Straight Talk from Al Jacobs
WELCOME TO THE CORPORATE JUNGLE
The newspaper headline attracts attention: “S&P 500 touches 2,000.” Details are sparse: “On Monday, traders were encouraged by some high-profile corporate deal news . . . word over the weekend that California biotech company InterMune agreed to sell itself to Swiss pharmaceutical company Roche for $8.3 billion.” This is the depth of though which goes into what 21st Century securities investment is all about.
Ownership of stock in a soundly operated company which systematically generates a profit while paying an adequate quarterly dividend is as far from the average investor’s consciousness as the Second Punic War. Such an approach is now branded archaic. With few exceptions, financial advisors who permeate the investment landscape advocate to their clients a single strategy: the holding of multiple index funds, either mutual or exchange traded. The justification: Over time the market will increase in value, as it always has. And for this advice both the funds and the advisor will debit the client’s account in perpetuity.
For more than two decades I managed a portfolio of securities. I selected companies in healthy industries with a history of stable or increasing earnings, a generous portion regularly passed on as dividends. I preferred only companies with reasonably low price-earnings (P-E) ratios, and reviewed the portfolio every several months so to dispose of those no longer meeting the criteria. The system worked reasonably well, in that both dividend income and asset value increased handsomely over time. Though certain aspects of the market have changed in recent years, largely due to technology, I believe specific stock choice is still the best approach.
Be aware that in the corporate jungle, the only person you can depend upon to faithfully represent your interests is the face in the mirror. Ignore this truth at your peril.
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