Foolish investing. Simple, but devastatingly effective, writes Bruce Jackson of The Motley Fool.
There’s nothing like a good old rally to encourage investors back into the stock market.
— The ASX today hit another 20-month high.
— Over in the U.S., the Dow and S&P 500 closed Friday at 5 year highs, in the process registering a third straight week of gains.
— A recent Bank of America Merrill Lynch global fund manager survey showed investors were the most bullish they’ve been in two years.
A simple, but devastatingly effective investing strategy
Regular Motley Fool readers will know our glass is always half-full.
Where some might have seen the Fiscal Cliff as a reason to sell up and wait for the financial world to crumble, we saw it as another potential buying opportunity.
Call us simple, but we can’t find a problem with buying shares of good companies on the cheap.
Here at The Motley Fool, we are business focused, long term investors, our goal being to recommend to you the names of quality companies trading at attractive prices.
We simply call it – Foolish Investing.
Admittedly using that term to describe our investing style is not likely to land us a job at Goldman Sachs or JP Morgan, but it works for us, and hopefully you too.
Creating wealth 101
As we’ve said many times before, investing is about putting the odds in your favour. And believe it or not, when it comes to stock market investing, and creating wealth, the odds are firmly in your favour.
Don’t believe me?
It might surprise you to read this from Warren Chant in the AFR…
2012 is “the third positive calendar year return in the past four and the eighth positive year in the past 10.”
Sounds to me like the odds are in your favour.
Mr Chant goes on to say last year’s figures served as a warning to investors to be patient and not to try to “time” markets. Foolish Investing if you ask me.
The perils of trying to “time” the market were highlighted in today’s AFRs Chanticleer column…
“One of Australia’s most prominent finance commentators, Alan Kohler, has copped a pasting from a wealth management consulting firm claiming his 2012 forecasts would have taken investors ‘out of the market near the bottom, and kept them out as it rallied from its lows, sacrificing big yields along the way’”.
Now we’re not ones to dance on the grave of someone who’s in a similar business to ourselves. We know more than anyone else how quickly and unexpectedly the worm can turn.
In the stock-picking business, we’re smart enough to realise you’re only as good as your last recommendation.
Luckily for us, and we’d like to think skilfully so too, as of Monday January 21, 2013, Motley Fool Share Advisor’s six most recently recommended ASX stocks are all showing double-digit gains, the best being up over 70% in just 5 months.
As I explained to a recent caller, although our Motley Fool Share Advisor track record to date is impressive — as of Monday January 21, 2013 our average return was 28.4% compared to the market’s 13.2%, both with dividends invested — there are of course no guarantees about future performance.
The death of term deposits
Our caller has a term deposit maturing this month. With interest rates low, and probably falling further, he’s naturally looking for other options, including dividend-paying stocks.
Way back in October last year we pronounced the Death of Term Deposits, saying dividend-paying shares were an attractive alternative.
Since then, the S&P/ASX 200 index is up around 9%. Not bad.
Beating that have been companies as large and diverse as Rio Tinto (ASX: RIO), AMP Limited (ASX: AMP), Telstra (ASX: TLS) and Australian Foundation Investment Company (ASX: AFI), up 23.1%, 17.6%. 16.0% and 18.2% respectively.
It’s been a good time to be a stock market investor. And, as you’ll read a little further down, the good times could be set to roll on.
Speaking of AFIC, it was no surprise to learn both Rio Tinto and AMP are amongst the top 25 holdings of this popular listed investment company. Reporting results yesterday, the group’s investment portfolio returned 16.6% over the 6 month period to December 31, 2012.
It’s an impressive return, for sure, just ahead of its benchmark, adding to the company’s solid record of out-performance over the long-term.
Given its proven out-performance and its long-term investing focus, when the folks at AFIC talk, it pays to listen. In today’s AFR, company general manager Geoff Driver said…
“I think people are moving out of interest bearing type liquidity and into the equity market.”
You may have heard something along those lines from us over the past number of months. Once or twice…
When it comes to investing your money in risk-assets, like individual stocks, there are of course no guarantees.
Two guarantees you can rely on…
Lest you think we’re being defeatist, let me make these two more guarantees…
1) Through long hours, hard work and experience, Scott Phillips and myself will continue to put the odds of picking winning ASX stocks firmly in our favour.
Quality of business comes first, including competitive advantage. Growth prospects are important, including the length of the runway ahead. Valuation, including dividend yield, matters too, obviously.
In a nutshell — Foolish Investing.
2) You won’t find us recommending readers jump in and out of the market based on some macro event, like the Fiscal Cliff, the coming U.S. debt ceiling negotiations, Chinese growth numbers, domestic consumer confidence numbers, the price of iron ore or the price of fish for that matter.
For us, you’re either a long-term stock market investor — Investing Foolishly — or you’re not.
From pauper to millionaire
Above I discussed the perils of trying to “time” the market.
I’ll conclude with discussion of another peril — the temptation to invest in some penny share mining stock in the hope it will might turn you from pauper to millionaire, preferably overnight.
I hate to be a party pooper, but most such companies have virtually no hope of ever making a profit, and have virtually every chance of going bust…taking you and your thousands of dollars ‘investment’ down with it.
Just say no to losing money and yes to Investing Foolishly.
As ever, in 2013 and beyond, I wish you happy, profitable investing.
If you are in the market for high yielding ASX shares, click here now to get The Motley Fool’s special FREE report, “Three Stocks For the Great Dividend Boom”. The report lists the names, stock symbols, and full research for our three favourite income ideas, all completely free!
The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Of the companies mentioned above, Motley Fool Australia General Manager Bruce Jackson own shares in AFI and Telstra.