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Today I wanted to share a story with you from JP Morgan, the famous banker who once led a predecessor of the firm that came to bear his name. I found this anecdote very insightful in regards to general investing disposition:

"In the early years of the 20th century, when J.P. Morgan ruled Wall Street, a visitor came to the city. He was a long-time friend of Morgan, a commodity trader from Chicago. He was what might be called a 'perma bear' following the Panic of 1907. No matter how high or how low the stock market went, his outlook was pessimistic. Another crash, panic, and depression were just around the corner.

He and Morgan began talking about the markets, Morgan being bullish as ever. 'J.P.', he said, 'the news overseas doesn't look too good.'

'A buying opportunity!' responded Morgan.

After an hour of friendly disputing about the markets, Morgan invited his guest to join him for lunch. They walked outside and started moving up toward Broadway. As they did so, his friend couldn't help but admire the skyscrapers that dotted that Manhattan horizon. Morgan gave him a tour of the giant buildings, pointing out the Singer Building, the Woolworth building, and the recently completed Met Life Tower, rising 50 stories high, the tallest skyscraper in the world at the time.

His friend was duly impressed. He said he had not seen anything like it, not even in Chicago. Finally, J.P. Morgan stopped his friend, and said, 'Funny thing about these skyscrapers. Not a single one was built by a bear!'"

A lot of people that I hear from assume those days are gone. After all, the globalization and technology forces of the past 100 years make it impossible to make any comparison between the world of 1910 and today. When everything moves so fast and the market acts so volatile, can you really call yourself a perma bull? The term itself suggests a certain naivete, as if having optimism that your stock holdings will plow on to grow earnings and dividends signals some kind of departure from reality. If you check out any of the excellent articles written by Chuck Carnevale lately, you can catch a glimpse of this sentiment in the comments-the "I'm not a pessimist, just a realist…" attitude of those who doubt either the future of America, American stocks, or a combination of the two.

But here's the thing. I think I can construct a portfolio that will allow me to be a perma bull on my investments. Imagine if I spend the next five to twenty years collecting the highest quality companies I can find at attractive prices. Picture a complete portfolio that looks like this: Exxon (NYSE:XOM), Chevron (NYSE:CVX) , Conoco Phillips (NYSE:COP), Clorox (NYSE:CLX), Colgate-Palmolive (NYSE:CL), McDonalds (NYSE:MCD), Pepsi (NYSE:PEP), Coke (NYSE:KO), Johnson & Johnson (NYSE:JNJ) , Kimberly Clark (NYSE:KMB), Aqua America (NYSE:WTR), US Bancorp (NYSE:USB), Hershey (NYSE:HSY), Kraft (KFT), Procter & Gamble (NYSE:PG), General Electric (NYSE:GE), Wal-Mart (NYSE:WMT), Anheuser Busch (NYSE:BUD), JP Morgan (NYSE:JPM), Disney (NYSE:DIS), Walgreen (NYSE:WAG), Abbott Labs (NYSE:ABT), Altria (NYSE:MO), Philip Morris International (NYSE:PM), Nestle (OTCPK:NSRGY), Emerson Electric (NYSE:EMR), 3M (NYSE:MMM), Brown Forman (NYSE:BF.A), Church & Dwight (NYSE:CHD), Intel (NASDAQ:INTC), IBM (NYSE:IBM), AT&T (NYSE:T), Berkshire Hathaway (NYSE:BRK.B), Microsoft (NASDAQ:MSFT), Becton Dickinson (NYSE:BDX), Realty Income (NYSE:O), Wells Fargo (NYSE:WFC), Unilever (NYSE:UL), HJ Heinz (NYSE:HNZ), and Campbell Soup (NYSE:CPB).

If that is what my portfolio looked like, I would consider myself a perma bull because every year, the collective profits and earnings that those shares earned would grow. Sure, the stock prices will rise and fall-often by twenty, thirty, even forty percent in a given year-but the trajectory of annual earnings and dividends will most likely march upward. Benjamin Graham famously said that the stock market is a voting machine in the short run, but a weighing machine in the long run. By identifying these firms with earnings most likely to rise on a consistent basis, I can have the confidence to not only sit through market declines-but go on the offensive and buy more-fully aware that I will be rewarded when the voting machine mania gives way to weighing machine sobriety.

Here's what I would do. I'd put each of those companies in an excel spreadsheet and keep track of the earnings and dividends they represent. For instance, let's say that I owned 100 shares of Johnson & Johnson in this portfolio. That ownership unit currently represents $244 in annual income and those 100 shares represent $364 in earnings. And I would tally this for all of my holdings in the spreadsheet. At that point, I would sit back and watch these companies do their thing: grow earnings and grow dividends. When 2013 comes around, I would compare the total earnings and total dividends that these shares represent with the previous year. I would not measure myself by how much the price of the stock rises or falls, but rather, by the amount of earnings that my holdings represent and the rising amount of dividend checks that come my way.

I can't imagine what a world would like if these firms were not generating more profits in 2017 than 2012. My job as an investor is to make investment decisions based on the most reasonable probabilities. Sure, there's a chance Coke might be bankrupt in 2015. But there's also a chance-a greater chance I believe-that Coke will be making greater profits in 2015 than 2012. And that's just one company in a portfolio out of 30+. Even if I'm wrong and a firm or two on that list falls apart in a given year, there is still a good chance that I will not only survive but still see my portfolio generate a greater amount of earnings and dividends than the year previously. I think it is very possible to maintain a bullish state of mind if you limit yourself to investing in the highest quality companies possible at attractive prices, and then measure your progress by the growing earnings and dividends that your portfolio generates in aggregate. Greece? Bad job reports? High debt? Bring it on. We'll keep on drinking Coke, shaving with Gillette, taking Tylenol, and eating chicken McNuggets.

Source: What A Perma Bull Portfolio Looks Like