This Ain't Your Father's Stock Market Anymore (PT 2)
Value, Dividend Investing, Growth At A Reasonable Price, Portfolio Strategy
Seeking Alpha Analyst Since 2011
A while back, I discovered a woman named Geraldine Weiss. She was way ahead of her time, being a woman in what was a man's world of investing, back in the day. She came up with a valuation metric to help her select stocks that was uncanny in it's application. She perfected the valuation tool and wrote a book about it called, "Dividends Don't Lie." It was transformative for my stock investing as I was already a Dividend Growth Investor. But applying her valuation metrics to my stock selections has exploded my investment results beyond my wildest expectations. Since 2005, I have been on a roll, growing my portfolio value like never before. Her valuation methods limit the kind of stocks I invest in to Blue Chip, Dividend Growth companies. But that's ok by me, because that's where my interests are. Blue Chip, Dividend Growth. Not only for income, but for capital appreciation. You might want to get her book and change your life.
- Everything you know about the stock market is obsolete.
- While I hate this term, there is a "New Normal" in the stock market, right now and you better be taking advantage of this "New Normal."
- Embrace change. It's inevitable. It's constant. It never stops.
- If you stop, you are going to get run over.
In my last blog post, "This Ain't Your Father's Stock Market, Anymore", I examined a new paradigm that is driving the stock market, today.
When we were young, investing in the stock market was nowhere as simple as it is today.
In order to invest, one had to have a broker to manage your buys and sells. Using a stock broker to initiate buys and sells came with commission rates that were almost obscene. But then again, brokers were making a lot of money with those commission schedules and the smart guys all wanted to become stock brokers, so that they could have a piece of the American dream. The big money wasn't in investing. The big money was in executing trades as a broker.
Getting information on a given company was difficult at best. The information available was old news, for the most part. Up to the minute news about products, services, company mergers were not accessible to working class stiffs like us.
Hell, the brokers didn't have that information, either. Every morning, they'd get a list of stocks to push on their clients. They'd get on the phone and start selling. Sell, sell, sell. Trades drive the market. Trades buys the home in the Hamptons and private school for the kids.
What I Know:
Today, that's all changed. We have zero commissions that impact our buy and sell orders. We like a stock at $50 a share and we make a purchase of 100 shares for $5000.
Every dollar invested is put to work for you and not a single dime goes to a third party.
You want information? It's at your fingertips with your home computer. You can find out anything you want about a given company in seconds. You can become an "information wizard" in just a few minutes a day, sitting at a computer screen.
Stock brokers? A thing of the past.
What You Should Know:
With the advent of mutual funds, many of those former stock brokers became "money managers." The average Jane and Joe could have professional money management at a fraction of the cost of buying individual stocks.
Instead, you could get a basket of 50, 100, 200, 500 stocks, all held in one mutual fund and pool your money with other investor money and funds became the "go to" investment vehicle, with star managers like Peter Lynch, Abigail Johnson, John Templeton, and John Bogle.
Then there were people like Bruce Berkowitz, Bob Reynolds, Bill Miller, Mario Gabelli, Donald Yacktman, Fritz Reynolds, Bill Ackman, Bill Nygren, Chuck Akre, Ken Heebner, Ron Baron, Wally Weitz, and more.
But these investor gurus fell out of favor when they could not consistently outperform the market. By "the market" we mean Index Funds.
And then the index world exploded and the "gurus" were dumped on the trash pile of investor impatience.
All along the way, most of us fell in lock step with the latest idea, the latest guru, the celebrity investment team. But that changed and the Index became the new "Holy Grail."
What Is Your Point, Dave?
The market changes over time. Individual stocks, sold by stock brokers was all the rage in the 1970's and 1980's. That's because the "information revolution" had not taken place yet.
Then came the mutual fund era, where investors chased the best performing celebrity management that money could buy. But then these investment gurus showed that they had feet of clay and could not deliver the goods, consistently.
Then came the rise of the Index. Simple, cost effective, a basket of stocks in what ever index could be replicated. No fuss, no muss. Just send in $25 a month to the folks at Fidelity or Vanguard or invest in your new 401k at work every payday and you would be set for life after faithfully investing in the Index choices that were available to you.
Along the way, there were market corrections that scared some people off. There was the advent of the information age where everything was at your fingertips. Some people took advantage of this revolution and some people did not.
Hell, even today with multiple computers in every American home, you see people who are either too lazy or too stupid to bother conducting a simple Google search and find out what they need to know about a given topic.
Most of us have grown older and are on the other side of investing and retired. There is a new generation coming into the stock market and either you understand what this new generation is bringing to the stock market or you need to get the hell out of their way.
Did You Own Any of These in 2020?
Stocks in the S&P 500 that were "stars" over the last 12 months. How many did you own? If you are a typical DGI, probably not many of these particular companies.
|Symbol||Name||Index||Current Price||1 Yr Total Return|
|TSLA||Tesla Inc||S&P 500||$705.67||720.05%|
|ETSY||ETSY Inc||S&P 500||$177.91||293.69%|
|NVDA||NVIDIA Corp||S&P 500||$522.20||118.02%|
|LB||L Brands Inc||S&P 500||$37.19||115.26%|
|PYPL||PayPal Holdings Inc||S&P 500||$234.20||111.47%|
|ALB||Albemarle Corp||S&P 500||$147.52||106.60%|
|FCX||Freeport-McMoRan Inc||S&P 500||$26.02||97.85%|
|ABMD||ABIOMED Inc||S&P 500||$324.20||92.05%|
|CDNS||Cadence Design Systems Inc||S&P 500||$136.43||90.97%|
|NOW||ServiceNow Inc||S&P 500||$550.43||89.00%|
|IDXX||IDEXX Laboratories Inc||S&P 500||$499.87||88.62%|
|ALGN||Align Technology Inc||S&P 500||$534.38||88.37%|
|WST||West Pharmaceutical Services Inc||S&P 500||$283.31||87.29%|
|AMD||Advanced Micro Devices Inc||S&P 500||$91.71||86.78%|
|CTLT||Catalent Inc||S&P 500||$104.07||83.87%|
|SNPS||Synopsys Inc||S&P 500||$259.24||81.45%|
|AAPL||Apple Inc||S&P 500||$132.69||78.24%|
|ROL||Rollins Inc||S&P 500||$39.07||77.51%|
|QCOM||Qualcomm Inc||S&P 500||$152.34||76.16%|
|PWR||Quanta Services Inc||S&P 500||$72.02||76.10%|
|POOL||Pool Corp||S&P 500||$372.50||75.77%|
|TER||Teradyne Inc||S&P 500||$119.89||72.95%|
|AMZN||Amazon.com Inc||S&P 500||$3,256.93||71.60%|
|TMUS||T-Mobile US Inc||S&P 500||$134.85||71.59%|
|TTWO||Take-Two Interactive||S&P 500||$207.79||70.21%|
|FDX||FedEx Corp||S&P 500||$259.62||69.90%|
|MSCI||MSCI Inc||S&P 500||$446.53||69.23%|
|DXCM||DexCom Inc||S&P 500||$369.72||68.53%|
|TWTR||Twitter Inc||S&P 500||$54.15||67.65%|
|PAYC||Paycom Software Inc||S&P 500||$452.25||66.39%|
|NFLX||Netflix Inc||S&P 500||$540.73||63.95%|
|ADSK||Autodesk Inc||S&P 500||$305.34||62.56%|
|CMG||Chipotle Mexican Grill Inc||S&P 500||$1,386.71||61.59%|
|LRCX||Lam Research Corp||S&P 500||$472.27||61.15%|
|ATVI||Activision Blizzard Inc||S&P 500||$92.85||59.35%|
|BIO||Bio Rad Laboratories Inc||S&P 500||$582.94||56.64%|
|DVA||DaVita Inc||S&P 500||$117.40||56.01%|
|DE||Deere & Co||S&P 500||$269.05||54.74%|
|ODFL||Old Dominion Freight Lines||S&P 500||$195.18||53.00%|
|TSCO||Tractor Supply Co||S&P 500||$140.58||52.87%|
|IPGP||IPG Photonics Corp||S&P 500||$223.79||52.78%|
|SIVB||SVB Financial Group||S&P 500||$387.83||52.53%|
|MKTX||Marketaxess Holdings Inc||S&P 500||$570.56||50.82%|
But there are 43 companies here that would have driven any portfolio to fantastic heights, but many of us found reasons NOT to buy these stocks as opposed to buying them.
(ETSY), (NVDA), (AMD), (OTC:APPL), (ROL), (QCOM), (AMZN), (TMUS) (and not T), (FDX), (TWTR), (NFLX), (LRCX), (ATVI), (DE), and (TSCO) are just out and out fantastic companies.
Not a (PG), (KO), (KMB), (JNJ), (MCD), (ABT), (MO), (TGT), (WMT), (CL), (KMB), (SYY) in the group.
A new paradigm.
Things To Consider:
Commission free trading is the norm. No longer do you have to concern yourself with the "costs of trading."
You buy a stock and it turns south on you? Sell it. Forget about it. Move on. That's what this generation is doing.
Do your own research. Information is so readily available to people today that not being curious enough to ask questions on line is just criminal negligence.
It's ok to be cynical.
Stocks that are performing the best over the last 12 months are not the kind of stocks old fogeys buy. The reason we don't buy them is because when we look at the fundamentals for these companies, we don't see much to like.
But, don't forget. There' a new normal out there. It has to do with getting in on the bottom of a company and riding it to success as more and more people discover the product or service and begin to buy those products and services.
Luck and success in 2021.
Analyst's Disclosure: I am/we are long ETSY NVDA APPL ROL QCOMM AMZN TMUS FED EX, DE TSCO.
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