report.
Plus, it pays a healthy 1.6% dividend - which is not only double that of its industry peers, but important for other reasons that will become self-evident in a second.
2) Bank the Income
Millions of investors make the mistake of looking for companies that are one-shot wonders, especially these days. Driven by media headlines and the promise of instant wealth, more often than not they wind up getting burned because they assume that some greater fool will come along and buy the stock they own from them at a later date and a higher price.
That's always baffled me because studies show that up to 90% of all total market returns come from dividends and reinvestment.
I don't know if this attitude is because of greed or selective memory. What I do know from having talked to tens of thousands of investors over the years, though, is that this is where the excuses usually start...
...I don't have the time to wait for the dividends to build.
...I'm too old for this to make a difference in my retirement.
...I don't have enough money.
I get it.
But ask yourself if you really want to go through today's complicated, turbulent markets giving other people the money that could have - no scratch that - should have been in your pockets?
According to the National Institute on Retirement Security, the average household has a mere $3,000 to $12,000 in savings. More terrifying, more than 38 million families have no savings whatsoever.
That's absolutely appalling considering that approximately 80% of all Americans between the ages of 30 and 54 believe they will not have enough money saved up for retirement when the right companies want to pay you for owning their shares.
Take one of my long-time favorites, for example.
If you had invested $10,000 in Altria Group Inc. (NYSE: MO) on Jan. 2, 1997, and not reinvested the dividends, your investment would have been worth $49,199.04 on Dec. 30, 2016, for a respectable return of 392.06% over 11 years, according to DividendChannel.com. However, you'd have $220,431.42 and a jaw-dropping return of 2,105% had you reinvested your dividends over the same time frame.
I don't know too many people who can afford to throw away $171,232.38, but that's what millions of investors are doing when they ignore income as part of the investment process.
And that brings me to the final step.
3) Love the "Free Trade"
Making money is not enough.
Really successful investors learn early on how to keep it.
That's why I encourage members of the Total Wealth Family to sell half their shares every time an investment returns at least 100%. It doesn't matter whether that's from appreciation or a combination of dividends and appreciation.
The principle is the same - selling half your position every time you achieve a double simultaneously captures profits and minimizes risk.
This is vitally important, especially in today's turbulent markets, because selling half puts you in a position of owning something for "free," which means you can view terrifying trading activity and big down days that scare the pants off most investors for what they are... a buying opportunity and a source of huge potential profits.
Here's an example that will help put this in context.
Imagine buying XYZ for $5 a share then having it go to $10.
If you're like most investors, you're going to get greedy at that point. You'll hang on with the expectation of more profits down the line, but odds are you'll actually wind up banging your head against the wall when the markets go against you - a fact that's made all the more painful because you know those very same losses were once ginormous gains you'd failed to protect.
Now imagine buying XYZ at $5 and selling half your position at $10.
Congratulations! You've just "paid" for your initial investment. You can let the remaining shares run for unimaginable profits down the line and repeat the process with another stock. What's more, you can laugh all the way to the bank even if XYZ drops all the way to zero because you've already recovered your money and moved on.
People tell me all the time that "this can't be it" or that there has to be "more to making money than this."
It really is that simple.
I know you've been led to believe that the markets are complicated, or overwhelming, or impossible to succeed in. I know it feels like you can never get ahead - that the profits are out of reach - that making real money can never happen to you.
What a load of horse-feathers!
I started Total Wealth to show you how to achieve the wealth of your dreams and the financial future you deserve. Three years and more than a million investors later, you're in excellent company.
Start by writing these three steps on a sticky note and pin it to your monitor (or your forehead) if you have to...
Pick the trend.
Bank the income.
Love the "free trade."
I'll be with you every step of the way.
Until next time,
Keith
The post How to Identify a Stock You Can Hold Forever (When Buy and Hold is Dead) appeared first on Total Wealth.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.