The "Trump Trade" may be on life support, which obviously has a lot of investors worried at the moment.
Not surprisingly, the question I'm getting asked more than any other is twofold:
Has the bull market run its course, and is there a correction right around the corner?
The implication, of course, is whether or not you should be selling everything you own, buying a banjo and a couple hundred gallons of water, and hunkering down 500 miles from the nearest military installation.
In a word – no.
As we've talked about many times, there is no reason in the world why a properly prepared investor has to suffer the ravages of a bear market, let alone a major market correction.
In fact, both of those scenarios can be turned into tremendously profitable opportunities. But only if you understand what we're going to talk about today.
Here's What You Need to Know
Take a cue from Warren Buffett, who made headlines 48 hours ago when he lost a bid for Texas-based electric transmission company Oncor to Sempra Energy.
The real story is not that he lost, but rather that he is chasing the best companies and Unstoppable Trends just like we are. In this case, he wants the reliability and innovation associated with smart electrical grids that produce steady, growing income for decades to come.
Millions of investors take a different approach, lurching from investment to investment in a desperate search for the one stock that will turbo-charge their returns. In up markets they confuse that with genius, and in bad markets they confuse that with something dastardly.
Either way, they ruin their portfolios.
Times like the present call for exceptionally prudent stock selection – meaning you still want to invest, but only in the things we talk about all the time – Unstoppable Trend, must-have companies with rock-solid balance sheets, experienced management, and global product portfolios.
That way, you are both growing your fortune and defending your portfolio at the same time.
More importantly, you're making sure that your money is working as consistently and efficiently as possible no matter what the markets hand you.
If you're moving from stock to stock, you may as well be playing roulette. The principle of "gamblers ruin" will ultimately bleed your wealth dry.
When I say consistently and efficiently, I'm talking about putting something in place that will keep your money moving through thick and thin, that will keep you tapped into upside, and will ensure that you're constantly buying low and selling high.
The first step in this process is identifying undervalued stocks.
We talk about that a lot because that's the first step on the path to profits. You find something that's beaten down, yet still has a fortress-like balance sheet, strong sales, and growing revenue, and you buy it because it's tapped into an Unstoppable Trend.
The second is to keep your money moving by reinvesting it. That way you can capture the powerful upside bias inherent in today's financial markets… even in flat or down markets.
It's a lot easier to do than most investors think – and, chances are, what was driving Buffett's thinking with regard to Oncor.
Let Me Prove It to You
Imagine buying 100 shares of ABC at $100 a share for $10,000 initial investment. And that ABC has a dividend yield of 2.05%, which is the average yield offered by companies on the S&P 500 today.
Now, imagine you resolved to re-invest those dividends, quarter after quarter.
A year down the road you would have earned slightly more than $205 back in dividends (it's slightly more than 2.05% because of the miniscule short-term effect of compounding quarterly rather than all at once, yearly). I know that doesn't sound very inspiring, but hang with me for a minute.
Coming into year two, you've got approximately $10,205 invested, and at a 2.05% yield that translates to $10,414. Year three, $10,627. Year four brings $10,845 in capital working for you. By year five, dividend reinvestment would have allowed you to purchase $11,067 in company stock, totaling more than 11% in appreciation.
In the interest of simplicity, I've made two key assumptions…
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.