Building a Portfolio is a Marathon not a Sprint
Building a portfolio is a marathon not a sprint. I know many of you are eager to invest right away and invest everything, so that you can achieve maximum returns. But remember you must buy quality stocks when they are undervalued.
Buy low and sell high, not the other way around. I'm a big fan of Investment Quality Trends (IQT), and I'd like to share with you the latest nugget of wisdom from IQT:
"As long as the Federal Reserve maintains a zero interest rate policy there is no alternative for investors except to invest in stocks. Subsequently, since there are no decent yields to be found in fixed-income, and traditional “growth” companies pay little to no dividends, investors have been flocking to dividend paying stocks in droves.
Of course we are big proponents of dividends; they are after all the straw that stirs our drink. The fact is though that simply because a company pays a dividend, it doesn’t mean that the company represents good value. Cash flow is nice, and the dividend is the most fundamental measure of return on investment, but in terms of the risk/reward equation, even dividend paying stocks have downside risk if they aren’t acquired when they offer good value. This is the sole reason to establish Undervalued and Overvalued boundaries, which lowers your downside risk and increases your upside potential. There are also those that fall into the activity dictates results camp, which feeds right into Wall Street’s wheelhouse.
Our contention is that portfolio construction is a marathon and not a sprint. This is to say that it is the rare occurrence where you can construct a well-diversified portfolio of 25 to 30 high-quality companies that offer historically great values in one fell swoop.
In our experience it takes time to build a world-class portfolio, which requires patience. Then, once your foundation in place, you can dabble on the periphery and perhaps scratch that speculative itch. Better yet, the prudent investor will simply accrue cash from dividend payments and wait patiently for the inevitable opportunity to add to their existing positions at good value or maybe even increase the size of their portfolio with new positions. Anyone who would advise you to abandon this strategy because there wasn’t sufficient activity either has no clue what they are doing or doesn’t have your best interest at heart."*
Remember in order to be a successful investor you need to buy quality dividend paying stocks when they are undervalued, and don't let anyone else tell you otherwise.
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* page 16, Mid-June 2014, Investment Quality Trends