Bull Market

[notexactly]

(05-23-2015, 07:55 PM)Dividend Watcher Wrote:

(05-23-2015, 10:50 AM)notexactly Wrote: I knew this outlook would be flawed, I was more so seeking what was wrong with the perspective than actually defending it. I definitely got my answer.

It's not necessarily flawed. I just countered with my opinion. You could be right and we could be starting a bear market in the next 6 months. I do agree that it's more difficult to find stocks that are reasonably priced right now but they are out there. I don't think the suggestions I gave are too outrageously priced and may give you market average 7-10% total returns going forward.

(05-23-2015, 10:50 AM)notexactly Wrote: So we are focused on the very long term, market fluctuations are not predictable therefore predicting them is a fools game, create a criteria to value companies and make decisions based on that not on emotions, and timing the market is not as important as a factor as time in the market.

Hmmmm, learned your lessons well you have, Padawan.

(05-23-2015, 10:50 AM)notexactly Wrote: The last one for me is a bit harder to grasp. I know we are focused on dividends and strong stable companies, but capital appreciation of our stocks must be a factor as well? Could someone delve deeper into this? I would appreciate it!

You have two things pushing up prices over time.

1. Increasing earnings: The type of companies we are talking about have the tendency to keep increasing their earnings. Sure they have slumps and rough periods. Some are internal causes and sometimes it's the economy, stupid. Sometimes it can take several years for a company to work out their internal problems but dividend growth companies do have the ability to bounce back. Afterall, the dividends have to be supported by their earnings. No one is going to let KO's price drop or stagnate to only 5x earnings without something catastrophic happening.
   
2. Increasing dividends: Like wise, as the dividend increases, yield will keep going up for a company with a stagnant stock price. You will never see JNJ yielding 10%. Someone will buy them out long before that happens.
   

Your job is to find the companies that can increase their earnings over time and be willing to share their results with their owners. Then you have that double whammy that brings the capital gains along for the ride.

As for the "time in the market" comment -- first, you don't know when a company's stock price is going to make that next big jump to the next price range. If you miss it, you've just lowered your return going forward.

Second, if you're reinvesting those shared profits whether in the same company or another, the payments you missed can't be made up. Sure, the difference is minimal over the short term but 10 years from now it could be a noticeable difference.

All that being said, you still don't want to grossly overpay. Then you could end up like the "lost decade" of the 00s. People who bought MSFT around 2000 with a P/E of around 50 spent the next decade (longer actually) until earnings caught up and the price came down to a reasonable level. I know, I was the poster child for that scenario for the first few years.

You've got a good start. Patience will get you where you want to be.

Thanks for the breakdown Dividend Watcher. I appreciate it. Very informative.

May I ask how you value your companies personally? P/E <20, etc.