Following the stock market on a daily basis allows you to constantly hone your market view, and it also reveals subtleties in the equity speculation business that might not otherwise be obvious. One thing I’ve learned in the investment business is that good timing is equally as important as a good business. For longer-term investing, I’d rather buy a good company that’s a stock market leader with a proven track record of wealth creation over any other strategy. You identify a great business that’s proven to make money and buy it when the price is down. In the absence of the right price, you just keep waiting. There are, in my view, actually very few good stock market opportunities at any given time. (See Stock Picking: Time Horizons Change, But the Environment Just Got Better.)
And it doesn’t have to be fancy either. Consider a market leader like Kraft Foods Inc. (NYSE/KFT). It’s a mature, “boring” business that performance-wise has been one of the best stocks in the large-cap universe over the last two and a half years. The stock’s been consistently yielding over three percent and is up about 20% over the last 12 months not including dividends. That’s impressive for a $67.0-billion company.
Other market leaders like PepsiCo, Inc. (NYSE/PEP), Deere & Company (NYSE/DE), Kimberly-Clark Corporation (NYSE/KMB), Abbott Laboratories (NYSE/ABT), Canadian National Railway Company (NYSE/CNI), Southern Company (NYSE/SO) and McDonald’s Corporation (NYSE/MCD) are some great examples of dividend paying stocks that have consistently been good buys when they’re down. According to the long-term charts, these stock market leaders aren’t typically down for very long and, in my view, they are definitely worth considering when they’re off their highs.
There’s a lot to be said for consistency in the investment business. That’s why investors often prefer real estate (rental cash flow) to the stock market. Consistency of returns is the one thing that isn’t very common when dealing with equity securities. Few investors have the patience to wait for good businesses at attractive prices. When people come into money and they want to invest, immediacy takes over. I saw this consistently when I was a stockbroker and it’s the wrong way to go about making longer-term investments in the stock market.
Market leaders change over time and obviously stock market investors have to manage their portfolios accordingly. Right now, in this economy, the most attractive stocks in my mind are brand-name market leaders with proven track records of long-term wealth creation for shareholders. Wait for them to go down in price, then build a position.
This is a stock market with very little in the way of a tailwind. Investment risk for equities remains high and the outlook for economic growth is minimal. Market leaders are important in an investment climate like this, not to the exclusion of other stocks, but because expectations are so low. Naturally, there’s no rush.