rockymtnway

Does Buy-and-Hold Work on Major Blue Chips?

The dividend discussion is critical here since many of these companies work hard to raise dividends every year. A $1,000 investment in something like GE isn't just going to give you 4% for the next 10 years. That dividend is going to grow, year after year and after 10 years the yield is likely to be the equivelent of 10% based on your original investment. When you compound that with dividend re-investment, you're looking at safe investments that hold the potential of building a rather nice nest egg without a lot of trading fees or volitility. While I understand the appeal of picking nothing but fast moving winners, it's a riskier game with as many winners as losers. I believe a well diversified portfolio should contain both blue chips that are buy and hold investments (with dividend reinvestment, of course) and small caps with explosive growth. However, if you're not the type of have the patience and discipline to watch the small caps, then for gawd's sake, stay away from them.

Dow: An Undervalued 5-Star Market

There's certainly a lot of value in this market right now, but the trick is finding value that doesn't Bear Sterns on you, or sit there doing nothing for the next 12-18 months before things come off the bottom. GE is far more diversified than any of the others and is making strong efforts at conserving and generating cash. The dividend at over 4% is plenty to keep me in for the long haul, even if it sits on the bottom for a year or two. I continue to buy in as the price goes down (I've thought it's been a bargain since $32.5).

While I hold PFE, I also have my concerns for long term growth with their biggest moneymaker, Lipitor, coming off patent in 2010. It think the dividend is safe until then, but at that point, all bets are off. That may hold the current price where it is until then.

As for financials, I'm looking at companies that have been smarter than the average bear and managed to avoid the mass of sub-primes like JP Morgan Chase. They're one of the only one's healthy enough to sustain their dividends and continue to pick up bargain acquisitions along the way. Still, I predict stock prices in the financial sector will be flat at best, with a likely downward trend for the next 6-12 months as we figure out just how slow this economy can go without stalling.