Download now: How To Invest in the Coming Bitcoin Boom

You Can Beat the Market

Written by Briton Ryle
Posted February 25, 2018 at 7:00PM

I received an email from a subscriber last week that I want to share with you. The name has been omitted to protect the innocent.

Briton ... A BIG thank you for the information. I am going to do much research and find some I want to invest in. Also going to pull my mutual fund investments from a local firm and use your info to start my own "fund". I do have about $55 K there. One of these days I am going to hit that home run from a very inexpensive speculative stock to make my retirement more solid.

Now, I need to start with a little background...

As you probably know, in addition to writing a couple articles a week for the incomparable Wealth Daily, I am the editor of a newsletter called The Wealth Advisory. My assistant Jason Williams and I focus on finding great American companies (many that pay growing dividends) for our subscribers. Our basic investment thesis is that if you buy shares of great companies, your investment money will be very well cared for. 

What makes a company great? Well, it's a combination of things: great product(s), great brand, great management, great relationship with customers and employees, and so on.

I often point to Starbucks as an example of a great company. Starbucks basically invented the coffee shop as we know it today. It treats its employees very well, offering money for education as well as stock to even part-time employees. It knows its customers intimately. It signs long-term deals with suppliers and often pays above market rates for its beans.

Starbucks is also incredibly innovative. It has the best rewards program out there, and its gift cards are ubiquitous. It typically has a full quarter's worth of revenue outstanding on gift cards. And it's fended off a bunch of challenges from Caribou Coffee, Dunkin Donuts, McDonald's, etc. 

Ask yourself: What would happen if Starbucks raised all its prices by 10%? Will anybody say, "That's it, I'm not going to Starbucks anymore"? No, probably not. 

I recommended Starbucks to Wealth Advisory subscribers in October 2012, at split-adjusted $22.85 a share. The annual dividend was $0.32 a share. Today, the stock is about $56 a share, and the annual dividend is $1.30 share. In other words, your initial investment has doubled, and your dividend payment has quadrupled — in less than six years.

That's the power of a great company.

600% in 10 Years

I get help with The Wealth Advisory from a former investment banker, Jason Williams. He writes for Wealth Daily, too. He embarked on a little research project recently. Starting at the inception of The Wealth Advisory in January 2008, he took an imaginary $10,000 and split it into each of the first year of stock recommendations. Then, when a stock was sold, he rolled the proceeds into a new recommendation. 

The point was to get a real sense of how The Wealth Advisory did over the last decade, which happened to include the worst bear market since 1929. He even made a chart of it: 

Now, I knew we had beaten the market handily. But I was still surprised to see to what degree. We absolutely crushed the S&P 500. And we even beat a 3X Leveraged S&P 500 ETF. 

I'm not going to take (all) the credit for this. We've had a bull market wind at our backs for nearly nine years. And it's really the great companies in The Wealth Advisory’s portfolio that have continued to innovate, execute, and grow their revenues, profits, and stock prices. All Jason and I do is find those companies and tell our subscribers about them. (Though the fact that each of our open positions is up an average of 42% suggests we're pretty good at it.)

Like this specialty dog food company we recommended back in May of 2016. We knew very well how much Americans spend on their pets every year. So when we turned up Blue Buffalo (NASDAQ: BUFF), we knew we had a winner on our hands. So we recommended the stock at $25.65. And last Friday (February 23), General Mills announced it was buying out Blue Buffalo at $40 a share. Boom: 55% gains for Wealth Advisory subscribers.

You Can Beat the Market, Too

Now, finally, back to that subscriber question from the beginning of this article. I'll reprint so you don't have to scroll back up:

Briton ... A BIG thank you for the information. I am going to do much research and find some I want to invest in. Also going to pull my mutual fund investments from a local firm and use your info to start my own "fund". I do have about $55 K there. One of these days I am going to hit that home run from a very inexpensive speculative stock to make my retirement more solid.

So, this gentleman says he is going to pull his money out of mutual funds and put it in The Wealth Advisory stocks. I don't have a problem with this at all. I am no fan of mutual funds. They eat you up with fees. And they can never beat the market for more than a year or two at a time.

Part of the reason for this is that they spread their investment cash over too many stocks. I mean, how can anyone possibly cover 100 stocks? Or 200? And if you have several billion under management, performance is bound to get watered down.

Most investors would do much better focusing on a handful of stocks, maybe 8 or 10 great companies, and just let them ride. Because great companies grow over time.

Pick a bank, two retailers, two techs, an industrial, and an energy company. That's basically the Dow right there. 

OK, here's the part that's bugging me. Our mystery subscriber finishes his email with: "One of these days I am going to hit that home run from a very inexpensive speculative stock to make my retirement more solid."

NOOOO! NOOOO! Speculative stock? Have you been listening?!? 

Seriously, I actually don't have a problem with allocating a little cash for speculative stocks. If you're willing to do some research, they're fun and can be exciting, and you might actually catch a tiger by the tail. And we've got some editors here at Angel (Alex Koyfman, Jason Stutman) who do a great job with speculative stocks.

But please, don't be wagering your retirement on small speculative stocks. That's a good way to guarantee you'll be working into your 70s. 

Saving for retirement is a process. And it begins with great companies that you can count on to execute their business models and grow your investment.

Reinvest your dividends. Add money on a regular basis. Stick with the program, and you can beat every mutual fund and the market over the long haul.

Here's a good place to start.

Until next time,

brit''s sig

Briton Ryle

follow basic@BritonRyle on Twitter

A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

Comments

Buffett's Envy: 50% Annual Returns, Guaranteed