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  • IT news
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  • IT news
    IT news, Июнь, 26

    Summary Successful investing requires an optimistic perspective. Pessimism often causes investors to miss out on great opportunities. However, optimism must be rational and realistic. Optimism works best with a long-term perspective and a disciplined assessment of valuation.
    Introduction

    I believe that one of the most important attributes that a successful investor must possess is optimism. Any serious student of financial history would recognize and acknowledge that economically speaking, things are good much more often than they are bad. In the general sense, common stocks have risen far more often than they have fallen. That is not to say that bad times never come, because they most assuredly do. However, even during bad times optimism has served investors better than pessimism. The rational optimist recognizes that bad times are only temporary, and better times are sure to follow.

    Consequently, the rational optimist sees the future opportunity that bad times provide and behaves accordingly by investing aggressively. In contrast, the more emotionally-driven pessimist sees only risk, which all too often provokes them to flee their investments and suffer unnecessary losses as a result. A paper loss is most often temporary, and only becomes real if you take it. This is especially true when the underlying fundamentals of the business support a higher valuation. When this is true, I contend there are only two rational choices. Hold onto your intrinsically more valuable assets recognizing that they will recover or if you have the wherewithal, aggressively add to your holdings and exploit other people's folly.

    Although my educational background is in economics and finance, I also completed a minor in psychology. How people behave and think has always been a fascination to me. However, I was more interested in finance, especially investing, which is why I made it my career. Nevertheless, my interest in psychology led me to interesting observations about how people think and behave. Many times in my life I have encountered people that possess mountains of wonderful blessings to be thankful for, but who also have a thimble full of problems or life issues. Invariably, or at least all too often, they will turn their backs on their mountains of blessings and obsess on the fewer problems they have.

    Moreover, in my personal experience there is a rather disturbing differentiation between pessimists and optimists that I have personally observed and often encountered. Optimists tend to be happier and usually kinder when dealing with others. In contrast, pessimists tend to be gloomy and often meaner when dealing with others. If you don't believe me, try presenting an optimistic article, as I often have, and see the responses you get.

    As a case in point on July 25, 2010, shortly after the Great Recession had ended, I posted an article titled "S&P 500: The Optimists Argument" and I opened it with the following:

    "The American Dream

    I believe we live in the greatest country in the world. Furthermore, I believe our country has the long-term track record to back up those beliefs. Therefore, I am very frustrated by the perma-pessimists, doom and gloomers and naysayers who are quick to write our country and its future prosperity off.

    To be sure, we are facing many severe economic challenges and problems. On the other hand, this is nothing new, as we have faced similar and even greater challenges many times in the past. Yet through it all, thanks mostly to our diverse and courageous people, we have not only persevered, we have prospered and grown as well.

    The American people have a legacy of optimism regarding the future which is more commonly known as "the American dream." This optimistic viewpoint has served as a beacon to the rest of the world leading many to immigrate into our great country in order to participate in our great social experiment based on free enterprise.

    Winston Churchill is credited with a quote that I believe sums up my point succinctly: "A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." Yes, as I already stated, we are facing many difficulties, however, I remain confident that our people and our economy will rise to the challenge and, as a result, new opportunities will emerge out of these crises.

    There are numerous pundits, including the majority of mainstream media that seem to take great glee in writing frightening stories with extremely negative headlines that I believe serve no real purpose other than shaking people's confidence in our economy and their future."

    It's important to consider that those words were written in July 2010, more than a year after the Great Recession had ended. Later in this article I will provide a link to the above article and include a few comments from readers that it generated. I believe you will find they support my above statement about the perils of writing a positive article.

    Related Attributes of Successful Investors

    Additional attributes of successful investors that go hand-in-hand with optimism are embracing a long-term view and tempering optimism with realism. Although successful investors have a strong faith in our economic future, they are also smart enough to make realistic assessments about important fundamental metrics such as current valuation.

    Optimism and faith in our future are important and profitable attributes to have, but blind faith can lead to denial, and as such, can be financially dangerous. Similar to fear and greed, denial is an emotional response. In contrast, rational optimism is supported by analysis based on an intelligent assessment of the facts. Even more importantly, rational optimists conduct continuous monitoring and evaluation of their past behaviors and decisions in order to learn as much as they can from the past.

    Friends and Family Call Me a Perpetual Optimist

    All of my life, my closest friends and family have called me the perpetual optimist. In many cases it was meant as a criticism, but in others as a compliment. Personally, I have always considered it a compliment. In truth, I have always felt that my optimistic viewpoint about life and as it pertains to this article, about the economic strength of our country, was a blessing. However, as it specifically relates to investing, my optimistic viewpoint should also lead to profitable transactions. Fortunately for me, that has proven to be the case over the long run. All of my transactions have not been profitable, but on balance, my optimism, my long-term approach and my focus on valuation have served me quite well.

    The Proof Is In the Pudding

    To be crystal clear, the primary thesis behind this series of articles is that optimism is an important attribute for successful investing. A secondary thesis behind this series of articles is that successful investing implies taking a long-term view when investing in common stocks. By long term, I am referring to investing in and owning a business for a minimum of a normal business cycle of 3-5 years, but preferably longer. As Ben Graham so eloquently put it, "in the short run the market is a voting machine, but in the long run it's a weighing machine."

    In conjunction with my primary and secondary thesis referenced above, is the importance of monitoring and evaluating past decisions, because only then can one determine whether or not optimism is justified. As I was contemplating this, it occurred to me that I have been publishing articles on financial blogs such as Seeking Alpha since June 11, 2009. Therefore, that timeframe of almost exactly 6 years qualifies under my definition of long-term stated above. My, how time flies when you're having fun!

    Consequently, this provided a venue that would allow me to monitor and evaluate the validity of my optimism and long-term view. Thanks to the convenience and calculating power provided by F.A.S.T. Graphs I could offer my loyal readers a rather comprehensive perspective of how my work and positive attitude has panned out. Therefore, what follows is a wide ranging look back at my first year's worth of offerings where I presented fairly valued research candidates for readers to consider. In this Part 1, I will cover my recommendations through the end of 2009. In Part 2, I will complete the analysis with a review of recommendations made through June of 2010.

    A couple of caveats about this exercise are in order. What I am presenting here is a factual performance calculation based on the closing price of each company one day prior to the article's publication. However, since F.A.S.T. Graphs only reports monthly closing prices on the historical graphs, my calculations will be close but not perfectly accurate. In other words, my starting calculation will be presented on the last trading day of the month prior to or directly after the date the article was published. This gets me within two weeks of when the article was originally presented. However, these calculations are precise enough for the reader to receive a general perspective of the outcome of my recommended research candidates.

    Importantly, I only present articles where I covered a single company in my first year of writing. However, I also include a few examples where I wrote about the S&P 500 index as a proxy for the market. These articles are especially interesting because they highlight the pushback I received from strong reactions of readers that held a more pessimistic view of the market and our economy. On these S&P 500 index articles specifically, I will include a few comments that answer the question posed in the title of this article. In short, what has a pessimistic view of our market and economy cost them? The answer is vividly revealed by the S&P 500 articles and performance calculations below.

    At this point it's important for me to interject that this is not an exercise meant to brag about how smart I have been. As I previously stated, not all of my research candidate recommendations were profitable. I have included the good, the bad and the ugly. On the other hand, I believe this exercise supports the importance of optimism as it pertains to investing in common stocks. On balance, and as you will soon see, my optimistic recommendations worked out pretty well.

    To be fair, I will also add that I did not own all of these recommended research candidates, but I did own most of them. Furthermore, these calculations do not include specific times where I sold. In other words, this is not a precise presentation of portfolio performance; instead, it is simply reviewing the record produced by the individual research candidates based on the publication date of articles. Readers of these articles were free to either ignore, buy and/or sell any of these offerings based on their own needs or views.

    On the other hand, I do feel that readers of my work deserve to see what my research recommendations could have produced had they acted upon them. For the reader's convenience, the heading on each offering provides a link to the original article. But most importantly, I believe this exercise offers important lessons about the importance of only investing when fair valuation is manifest. The importance of valuation, over all other reasons, is why I offer this rather extensive review and look back at my work.

    As the reader reviews the following, I ask that they keep in mind that each of these articles was published in the years just after the Great Recession. This is important because it was clearly a time of rampant pessimism on many people's part.

    On each research candidate published in an article I will present two identical graphs. The first graph will be without the calculations applied because they cover up portions of the graph. I'm doing this because I want the reader to be able to clearly see valuation represented by the earnings and price relationship, as well as all the metrics produced in the FAST FACTS boxes to the right.

    My first article on Rockwell Collins published June 11, 2009

    The first article I ever published was on Rockwell Collins (NYSE:COL), a high-quality semi-cyclical dividend growth stock in the aerospace and defense industry. Even though earnings had weakened during the recession, I felt the valuation represented a compelling opportunity. Clearly this offering has worked out over the long run. However, short-term volatility between when I originally wrote the article and today should be recognized. Additionally, current high valuation has contributed to the results and should not go unnoticed.

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  • IT news
    IT news, Июнь, 22

    summary Six months into my DG50 project, the portfolio has delivered outstanding dividend growth. Wisconsin energy is one of the standouts that has helped the portfolio to an 8% income gain since inception. Like all quality DGI portfolios, the DG50 shrugs off Fed speculation and macroeconomic events.

    Most shareholders were quite pleased in December when Wisconsin Energy (NYSE:WEC) declared an 8.3% dividend increase. Then, last week, the company announced yet another 8.3% hike as part of its merger deal with Integrys Energy (NYSE:TEG).

    The end result: a year-over-year increase from 39 cents per quarter to 45.75 cents. That 17.3% jump is impressive for any company, let alone for a "boring" utility. WEC has raised its dividend 12 straight years, including several double-digit hikes, and company executives have indicated that more aggressive increases are in the offing.

    Such a commitment to income-seeking shareholders is why Wisconsin Energy is the largest utility position in my personal portfolio. And it's also why WEC is one of only four utes in the Dividend Growth 50.


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  • IT news
    IT news, Май, 31

    Summary Fears of a major correction are rising as stocks continue to hover around all-time highs. One of the best ways to generate stable income in any market environment is through dividend growth investing. Ideally, you want to build a portfolio of dividend paying stocks that have a track record of increasing their dividends every year. Our All-Aristocrat Team has an average dividend yield of 3.3% and an average 5-year dividend CAGR of 8.2%.

    In the current market environment, it is important for income investors to choose their dividend stocks wisely as they are putting new money to work. The markets will certainly continue to ebb and flow, but there certainly seems to be more downside risk than upside potential for the market over the next 3-6 months.

    One of the best ways to generate stable income in any market environment is through dividend growth investing. Thankfully, this strategy is not rocket science and it is fairly simple for anyone to implement. Ideally, you want to build a portfolio of dividend paying stocks that have a track record of increasing their dividends every year. This way, not only are you generating stable income, but you are also able to maintain the purchasing power of your dollar (as long as your dividends are at least rising at the rate of inflation).

    What Is A Dividend Aristocrat?

    Each year, Standard & Poor's publishes its list of Dividend Aristocrats. According to S&P:

    Since 1926, dividends have contributed nearly a third of total equity return while capital gains have contributed two-thirds. Sustainable dividend income and capital appreciation potential are both important in determining total return expectations.

    The S&P 500 Dividend Aristocrats is designed to measure the performance of large cap, blue chip companies within the S&P 500 that have followed a managed-dividends policy of consistently increasing dividends every year for at least 25 years.

    Companies included in the S&P 500 Dividend Aristocrats come from a broad spectrum of industries. Unlike indices that focus only on high dividend yields, which are typically from the Financials and Utilities sectors, the "Dividend Aristocrats" are well diversified across all sectors.

    All Dividend Aristocrats Are Not Created Equal

    While we believe that a list of Dividend Aristocrats is a great place to start your search, not all Aristocrats are created equal.

    That said, we recently scanned through our rating system and came up with our "All-Aristocrat" team. This team is made up of 35 Dividend Aristocrats that meet the criteria below.

    Consecutive Years of Dividend Increases > 25 yearsDividend Yield > 2.5%

    We then ranked these stocks using a Dividend/Safety/Value (DSV) blend. The DSV blend is a blend of our individual Dividend, Safety, and Value ratings for each stock using the following weightings: Dividend (25% weight), Safety (25%), Value (50%). We used this blend so that stocks that have better overall relative valuations would be ranked higher on the list.

    We will highlight each of these stocks over the course of a 7-part series. Below is a schedule of the entire series. Please make sure to "follow" us so that you will be notified when we publish future articles.

    Part 1: Honorable Mention (stocks #31-35)Part 2: Sixth Team (stocks #26-30)Part 3: Fifth Team (stocks #21-25)Part 4: Fourth Team (stocks #16-20)Part 5: Third Team (stocks #11-15)Part 6: Second Team (stocks #6-10)Part 7: First Team (stocks #1-5)The All Aristocrat Team: Third Team

    The vast majority of Dividend Aristocrats (there are 70 total stocks in our universe with at least a 25-year history of dividend hikes) rank very highly in our system, but we only picked the best of the best for our All-Aristocrat Team. This article highlights the 5 stocks of the Third Team (stocks #11-15). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.

    #15 Consolidated Edison, Inc. (NYSE:ED)

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  • IT news
    IT news, Май, 30

    Summary CVX, NOV, AFL, TRV, and ACE are all rated as suitable for the Defensive Investor following the ModernGraham approach. All five are found to be significantly undervalued according to the ModernGraham valuation model. The five companies have the lowest PEmg ratio out of all undervalued companies for the Defensive Investor.

    There are a number of great companies in the market today. By using the ModernGraham Valuation Model, I've selected the five lowest PEmg (price / normalized earnings) companies reviewed by ModernGraham. Each company has been determined to be undervalued and suitable for the Defensive Investor according to the ModernGraham approach. Defensive Investors are defined as investors who are not able or willing to do substantial research into individual investments, and therefore need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to do substantial research and can select companies that present a moderate (though still low) amount of risk. Defensive Investors may also be interested in reviewing 5 Undervalued Companies for the Defensive Investor - May 2015 while also conducting further research into the following companies.

    Chevron Corporation (NYSE:CVX)

    Chevron passes the initial requirements of both the Defensive Investor and the Enterprising Investor. The only issue the Defensive Investor has with the company is the low current ratio. The Enterprising Investor is concerned with the level of debt relative to the current assets, but is willing to overlook those concerns since the company qualifies for the more conservative Defensive Investor. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company's intrinsic value.

    When it comes to that valuation, it is critical to consider the company's earnings history. In this case, Chevron has grown its EPSmg (normalized earnings) from $8.58 in 2010 to $11.43 for 2014. This level of demonstrated growth is well above the market's implied estimate for earnings growth of only 0.42% annually over the next 7-10 years. In fact, the historical growth is around 6.63% per year, so the market is expecting a very significant drop in earnings growth. The ModernGraham valuation model reduces the historical growth to a more conservative figure, assuming that some slowdown will occur, but still returns an estimate of intrinsic value falling above the current price, indicating the company is undervalued at the present time. (See the full valuation on Seeking Alpha)

    CVX Chart
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  • IT news
    IT news, Май, 30

    Summary Dividend growth investing is a robust investing discipline. Has dividend growth investing really outperformed the market? See what John. D Rockefeller's "only joy" was.

    Dividend growth investing is an investing style where one looks for businesses with a high likelihood of rewarding investors with rising dividend payments.

    Realizing actual cash payments from your investments in the form of dividends ensures dividend growth investors will generate passive income from their investments.

    There are many reasons to be a dividend growth investor.

    Reason #1: Dividend Growth Stocks Have Outperformed The Market

    This reason to be a dividend growth stock is the most attention-grabbing. Every investor wants to beat the market. Unfortunately, most don't. Dividend growth stocks have outperformed the market - with lower volatility - from 1972 through 2014 as the image below shows.

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  • IT news
    IT news, Май, 19

    summary The goal of the Half-Million Dollar Income Project is to provide my son with $200,000 in yearly inflation-adjusted income. I have decided not to invest in ETFs so…
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