Picking Winners & Identifying Losers

It has been said many times before that attempting to time the market is a fool’s errand. One approach common with Dividend Growth Investors the one taken by DivHut which is to  “…invest in a consistent and systematic manner. Over the long haul, being invested and staying invested in the stock market gives you the best long term odds of success.”  The benefits are consistency, removing emotions and dollar cost averaging while the disadvantages – particularly if fully invested – is the reduced ability to take advantage of “one day sale events” which are becoming more common.

Another favored approach is a screening mechanism to identify securities with characteristics matching ones personal investing preferences.  Many brokers offer this capability and community favorites Dividend Diplomats and Dividends Diversify have published theirs.  While these approaches removes emotion from the equation, subjectivity remains particularly in the exceptions to various ‘rules’.  Case in point, Simply Investing‘s, “The best method for determining when a stock is low is to compare the stock’s current dividend to its average (10yrs) dividend yield. When its current dividend yield is higher than its average dividend yield the stock is undervalued (priced low) and worth consideration. It shocks me to see investors and fund managers not apply this simple principle and continue to buy stocks when they are priced high, and then they blame the stock market for their portfolio’s poor performance.”

To add to the complexity, one then has to ponder the role of mentors, advisors or life coaches.  The likes of Tony Robbins who states, “The mechanics of creating a Money Machine, a way for you to get financially free, are actually not that difficult. But first you have to make the psychological changes that can not only get you there, but help you enjoy that place of freedom as well.”  The real issue may not be in an individual’s ability to locate the path, but the fortitude to execute the steps required.  Perhaps this psychological layer gave rise to the growth of ETFs and funds which absorbs this for a nominal fee.

My personal take is to apply the ‘old standards’ to roughly 2/3rds of my portfolio with the remaining third made up of a mix of growth, M&A candidates, speculative and foreign.  Some of this mix is ripped from headlines.  Such as my concern last year with Unilever’s headquarters.  Now a scramble is afoot with UL investors determining the impact the move to a full Dutch HQ location.  But twice last week, the venerable Jim Cramer stated,

“Welcome to the post-highs market where there are simply too many headwinds swirling, from rising raw costs … to the West Wing revolving door to failed takeovers and suddenly unhelpful government intervention,” he continued.

But even with all of the negatives, Cramer knew one thing for certain: the earnings are strong and full of upside surprises, and that’s what’s keeping the market from tanking.

But don’t forget that the thicket of national news, mostly emanating from the White House, has not been good for stocks lately,” Cramer said. “We can no longer rely on Washington to give us a positive backdrop, which is precisely what makes this market so challenging compared to last year.”

This sentiment I agree with.  Where we diverge is that some news is indeed worthy of including in purchase/sale decisions.  Take the EU’s decision for possible tariff retaliation.  Burying ones’ head in the sand while turbulence is swirling serves no purpose and may result in missed opportunities.

Hope you all experience a good and profitable week!