How This Ratio Can Dramatically Increase Your Income Every Year

 
Most people who call themselves "investors" really aren't.
 
The average "investor" is really a trader. He buys a stock with the hope that at some point in the future, he'll find someone who'll buy it for more than he paid. He's trying to time the market. "Buy low and sell high," right?
 
More often, however, people can't stand the uncertainty. Watching the market flip and flop all over the place leads to bad decisions. People buy high and sell low.
 
But there's an easier way…
 
Many investors overlook the fact that your true wealth is your income.
 
I'll bet you have some idea of the total balance of your brokerage account – even without looking it up. But you probably can't quote the annual dividends your portfolio generates.
 
That's a blind spot many investors have. And it's a mistake. You shouldn't measure your wealth by the balance of your bank account, but by the income it generates.
 
Income is what you live on. Income is what gives you the freedom to enjoy your days, take vacations, or provide for your family and others.
 
When you buy 100 shares of a stock that pays $1 a year in dividends, you've just set yourself up for $100 a year in income. With a little bit of investing acumen, that income stream should rise.
 
And a dividend is even more than just an income stream… Dividends are vital to the overall returns of your portfolio. According to studies, dividends have accounted for about 43% of the performance of stocks in the S&P 500 since 1926.
 
That means if stocks return 7% a year, about 3% of that is dividends. That makes for a big chunk of returns.
 
That difference grows over time (an effect called "compounding"). An investor who collected and reinvested dividends from 1940 to today would have earned 10 times as much as an investor who collected the capital gains on stocks alone.
 
Simply put, paying dividends is exactly what the stock market is about.
 
After all, a dividend can't be faked. Companies can employ a range of accounting tricks to beef up earnings. They can come up with new grand "strategic plans" to paint a bright picture for the company's future. At times, some even engage in outright fraud.
 
But a dividend comes as real cash, straight from a real bank account. It can't be faked, cajoled, or conjured. Only companies with sound financial footing and real profits can pay dividends. By focusing on dividends, you'll immediately ignore many of the junk stocks out there in the market.
 
And by focusing on one specific number, you can make sure that the company is likely to keep paying out its dividend…
 
It's called the "dividend-payout ratio." This is the percentage of earnings the company pays out as dividends, usually on an annual basis. You can find dividend-payout ratios for most stocks on Yahoo Finance under "Statistics."
 
You're looking for sustainability in a dividend-payout ratio…
 
For example, a dividend-payout ratio of more than 100% is, by definition, not sustainable. At that pace, the company will eventually run out of money. Usually, a dividend-payout ratio of more than 100% is due to an accounting quirk that has reduced the company's earnings on paper for a quarter or two. Less often, it may indicate a special dividend was paid in the last year.
 
Of course, a dividend-payout ratio that's too low suggests the company isn't returning much money to shareholders.
 
As a rule of thumb, payout ratios in the range of 30% to 60% suggest that the company pays a generous dividend that still leaves some breathing room in the case of short-term market fluctuations.
 
It's also helpful to read statements from management to find its "targeted" dividend-payout ratio. When management announces a target and hits it consistently, it shows the company has the earning power to stay on track.
 
If a dividend-payout ratio makes you leery, it's a sign to dig deeper.
 
The dividend-payout ratio can tell you a lot about an investment – including whether the company delivers consistent payouts. And that's vital for anyone investing in income.
 
Here's to our health, wealth, and a great retirement,
 
Dr. David Eifrig
 
Editor's note: Investing in companies that pay consistent dividends is a great way to achieve wealth in retirement. Right now, six of Dave's Retirement Millionaire recommendations have payout ratios in the "sweet spot"… And his subscribers are reaping the benefits. To learn how to access a risk-free trial of Retirement Millionaire, click here.

Source: DailyWealth

Think Like a Business Owner, Not Like a Trader

 
If you're like most investors, you probably worry too much about short-term share-price movements.
 
To make several times your money in the stock market, you must learn to find great businesses… buy them at cheap prices… and above all, hold on to them long enough.
 
Multibaggers take time. If you can't be patient, you can't get rich in stocks. Period. No ifs, ands, or buts about it…
 
The good news is that these days, it's easier than ever to be patient.
 
Andrew Pastor, a portfolio manager at asset-management firm EdgePoint Wealth Management, pointed this out in January. He says the average holding period for NYSE-listed stocks since the 1960s has been shrinking. From his essay…
 
Decade
Avg Holding Period
1960s
8.33 years
1970s
5.25 years
1980s
2.75 years
1990s
2.17 years
2000s
1.17 years
2010s
0.58 years
The lesson is simple: Holding stocks for as little as two to three years qualifies as a competitive advantage for investors these days. (Pastor uses the term "proprietary insight," the edge you give yourself when you behave differently from the crowd for intelligent reasons.) As he puts it…
 
I believe the most overlooked edge an investor can have is time – the willingness to look further out than other people. Fortunately, those who want a time advantage don't have to wait as long as they used to since investors are holding their stocks for shorter and shorter periods…
 
Today, having a view about a business two or three years from now can be a proprietary insight.

Our strategy is designed to exploit this competitive advantage. The average holding period for all Extreme Value recommendations since inception in 2002 is about 1,150 days, or a little more than three years.
 
So some of the best benefits you'll get from our strategy aren't even included in our published results: better tax treatment and far lower trading costs. Commissions and fees, interest rates, and other "frictional" costs of overactive trading will eat away at your profits over time.
 
Don't be a trader in the stock market. Be a business owner.
 
If you own a pizza parlor, you don't wake up every day thinking about selling it so you can buy a shoe store. You think about how to make better pizza, how to sell more pizza, or how to do something for your customers that competing pizza parlors aren't doing. You plan to hold that business for the long term.
 
Equity is long-term capital, the longest-term capital, with no expiration or maturity date. If you're going to succeed as an equity investor, you must think long term. Obsessively watching share-price movements conditions you to think short term. You should be spending that time studying the businesses you own.
 
The lesson here is that a stock isn't a lottery ticket with a price graph attached. It's a proportional share in the fortunes (good or bad) of a real business.
 
That's how I approach every buy, hold, and sell recommendation I make. You'll do yourself a huge favor by doing the same.
 
Good investing,
 
Dan Ferris
 
Editor's note: Dan's strategy is to invest in high-quality, dirt-cheap industry leaders – and hold for the long term. It's an approach that has made him one of the most successful analysts in our industry. Right now, the average return in his Extreme Value portfolio is a huge 56.8%. To learn more about a risk-free trial subscription, click here.

Source: DailyWealth

How Have You NEVER Heard of This Company?

 
Have you seen a list of the world's top 10 largest companies recently?
 
It has changed dramatically – in just a few years…
 
You might be surprised to hear it… But Wal-Mart (WMT) is no longer on the list. Neither is General Electric (GE). Instead, it's out with the old, in with the new…
 
Take a look at this table showing the five largest companies in the world…
 
Top Five Largest Companies
Market Cap
Apple (AAPL)
$814 billion
Alphabet (GOOG)
$652 billion
Microsoft (MSFT)
$528 billion
Amazon (AMZN)
$460 billion
Facebook (FB)
$436 billion
Can you believe it? They're all "new economy" companies! You won't find a single "old school" industrial company in the top five.
 
But the top 10 list is even more interesting than the top five list to me… because of one name: Tencent (TCEHY).
 
What? You've never heard of Tencent?
 
Tencent is essentially China's Facebook – and much more…
 
Tencent – by itself – does in China what many of the top five companies do in America. And that's one reason I predict it will someday become the world's largest company.
 
I've been making that prediction ever since my most recent visit to China last summer. On that trip, I saw the dramatic impact that social media (and Tencent) had on people's lives.
 
At the time, nobody was saying that Tencent had the potential to become the world's largest company. But take a look at what has happened to its stock market value over the last five years…
 
It has gone from around $50 billion in value to more than $300 billion in value… in just five years. Just imagine where it could be five years from today.
 
How is it possible for one company's market value to go up so fast?
 
One word: growth.
 
Tencent has grown its sales and earnings nonstop.
 
You can see this in the table below. It shows the world's top 10 largest companies and the growth rates of their earnings per share ("EPS"). Take a look…
 
Rank Company Market Cap 5-Yr Sales 5-Yr EPS Growth
1 Apple (AAPL) $814 billion 7% 6%
2 Alphabet (GOOG) $652 billion 18% 13%
3 Microsoft (MSFT) $528 billion 5% 2%
4 Amazon (AMZN) $460 billion 22% N/A
5 Facebook (FB) $436 billion 50% 90%
6 Berkshire Hathaway (BRK-B) $403 billion 12% 8%
7 ExxonMobil (XOM) $350 billion -10% 4%
8 Johnson & Johnson (JNJ) $333 billion 2% 4%
9 Tencent (TCEHY) $315 billion 41% 33%
10 JPMorgan Chase (JPM) $309 billion -1% 9%
Historically, large companies have been big, slow growers… That's because once you've reached Wal-Mart's size, or Johnson & Johnson's size, it's hard to keep growing at 20% a year. You run out of customers to serve and new products for your market.
 
So as the table shows, Johnson & Johnson's growth has only been about 2%-4% a year over the last five years. ExxonMobil's earnings growth has matched Johnson & Johnson's. And Microsoft's has been about the same.
 
It doesn't take long at all to see that two companies on this list are not like the others…
 
Facebook (which you've heard of) and Tencent (which you might not have heard of).
 
These two companies are growing like crazy.
 
Of course, you must pay for that growth in the stock market… Facebook and Tencent are the most expensive stocks in the top 10 list.
 
However, these two stocks each have real potential to become the world's biggest company, if they can keep up the growth.
 
Microsoft is No. 3 on the list today… But with its sleepy growth rate, it's hard to make a case that it could reach the top spot again. If you want to unseat Apple at the top, you need to grow.
 
The list of the world's biggest companies has changed massively in recent years. At this point, the top five are all "new economy" names. To me, the most interesting name is No. 9 on the list… Tencent.
 
Like Facebook, it has the growth potential to one day take the crown from Apple – and become the world's largest company.
 
Look into Tencent, if you haven't already…
 
Good investing,
 
Steve
 

Source: DailyWealth

Volatility Won't Cause a Crash in U.S. Stocks

 
Fear in U.S. stocks just hit a 24-year low, according to the market's "fear gauge."
 
So… is it time to sell based on this indicator? Is this a sign of a top in U.S. stocks?
 
In short, surprisingly, NO.
 
Let me explain…
 
Last week, the CBOE Volatility Index ("VIX") fell to less than 10. It's at its lowest level since 1993.
 
In short – volatility is low… And that means investor fear is low.
 
Markets typically bottom when fear is high – the opposite of where it is today. But you can't use this gauge to call the top as well.
 
I learned this lesson from a smart hedge-fund manager…
 
Years ago, I worked for a billion-dollar hedge fund in New York. While there, I brought up this very idea… I suggested to him that the VIX was low – and it had been low for an incredibly long period of time.
 
I brought up the idea that volatility would certainly rise at some point… so if we made a bet on higher volatility, we could make a lot of money. It seemed like a simple story.
 
"And when will volatility return?" he asked.
 
His question shot right through my heart. He had asked exactly the right thing. And he was right… You can't know the day volatility will come back to the markets.
 
It turns out if we had bet on the VIX rising, we would have lost money. It stayed low for an impossibly long time.
 
Betting on higher volatility is a fool's game. You see, the VIX – like many other indicators – has a spotty track record.
 
Fear in U.S. stocks might have just hit multidecade lows according to the VIX… But that alone won't end this bull market.
 
The VIX is a measure of options-market volatility. When it's high, options – the stock market's equivalent of insurance – are expensive, which means investors are scared.
 
The opposite is true when the VIX is low… That means options are cheap, which shows optimism from investors.
 
The VIX recently fell below 10… its lowest level since 1993. Take a look…
 
The VIX only goes back to 1990, so we have a somewhat limited history. But today's level is incredibly low.
 
The question is… does it matter?
 
The news headlines have pegged this as a warning sign for stocks… They say investors are too bullish, and that means we're at a market top.
 
However, a quick look at the chart shows us that the VIX is a questionable tool for calling the start of a bear market…
 
Yes, the VIX hit a multiyear low in 2007, before a major bust. But the VIX was hitting major lows in 2004… and 2005… and 2006… and then again, finally, in 2007. Not until the 2007 low did it matter for stocks. If you had bet on volatility returning, you would have lost money for three years before you were "right."
 
What happened in the 1990s shows this point even more clearly…
 
Today, the VIX is hitting a low not seen since 1993. But that all-time low in the VIX was a fantastic time to buy stocks.
 
The VIX was fantastically low from 1993 to 1995, a period that kicked off a spectacular boom in the U.S. The S&P 500 increased by 20%-plus every year from 1995 to 1999.
 
If you'd listened to the fear gauge and sold stocks in 1993, you'd be kicking yourself.
 
The general wisdom is that a low VIX is a warning sign for stocks… But the indicator's own history proves that it's not reliable at predicting market peaks.
 
I believe we're in the middle of the "Melt Up"… and that stocks can go dramatically higher from here.
 
You can worry if you'd like for plenty of other reasons. But don't worry about the lack of worry, according to the VIX…
 
Good investing,
 
Steve
 
Editor's note: Steve believes we're at the start of a dramatic shift in the markets that could push that Dow all the way up to 50,000. If you get in right now, before it happens, you could double – or even triple – the size of your retirement account in the coming months. But we may never see another opportunity like this again. Click here to learn more.

Source: DailyWealth

These Stocks Are Set to Outperform the S&P 500

The Weekend Edition is pulled from the daily Stansberry Digest. The Digest comes free with a subscription to any of our premium products.
 
 U.S. stocks have dramatically outperformed the rest of the world since the financial crisis…
 
The benchmark S&P 500 Index has soared 254% from its March 2009 bottom. Meanwhile, European and emerging market stocks have returned 150% and 106%, respectively, in that span.
 
But suddenly, investors are no longer favoring the U.S… Money is now moving out of American stocks – and into European and emerging market stocks – at the fastest rate in years. As the Wall Street Journal reported this week…
 
Global money managers' allocations to U.S. stocks slumped to a nine-year low in April, according to a survey from Bank of America Merrill Lynch. And U.S. equity funds saw an outflow of $22.2 billion during the seven weeks that ended May 3, the largest seven-week redemption in more than a year, according to EPFR Global.
 
Much of the money is going to Europe. Net inflows into European funds in the first three months of the year hit a five-year high for the first quarter, according to Thomson Reuters Lipper.
 
Emerging markets are also benefiting. Strong manufacturing, industrial production and trade data in the developing world helped attract the strongest three-month stretch of net inflows to emerging market funds since 2014, according to the Institute for International Finance.

 
 What's behind this change? The Journal cited two big reasons…

 
First, U.S. stocks have become expensive, on both an absolute and relative basis…
 
The cyclically adjusted price-to-earnings ratio, known as CAPE, is 22 times in the U.S., compared with 16.7 in Europe and 13.7 in emerging markets, according to Makena Capital Management.
Second, the European economy is finally showing signs of a recovery after nearly a decade of stagnation…
 
The 19 countries in the European Monetary Union grew by 0.5% in the first quarter, which equated to an annualized growth rate of 1.8%. By comparison, U.S. output grew at an annual rate of 0.7% in the first quarter.
 
Over the past five years, the U.S. economy outgrew the euro area by 1.4 percentage points a year on average, according to the International Monetary Fund. The IMF expects that gap to narrow to 0.6 percentage point in the next three years…
 
While European corporate margins are still hovering around recession lows at 5%, margins in the U.S. are already near records at 8.8%, according to [Michel Del Buono, chief strategist at Makena Capital Management.] That suggests "much less potential" for earnings to further grow in the U.S.

 
 This is one of the big reasons Steve Sjuggerud turned bullish on Europe in January…

 
Steve noted that U.S. and European stocks have performed similarly over the long term… yet each has outperformed the other for short periods of time. Since the financial crisis, U.S. stocks have outperformed European stocks by the largest margin on record.
 
In the January issue of his $3,000-per-year True Wealth Systems advisory, Steve said it was only a matter of time before European stocks closed this gap… And history suggests these stocks could soar triple digits in the coming years as that happens. From the issue…
 
We're in uncharted territory today. The U.S.'s outperformance has never been anywhere near this large. But history's less extreme examples point to big gains ahead in European stocks…
 
2002 was the last time the U.S. outperformed by nearly 50 percentage points over eight years. What happened next? A massive multiyear bull market in European stocks… If you'd waited for the uptrend before buying, then you would have bought European stocks in mid-2003. By late 2007, you would have made 172% gains. U.S. stocks returned just 74% over the same period.
 
A similar opportunity appeared in late 1998… And European stocks jumped 64% in 18 months back then. Today's opportunity is more extreme than either of those cases.

Again, it's still early, but more and more data suggest Steve's prediction is already playing out… And True Wealth Systems subscribers are benefiting. Steve's two favorite European stocks are up 28% and 12% in a little more than four months so far.
 
 Steve has been all over the move in emerging markets, too…
 
In fact, one month later – in the February issue of True Wealth Systems – he highlighted a similar situation setting up in emerging market stocks. From the issue…
 
The MSCI Emerging Markets Index rose 8.6% last year… its first positive year since 2012. But it underperformed the S&P 500 – again – for the fourth straight year.
 
The last time emerging markets underperformed the U.S. market for four straight years was 1995-1998. You can guess what happened next… The MSCI Emerging Markets Index soared 64% in 1999. It went on to outperform the U.S. market for 10 of the next 12 years. It entered a bull market that led to 400%-plus gains.
 
In short, buying emerging markets after years of underperformance has led to incredible returns in the past.

True Wealth Systems subscribers are already up 9% in Steve's preferred emerging market recommendation in a little more than three months.
 
 As we noted earlier, Steve's research in True Wealth Systems costs $3,000 per year.
 
But you may not realize there's a way to gain access to some of Steve's top investment ideas for less than 1% of that price.
 
It's something of a "loophole"… and we've rarely promoted it. But for the past few years, Steve has been sharing some of his favorite recommendations with a select group of subscribers each morning.
 
And Steve doesn't just limit what he shares to his three publications – True Wealth, True Wealth Systems, and True Wealth China Opportunities – either. He searches the entire Stansberry Research universe and picks out his favorites, based on what's currently happening in the market.
 
Sometimes he'll share ideas from one of our founder Porter Stansberry's services, including Stansberry's Investment Advisory, Stansberry Alpha, and Stansberry Gold & Silver Investor.
 
The day's idea occasionally comes from Dr. David Eifrig's publications… like an exciting new opportunity from Retirement Millionaire or Income Intelligence.
 
It could also be one of Dan Ferris' recent Extreme Value recommendations… or a creative way to play the energy markets from Flavious Smith, a 30-year oil insider and editor of our Stansberry Research Resource Report.
 
For a limited time, you can take advantage of this loophole, too…
 
Each morning, Steve will send you a short write-up on his favorite idea in the market that day. In less than five minutes, you'll learn everything you need to capitalize on it… And if you like what Steve says, you'll have plenty of time to act when the markets open.
 
Altogether, this research would cost you more than $25,000 to purchase separately. But right now, you can gain access to these top ideas for just $25. Learn more here.
 
Regards,
 
Justin Brill
 
Editor's note: The market is up 7% so far this year… But a certain group of subscribers who have followed Steve's advice are sitting on gains of 32.6%… 28.1%… 26.8%… 22.1%… 20.2%… and six other double-digit winners this year alone. Best of all, this subscription – which gives you access to $25,000 of premium research – costs less than $1 per day. Get all the details here.

Source: DailyWealth

Do You Use This Trading Tool to Get an Edge?

 
Quality tools can last you a lifetime…
 
Even a basic set may be enough for you to do the job well, day in and day out. But you'll have limitations…
 
A master craftsman can tell you that certain jobs require specialized tools. Having these tools at the right times – and knowing how to use them – can prove extremely valuable.
 
Trading is no different…
 
If you're a trader, you should have all the basics in your "toolbox"… the tools that allow you to plan and execute your trades well every time. These are things like position sizing, stop losses, and a variety of trading techniques (including buying stocks, trading for income, and short selling).
 
You can make a lot of money in the market by using these basic tools well. But one of my goals is to show you how to use a variety of specialized tools, too…
 
The more specialized tools you add to your trader's toolbox, the more opportunities you'll have to make money… and the more you'll recognize certain opportunities are great, rather than just good.
 
Today, I want to show you another way to get an edge in your trading. It involves using public information that most folks either don't know about or don't know how to use to their benefit…
 
It's called "insider buying"…
 
Corporate insiders are a company's management team, directors, or shareholders who own at least 5% of a company. They have access to information that the public doesn't. But they can't trade based on that information. That's illegal "insider trading"…
 
Legal insider trading is different…
 
These same insiders are allowed to trade based on information that has been released to the public… and based on their deep understanding of their businesses. In most cases, they have to report their trades to the Securities and Exchange Commission (the "SEC") within two days. Then, their trades become public information.
 
This information can alert you to great trading opportunities… if you know how to interpret it. We'll just focus on insider buying today.
 
You see, not all insider purchases are significant. To sort out the ones that are, you need to ask a few questions…
 
The first is: Who's buying?
 
In general, the best insiders you want to see buying are the ones at the top of the company… like chief executive officers (CEOs), chief financial officers (CFOs), and chief operating officers (COOs). And multiple insiders all buying at around the same time is a good sign.
 
These insiders (usually) understand the details of how their companies run better than anyone else. So they know better than anyone else when the market punishes their stocks too severely.
 
When their stocks are deeply undervalued, these insiders know it… And they can load up on shares.
 
The second question to ask is: How much are they buying?
 
The question "how much" is relative. It depends both on the size of the company and on the compensation of the insider. Your goal is to figure out if the purchase is significant to the insider. If it is, it may be significant to you, too.
 
This doesn't have to be too difficult. Think about what a big stock purchase would be to you, relative to your annual compensation or your net worth.
 
If the CFO of a $30 billion company makes $7 million a year, to her, a $50,000 purchase is insignificant. A $10 million purchase is significant. That should get your attention.
 
On a smaller scale, if the COO of a $100 million company buys $1 million worth of the stock, that's 1% of the company. It's worth looking into.
 
When directors or major shareholders buy, you need to answer this question, too… Is it significant to them?
 
Now, the third question… How are they buying?
 
This is an easy one. Lots of insiders are awarded stock or have stock options. This isn't significant. You want to look for "open market purchases." When an insider buys shares on the open market, he's buying just like you or I would.
 
Insiders make major open market purchases for only one reasonThey believe their stock is undervalued and is likely to rise.
 
To see why this is valuable, let's look at a real-life example…
 
In February 2016, JPMorgan Chase (JPM) Chairman and CEO Jamie Dimon bought 500,000 shares of his company's stock on the open market. That's a huge, $26.6 million investment.
 
In 2016, Dimon earned about $28 million in total compensation. So his purchase represented nearly a full year of earnings. Not only that, but corporate insiders need to hold on to their shares for at least six months. It was a big vote of confidence for the stock.
 
As you can see below, shares bottomed the day his purchase was declared and are now up more than 64%…
 
You can look for insider buys in two ways. You can look for recent buys, then dig deeper on the ones you find interesting. Or you can look for insider buys in a specific company. Either way, you can find this information for free on a lot of websites, such as GuruFocus, Yahoo Finance, or Insider Monkey.
 
Insider buys can be a great alert. But don't base your trading decisions entirely on this one piece of information.
 
They tell you that someone with a deep understanding of the business (and the smarts to get to a top position) thinks the stock is cheap… and may be ready to move higher.
 
If you keep an eye out for big insider buys, you'll likely spot great opportunities that others don't. Just remember, ask who's buying, how much are they buying, and how are they buying… And you'll be in good shape.
 
There you have it… A new specialized tool for your trader's toolbox.
 
Good trading,
 
Ben Morris
 
Editor's note: Adding to your trader's toolbox can help you spot opportunities in the markets that others miss… And Ben recently identified one with high upside and low risk. This growing tech company has 93% upside from here. To learn more about Ben's DailyWealth Trader service – and how to access this recommendation – click here.

Source: DailyWealth

Is This Popular Investing Myth Hurting Your Portfolio?

 
Today, we're taking a look at the damage that one popular investing myth may be doing to your portfolio…
 
A comparison is only as good as the universe you decide to include. For example, it's easy to believe one type of investment or investing strategy beats all the others. But if your comparative analysis leaves something out, you might not realize a better option is out there. And you might fall prey to investing myths.
 
It's crucial that you apply all appropriate comparisons when evaluating a strategy. In today's essay, I'll apply this point to a common investing belief involving a certain group of stocks…
 
I'm talking about dividend-growth stocks. If you're not already familiar, these are shares of companies that raise their dividends steadily over time.
 
A quick search for "dividend growth" on Google returns some impressive-looking graphs. Here's a breakdown of one of the first that comes up from investment-management firm Ned Davis Research. Ned Davis looked at the hypothetical performance of $100 invested in each of five strategies, from 1972 to 2013…
 
Type of Stock
Percent Return
Dividend Growers and Initiators
5,897%
All Dividend-Paying Stocks
4,031%
Dividend Payers With No Change in Dividends
2,099%
Non-Dividend Payers
164%
Dividend Cutters or Eliminators
-1%
Source: Ned Davis Research, 12/31/13
The takeaway is simple: invest in dividend-growth stocks, right?
 
Usually, this kind of chart is tied to marketing for one of the hundreds of dividend exchange-traded funds or dividend mutual funds available to investors.
 
So what's wrong with this picture? After all, dividends have a great brand and tell a great story…
 
The problem is it's wrong, incomplete, and misleading.
 
I partnered up with my good friends at asset-management firm Alpha Architect, and had CFO Jack Vogel run some simulations on dividend stocks for us. Here's what we found dating back to 1982:
 
1982-2015
Top 3,000 Stocks
All Dividend Stocks
Dividend Growers
Mkt Cap Weight
11.6%
11.9%
11.5%
Equal Weight
11.6%
13.6%
13.6%
Hmmm – sort of at odds with the first table. Where's all that towering outperformance of dividend growers?
 
It turns out the company that put together the first chart, Ned Davis Research (whom I love more than any quant shop on the planet), had been calculating the returns in an unusual way.
 
Now, with updated return calculations going back to 1973, Ned Davis shows dividend growers returning 12.9%, all dividend stocks returning 12.8%, and the S&P 500 Equal Weight Index returning 12.4%!
 
So an entire generation of funds was sold on the premise of dividend-growth outperformance. The problem is, it's misleading because it doesn't tell the whole story.
 
If you did a simple sort on high dividend yielders (say, the top 20% of the highest-yielding stocks), you would find they outperform dividend-growth stocks…
 
1982-2015
Top 3,000 Stocks
All Dividend Stocks
Dividend Growers
High Yield
Mkt Cap Weight
11.6%
11.9%
11.5%
13.0%
Equal Weight
11.6%
13.6%
13.6%
14.0%
A recent piece by asset-management firm O'Shaughnessy adds detail to the same conclusion: Dividend investors would do better by focusing on dividend yield rather than dividend growth. From the report…
 
Our research confirms that investors should focus on dividend yield rather than dividend growth rates… High dividend yields are a strong indicator of future outperformance. Paying a dividend forces management to invest cash flow only in opportunities with the most optimal risk/reward tradeoff.
So simple high-yield stocks beat the growers. That's interesting enough as it is. But remember, this essay is about making sure to include all appropriate comparisons when evaluating a strategy. So what are the various marketing pieces of all these dividend-growth funds ignoring?
 
They're all ignoring how corporate culture has changed in past years, such that companies now distribute more than HALF of their cash flows to investors – through buybacks. Once you take a more holistic view of cash distributions, what we call "shareholder yield," the picture changes yet again…
 
Note the significant outperformance in the table below achieved through a shareholder-yield approach…
 
1982-2015
Top 3,000 Stocks
All Dividend Stocks
Dividend Growers
High Yield
Shareholder Yield
Mkt Cap Weight
11.6%
11.9%
11.5%
13.0%
15.4%
Equal Weight
11.6%
13.6%
13.6%
14.0%
15.3%
We recently put out a new white paper "Think Income and Growth Don't Exist in This Market? Think Again" documenting this outperformance, but anyone who has followed me for a while has known about this outcome for far longer.
 
So next time you see a marketing piece – for any strategy – think to yourself… "What better comparison are they omitting?"
 
Good investing,
 
Meb Faber
 
Editor's note: Meb offers expert insights into the market that others overlook. To read more of his strategies and learn how they can make a significant difference in your portfolio, visit CambriaInvestments.com. And don't miss Meb's free podcast, The Meb Faber Show, which has featured both Steve and Porter as guests.
 

Source: DailyWealth

The Most Contrarian Opportunity of My Career

 
Today, we're staring at what could be the most contrarian idea of my career…
 
The potential upside is enormous… It's literally hundreds of percent.
 
The only question to ask is this…
 
Will you step up and take advantage of it?
 
Most investors think of themselves as contrarians. But when it comes time to make a truly contrarian bet, they freeze. They can't pull the trigger.
 
Do you have what it takes to go against the grain… and make enormous profits as a result?
 
Are you bold enough?
 
I've made a career of sharing out-of-the-ordinary investment ideas with my subscribers. These are usually ideas ignored by the masses.
 
That's what gives us an edge. We want to buy when no one else is interested.
 
When an investment idea is truly hated, it is usually cheap… And it has the opportunity to move dramatically higher once the general investing public gets interested.
 
Today, the most contrarian opportunity I see – and maybe the most contrarian bet of my entire career – is in China.
 
The headlines about China are based on fear… a slowing economy, growing debt, and the potential for a currency decline.
 
People are focusing on the fear and missing the opportunity. The entire world has given up on Chinese stocks. And nowhere is that more true than here in the United States…
 
U.S. investors have no interest in owning Chinese stocks. In fact, they've been selling in dramatic fashion over the past few years. You can see this selloff on the chart below…
 
This chart shows the shares outstanding of the largest U.S.-listed China exchange-traded fund (ETF) – the iShares China Large-Cap Fund (FXI).
 
Shares outstanding for funds like FXI increase and decrease based on investor demand. So a decreasing share count means U.S. investors are selling out of China.
 
Since peaking in 2013, FXI's shares outstanding are down 65%… In short, investors in the U.S. have zero interest in owning Chinese stocks right now.
 
You can see the same trend when you look closer – at individual companies…
 
Earlier this week, Bloomberg ran a story highlighting two more negative extremes for China's market… (Of course, as a contrarian investor, I see negative sentiment extremes as a positive.)
 
The article explained that "short selling" – betting against the market – recently hit a peak in China. It also showed that an extreme number of Chinese companies hit "oversold" levels based on the relative strength index (RSI), which measures a company's recent performance. (Of course, stocks often bounce after reaching oversold levels.)
 
The takeaway here is simple… And it's one I believe in strongly…
 
The entire world has given up on the idea of owning Chinese stocks. Both here in the U.S. and overseas, no one is interested.
 
It doesn't get any more contrarian than this. And that's why I believe China could end up being the most contrarian idea of my career.
 
No one wants to own China – that's why our upside is so large.
 
Today's opportunity is simple… Buy Chinese stocks. I hope you're bold enough.
 
Good investing,
 
Steve
 
Editor's note: If you're truly a contrarian, now is your chance… because another major change is about to happen in China's market. One powerful group's upcoming decision could send $1 trillion flooding into Chinese stocks. And when that happens, early investors could make hundreds-of-percent gains. You can find the full details right here.

Source: DailyWealth

China's Big Problems Are Creating a Big Opportunity

 
China's local stock market has fallen for four consecutive weeks. Investors are spooked.
 
And for good reason…
 
China has been cracking down on speculation and financial leverage. And that has caused turbulence in the market. As Bloomberg reported over the weekend…
 
The [Chinese government's] tightening campaign has erased at least $453 billion from the value of Chinese stocks and bonds since mid-April… Sales of asset-management products by lenders and trust companies have plunged by more than 30%, while domestic real estate transactions have slowed.
This crackdown might sound bad for the markets at first… But the important thing you need to understand is, China is reining in what needs to be reined in
 
China's credit system expanded "too recklessly and too quickly," hedge-fund manager Kyle Bass told Bloomberg last week.
 
Bass is betting on a Chinese credit crisis. One of his big concerns is the size of China's "wealth management products" (WMP) industry. WMPs offer higher yields… But they are not part of the official banking system. Instead, they are part of China's lightly-regulated "shadow banking" sector.
 
Huge amounts of cash have flowed into WMPs from Chinese investors. But they encourage too much leverage and reduce transparency.
 
China wants to move investor money out of the shadow banking system and into the proper banking system. The government has taken decisive action here recently… And it has seen results. "The number of wealth-management products issued by Chinese lenders sank by 39% in April from the previous month," Bloomberg reported over the weekend.
 
And it's not just WMPs. The crackdown is happening across the board… real estate, cross-border money flows, etc. China has tightened up regulations. And it has raised interest rates.
 
Investors have gotten the hint. They are speculating less, and buying fewer WMPs. The Chinese government is getting what it wanted.
 
The thing is, this government tightening campaign creates an incredible investing opportunity…
 
With across-the-board government clampdowns, investors are scared of China right now. Nobody is invested. Not the Chinese, and not foreigners like you and me. Everyone who wants to sell has sold (or close to it).
 
This setup typically means we have an "asymmetric" trade setup… where our upside is dramatic, and our downside risk is limited.
 
Sure, the market could weaken a bit more in the near term. But this setup is what I want to see… China is cheap. And right now, it's also extremely hated. That means we have limited downside risk versus dramatic upside potential in China.
 
Don't look at this clampdown as a negative. Instead, see it as a positive… China is reining in what needs to be reined in. It's doing the right thing. Meanwhile, investors have fled.
 
Perfect. Get some money to work in China now, if you haven't already…
 
Good investing,
 
Steve
 
Editor's note: China is cheap and hated today – exactly the kind of setup Steve looks for in the markets. Not only that, but he believes $1 trillion is set to flow into China starting almost immediately. Early investors could see 500%, or even 1,000% returns as this massive change unfolds… So it's crucial that you get your money there first. Click here to learn more.

Source: DailyWealth

You Don't Need to Be Rich to Win. You Need This…

 
"Having the most money doesn't always make you the winner," Moneyball author Michael Lewis said to us on stage.
 
For example, in 2002, the Oakland Athletics had the third-lowest payroll of any team in baseball. The New York Yankees paid their players nearly three times more – an extra $80 million.
 
Yet the two teams made it the same distance in the playoffs.
 
Money didn't make the Yankees the winner. And a lack of money didn't hold the Oakland A's back from making it the same distance as the Yankees.
 
So how could this happen?
 
Lewis' bestseller Moneyball tells the story of how it happened. And at the Morningstar Investment Conference in Chicago last month, he also talked about why it happened…
 
At one point, Lewis said he was in the A's locker room, and he saw the players leaving the showers. He told the execs in the front office that the guys didn't even look like pro athletes. Several had big bellies. They weren't good-looking, chiseled, and lean. They didn't have the classic pro-athlete look.
 
But that was OK, the A's management told him. These misfits had a particular set of skills…
 
You see, the big-money teams like the Yankees were relying on old-school "scouts" to find potential players. A scout trusts his gut and uses basic stats to make an assessment… the same stuff you and your buddies use to compare players.
 
In other words, the big-money teams weren't doing anything unique… They thought they could throw money at old ideas and get results.
 
The A's didn't have money, so they took a different approach.
 
What did the A's do?
 
Lewis told us the A's wanted players who didn't look like pro athletes, but had subtle abilities… specific abilities they'd determined were the actual keys to success in baseball.
 
The A's did in-depth research to learn which stats actually matter in getting wins. They stopped looking at batting averages and instead focused on things that were proven to deliver runs, like on-base percentage and slugging percentage. They looked at "number of walks" as a good thing, for example.
 
No one else realized these skills were important… So the A's were able to build a roster of misfits for a low price. And it worked. The A's figured out what mattered, and they succeeded.
 
On stage in Chicago, Lewis said that Moneyball wasn't a book about baseball… As he told us, "Moneyball was a book about how the markets didn't value people properly."
 
It's really about human behavior. It's an example of how you can exploit certain situations to your benefit.
 
So what does this mean for us as investors?
 
It means it's OK if you don't have the most money or the biggest portfolio. Don't worry if you can't invest in a high-priced hedge fund or hire a hotshot investment advisor.
 
You simply have to find your own way to exploit your situation to your benefit. You have to find the edge. You have to figure out what matters, and stick with it.
 
You don't need to be rich to use Steve Sjuggerud's "cheap, hated, and in an uptrend" strategy. Steve figured out what matters – what works – and he sticks with it.
 
Knowing what matters can give you the advantage in your career, too…
 
For example, if you're a real estate agent, you likely know more about the real estate market than 99% of people out there. You live it and breathe it every day. Heck, you probably know it better than most Wall Street analysts.
 
I encourage you to learn to find the edge in your business, just like the A's did. Your business will perform better. And it might help your investing, too…
 
Realtors see supply and demand in housing every day. They've got a strong gauge of when prices are likely headed higher… And that could make homebuilders a great buy.
 
Don't worry about what other people think. Find the numbers that really matter. See what others aren't looking at.
 
Like the A's did, find your edge. Have an analytical advantage in what you do, not an emotional one. And profit from it.
 
Good investing,
 
Brian Weepie
 

Source: DailyWealth