Don’t Have Faith Investing in the Stock Market?

Investing RiskI know investing in the stock market can seem risky. It is risky if you don’t know what you’re doing. Imagine getting behind the wheel of a car if you don’t know how to drive. Or sitting in the cockpit of an airplane but you don’t know how to fly. The missing ingredient in these scenarios is a lack of training.

Training and knowledge help you to overcome the unknown; the same scenarios no longer appear risky. The same goes for investing in the stock market, training will give you the confidence and faith you need to invest by yourself. Knowledge will give you the tools to minimize your risk and avoid certain pitfalls.

Stephen Jarislowsky a self-made billionaire has this to say about investing in stocks:

“I am an advocate of investing in individual, high-quality stocks, provided you take care to avoid certain pitfalls. Historically, stocks have proven to offer as good a return as any other investment vehicle – and nothing I’ve seen over the past 50 years of investing has shaken my faith in stocks.”*

Training (education) is the missing ingredient to help you become a successful investor. You owe it to yourself to learn how to grow your money. After all no one cares more about your money than you do.

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*p.87, The Investment Zoo, by Stephen A. Jarislowsky

Worried You’re Making the Wrong Investment Choices?

Couple InvestingEach time you invest your hard-earned cash in mutual funds, ETFs, stocks, bonds, CDs, or GICs, there’s that inner voice saying “what happens if the invest tanks and I lose my money?”. As an investor your mind races with questions like:

  • What if the stock market crashes?
  • What if corporate executives are stealing money from the business?
  • What if the financial results are made up, and the company goes bankrupt?
  • What happens if I lose my savings?

These are valid questions, and the solution is to build a money producing machine. A machine that will provide you with a constant stream of growing income. I achieve that by investing in quality companies that provide a constant stream of growing dividends.

Dividends are real, just like the cash in your pocket.

“In other words, a company can tell you about its earnings, but there is always a certain ‘flexibility’. There is no flexibility when it comes to paying and increasing dividends. The company must have the cash to pay you. What you see is what you get. Through the dividend, a company can show you how well it’s doing. So dividends are real, like the income from an apartment building or from a liquor store or from a bank CD [term deposit]. And dividend growth is real. Neither dividends nor dividend growth is some propaganda from the company, nor some hype from a brokerage firm or newsletter writer, nor some error in judgement by a finance magazine.”*

Let’s take a look at a real-life example. In 1988 Wal-Mart’s dividend was $0.01 per share, today the dividend is $1.96.

A $4932 investment in Wal-Mart back in 1988 would generate $18,816 in dividends annually today. Plus your shares (all 9600 of them) would be worth $799,104 today. And don’t forget dividend growth, Wal-Mart been consecutively increasing dividends for 42 years now. So, there’s a very good chance the $18,816 in annual dividends would increase next year as well.

Focus on dividends, hold your shares for the long-term, and your money producing machine will continue generating growing cash for years to come.

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*p. 34, The Single Best Investment, by Lowell Miller

One Simple Piece of Investing Advice For You

investLast year Globe & Mail interviewed 12 investors, from Bay Street to Wall Street to Silicon Valley, about how to make money now. Here’s what Satish Rai had to say about investing:

What can a boomer approaching retirement do?

I have a simple piece of advice for boomers: Live off the dividend income, not capital gains from stocks or bonds. If you need the capital gains, you have to try to time the market when you buy and sell. But if you’re able to sustain your lifestyle with dividend income—plus OAS [Old Age Security], CPP [Canada Pension Plan] and your pension plan—you won’t have to worry about fluctuations in the value of your portfolio. You’ll have a very good retirement, because there’s enormous opportunity around this.

This is worth repeating and underlining: Live off the dividend income, not capital gains from stocks or bonds. If you need the capital gains, you have to try to time the market when you buy and sell.

Dividends (the money paid to you the shareholder) are key, forget about timing the market. With sufficient dividend income you don't have to worry when stock prices go up or down.

This advice doesn't only apply to boomers, it also applies to anyone just starting to invest. The younger you are the more time you have to build a portfolio of quality dividend paying stocks. You'd be surprised you may even be able to live off your dividends before you reach your retirement age!

Remember focus on buying quality dividend paying stocks when they are undervalued and you will do very well for yourself.

According to the Globe & Mail:
Satish Rai, 50, joined TD as a management trainee in 1986 and began applying more analytical discipline to the bank’s investment decisions. He is now in charge of investments at TD’s $217-billion asset management division and runs the bank’s own pension plan.

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Are You Hoping for Stocks Prices to Go Up?

diagramMost investor buy a stock and then hope for the price to go up. You can hope all you want, but at the end of the day what really matters is the dividend (the money paid to you the shareholder).

Last year Globe & Mail interviewed 12 investors, from Bay Street to Wall Street to Silicon Valley, about how to make money now. Here’s what Geraldine Weiss had to say about about dividends:

What about the way investors approach dividend stocks?

I look at dividends not necessarily as an income factor, but as the only true measure of value in the stock market. Anything that doesn’t pay a dividend or some kind of return is a speculation—so dividends will always be a big factor in the stock market.

Has there been any change in the way companies approach dividends?

Blue-chip stocks have always paid dividends, and they should—they should share their good fortune with their stockholders. And income is really the main reason why an  investor would go into the stock market—to get a return on his investment dollar. We all hope for capital gains, but the only thing we can really count on is the dividend.

Remember focus on buying quality dividend paying stocks when they are undervalued and you will do very well for yourself.

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What’s the Easiest Way to Grow Your Money?

Would you like to increase the amount of money you currently make? Have you thought about how to increase your income? Getting a raise? Starting a second job? Changing your career? Launching a new business? Investing in real estate? All of these are great ideas but the time and effort involved is huge!

What then is the quickest and easiest way to grow your income? I would suggest investing in quality stocks that pay dividends. Dividends are cash payments made to shareholders, dividends are paid directly to you regardless if shares prices are going up or going down.

Here are a few dividend companies that you may recognize, in brackets I’ve put in the year they first starting paying dividends:

  • Coca-Cola (1893)
  • Enbridge (1952)
  • Fortis (1972)
  • Johnson & Johnson (1944)
  • McDonald’s (1976)
  • Procter & Gamble (1890)
  • Walmart (1973)

Let’s not forget we’re talking about increasing your income, so what if companies have been paying dividends for over 100 years? The key here is that most quality companies increase their dividends over time. Let’s take a look at the same companies but this time with the number of years of consecutive dividend increases:

  • Coca-Cola (52 years)
  • Enbridge (19 years)
  • Fortis (42 years)
  • Johnson & Johnson (52 years)
  • McDonald’s (38 years)
  • Procter & Gamble (58 years)
  • Walmart (41 years)

In 2005 the dividend for Walmart was $0.58 per share, today it’s $1.92 per share an increase of over 231% in just ten years. Has your salary gone up by 231% during the same time?

Suppose you purchased 100 Walmart shares in 1970, your initial investment would have cost you:

100 shares x $16.50 = $1650

Today your $1650 investment would be worth over $15 million, and you would be receiving over $393,216 in dividends annually. Not a bad way to earn $393,216 annually, think of all the money you’ll save without having to drive to a job every day :)

Increasing dividends provide you with the easiest way to grow your income. Start today to build a portfolio of stable large companies that continue to increase dividends year after year. You future self will thank you for the investment decisions you’ve made today.

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Do You Have An Advantage Over Large Institutional Investors?

MarketI've often heard the phrase "You can't beat large institutional investors, they have access to more information!" I disagree, an individual investor has the advantage of being small, and being able to hold a long-term perspective.

Here's what Motley Fool had to say about the advantage of being a small investor:

"While Buffett has buying power and access to deals ordinary investors can only dream of, there's one area where Buffett himself concedes that the small investors have the advantage.

Business Insider noted that Buffett finds it more difficult to achieve high percentage returns on Berkshire's current investment portfolio than to manage a much smaller amount of money.

It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.
In managing Berkshire Hathaway's multibillion-dollar portfolio, Buffett needs to produce huge gains in absolute terms to post meaningful percentage returns. While a typical investor with a $100,000 portfolio would see a 50% return from a gain of $50,000, a $50,000 gain for a $1 billion portfolio would only amount to a gain of 0.005%. Berkshire would need many more winning investments to produce a 50% return. Furthermore, when a small investor finds an investment with good return potential, he or she can move a large portion of their portfolio into it. However, with the amount of money under management at Berkshire, only a small part of the overall portfolio could be invested before Berkshire has essentially bought out the company or pushed its price into overvalued territory.

Investors with small portfolios have the advantage of being able to produce outstanding percentage returns. So while you can't get access to Buffett's special deals, you can still profit from finding undervalued investment opportunities too small to move the needle for Berkshire."

Last year Globe & Mail interviewed 12 investors, from Bay Street to Wall Street to Silicon Valley, about how to make money now. Here's what Charles Brandes had to say about small investors versus large investors:

You say individual investors have a big advantage over institutions. How so?

The conventional wisdom is that the institutions always have an advantage over the little guy, and you can’t fight Wall Street. That is wrong. The institutions have the same behavioural handicaps as individuals. However, they can’t overcome them, because there is so much pressure in the short term for institutions to perform.

Therefore stop worrying about what large institutional investors are doing, as a small investor you have the advantage. Focus on buying quality dividend paying stocks when they are undervalued and you will do very well for yourself.

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Helping You Earn More in 2015

Growing Economy 2015I'd like to help you earn more in 2015. The beginning of the new year is the perfect time to set goals, and begin on the path to increase your passive income.

My approach to value investing is simple, build yourself a stream of passive income that increases every year. You can do this by buying quality stocks, and collecting their dividends (cash paid to the shareholders).

The income is passive, because after you've bought the stock there is no more effort on your part. You receive regular dividends (cash) just for holding the stock. The dividends keep coming regardless of stock prices going up or down.

Here's a list of some of the stocks that I own that have increased their dividends in the last 12 months:

International Business Machines (IBM), 15.79% increase
Johnson & Johnson (JNJ), 6.06%
Pepsico (PEP), 15.42%
United Technologies (UTX), 10.28%

BCE (BCE), 6.01%
Canadian National Railway (CNR), 16.28%
Empire (EMP.A), 8.33%

In 2004 Derek Foster retired at the age of 34, earning more than $25,000/year in dividends.

Earning a growing stream of passive income is possible, all it takes is education to learn what to buy and when.

I created Simply Investing to help people like you to learn quickly, and easily apply the principles of value investing. Hundreds of folks have taken my course, and reaped the rewards of building their own stream of income.

Here are my favorite blogs posts to help you earn more:

Do You Know When to Buy Stocks?
How I saved 4672% in Fees, and Continue to Make Over 14% Each Year on a Single Stock
What is the P/E Ratio, Could it Save You Thousands?
Top 5 Reasons Why Mutual Funds Fail

Happy New Year, and I wish you all the best in 2015!

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