Three Investing Strategies For Long-Term Success
Achieving success in the markets requires continuing education and ongoing training. You can’t just read through lists of stocks to buy and stocks to sell and expect to be successful over the long-term. This week, three top MoneyShow investing and trading contributors share their favorite strategies and tactics for your benefit.
Ben Reynolds Sure Passive Income
The “market as a casino” analogy makes more sense than ever today. That’s because of the gamification of brokerage apps coupled with the focus (in general) on getting attention from financial media rather than providing sound advice and information. However, there’s a different, more patient and strategic approach to investing that has proven its worth over time: Long-term, buy-and-hold, dividend growth investing.
Since the goal is to buy and hold forever, I refer to this as “forever dividend growth investing.” Forever dividend growth investing is a strategy that focuses on investing in businesses that have a history of paying rising dividends over time and are very likely to continue paying rising dividends going forward.
These are established companies with long track records of a durable competitive advantage as evidenced by their dividend growth streaks. Forever dividend growth investing is about shifting your mindset and prioritizing the five principles below...
Mindset Shift #1: Patience Over Activity – It is in patiently buying and holding great, dividend-paying businesses for the long-run where dividends have the chance to meaningfully compound. Excess activity breaks compounding and increases frictional costs like capital gains taxes and trading fees.
Mindset Shift #2: Investing Over Speculating – One of the most significant shifts that occurs when adopting this strategy is the transition from a short-term trader or speculator mindset to that of a true investor. It's about seeing oneself as a part-owner of a business, rather than a trader looking to make a quick profit from price movement.
Mindset Shift #3: Simplicity Over Complexity – Forever dividend growth investing is not complex. It’s about buying great businesses that pay rising dividends and holding those businesses to build your own, growing passive income stream. The focus is on growing passive income, a relatively simple concept.
Mindset Shift #4: Dividend Income Over Price Fluctuations – With forever dividend growth investing, price fluctuations aren’t meaningful. What matters is rising dividend income. Since we invest for rising dividends, what the share price does isn’t nearly as important. An income focus helps you to more easily withstand price declines during recessions.
Mindset Shift #5: Long-Term Compounding Over Short-Term Gains – This mindset shift is the core of forever dividend growth investing. The focus is on long-term compounding of dividends, not short-term price gains. This naturally fosters a patient, income-focused investing mindset.
Tyler Crowe Misfit Alpha
There is something incredibly reinvigorating about spending time around people who love to talk about investing. Get a dozen value investors in the room, and suddenly, you can talk about, say, the capital allocation priorities of a trash-hauling service company without watching the eyes of the people in your conversation group glazing over.
For many of us, our circles of friends and family probably aren’t as into investing as we are, so the depth of investing topics tends to feel superficial. I asked a few people recently what they thought it would take to get more investors, especially newer ones, to use value-investing principles. There was a common answer:
“You can’t. People are just wired this way.”
I can see why people with a value-investing bent would think this way. Value-investing usually means eschewing shiny objects. Anything receiving favorable attention from financial media or retail investors probably means it’s overvalued.
As someone who tries to keep a foot in other investing camps, I found this answer unsatisfactory. For one, I don’t think that one investing method is inherently superior to the other. Each respective investing tribe — value, growth, dividend, etc. — has plenty of examples of their method generating excellent returns. Each group also has a stable of academic research showing how its method generates superior returns. All of them are correct in their own way.
Yes, growth investing can generate superior returns because a chosen few stocks within a portfolio will likely generate such monstrous returns that it offsets the pile of duds. Value investors will likely have a higher batting average, but you’re less likely to find multi-baggers among the companies trading for 75% of their tangible book value.
Anyone who believes that their method of investing is the only way to generate good returns is doing themselves a disservice. The other dissatisfying aspect of the “it’s how we’re wired” approach is that this dogmatic approach can indulge the worst tendencies of an investor archetype. At their worst, value investors will be willing to buy dog poop at a discount if the discount sign shines bright enough.
Similarly, a large total addressable market can sweep growth investors off their feet, even if dozens of companies with no discreet competitive advantage attack that market. And don’t get me started on the “income investors” that swoon over every double-digit yield six weeks away from a payout cut.
There’s a difference between having the wiring to use an investing style as a tool for finding superior returns. It’s another to be hard-wired such that it is the only lens through which you can view the market.
Markets are back near, at, or above all-time highs and the question everyone is asking is, will we continue higher? Recent moves suggest we could see further gains, but that could change quickly. As a trader, identifying the right time to get into a position is key and there are patterns and signals that can guide you in the right direction, counsels Gav Blaxberg.
Knowing what to look for can help improve the odds that you are on the right train, going in the right direction when the market makes a decision. Here are a couple patterns and signals to be familiar with, especially with markets at these levels.
First, a double top pattern is a classic bearish reversal pattern. It occurs when the price reaches a high, pulls back, then rises to the same high again before falling. This pattern resembles the letter 'M'. The confirmation of this pattern is a break below the neckline (the low point between the two highs).
Second, an ascending triangle is a bullish continuation pattern. It forms when the price makes higher lows while encountering resistance at the same level. A breakout above the resistance line can signal a continuation of the uptrend.
Identifying these patterns and their key levels early will allow you to take optimal entries when the trade starts to take shape.
In addition to patterns, there are also important signals to watch for.
Volume is a crucial indicator to watch when markets are near highs. An increase in volume can confirm the strength of the uptrend. However, if the market is making new highs on decreasing volume, it could be a sign of a potential reversal.
Momentum indicators like the Relative Strength Index (RSI) or the Moving Average Convergence Divergence (MACD) can provide valuable insights. If these indicators are not making new highs along with the price, it could indicate a bearish divergence, signaling a potential reversal.
Moving averages can act as dynamic support and resistance levels. If the price is above a rising moving average, it can indicate a strong uptrend. Conversely, a break below the moving average could signal a potential reversal.
Knowing what to look for and then acting on the information you have are two big steps towards becoming a consistent and successful trader.
Michael Lee Michael Lee Strategy
Michael Lee is a 20-plus-year veteran of the financial services industry and founder of Michael Lee Strategy. In this MoneyShow MoneyMasters Podcast episode, which you can watch here, we cover the outlook for stocks, gold, and cryptocurrencies – plus the “Arms Race” that is minting profits for properly positioned investors.
Mike starts by noting the frequency of data revisions and other quirks with the economy lately. But he adds that “we’re not going into a recession anytime soon” and that while inflation may prove “sticky,” it isn’t reaccelerating in a “violent” way. In fact, Michael sees a trifecta of reasons why this should be a “pretty spectacular period for stocks.”
When it comes to profiting, he’s zeroing in on the Artificial Intelligence (AI) boom, calling this “the greatest technology upgrade cycle in the history of the world.” He believes one sector stock is STILL 25% undervalued...thinks the Magnificent Seven stocks will keep working (though TWO names could lag)...and recommends targeting one key sector ETF (while avoiding another).
We next talk about commodities, including the surprising reason oil could drop into the $40s...while gold should hit $5,000 an ounce down the road. As for BitcoinBitcoin +1.7%? Buckle up! Mike sees it reaching $200,000 in the next 18 months for a few important reasons.
We conclude with Mike providing a sneak peek at what he’ll talk about at the MoneyShow Masters Symposium Las Vegas, set for Aug. 1-3, 2024 at the Paris Las Vegas.