From Dan Ferris in the S&A Digest:
Yesterday afternoon, I gave a short interview on the
Wall Street Shuffle radio show (1190 AM in Dallas-Ft. Worth), co-hosted by Dan Cofall and Danny Stewart.
Stewart asked me several questions, and I think my answers might have caught him a little off-guard. I also think my answers (which I share below) might provide little-reported insight on the operation of popular financial media outlets like... oh... I don't know... CNBC, for example.
The first question Stewart asked was what I thought about the market going up 200 points yesterday...
The real answer is this: One-day moves have virtually no meaning. Attempting to assign meaning where there is none is a waste of time.
I was thinking about this topic because I've been watching CNBC every day, just tuning in randomly for an hour or two to try to figure out what business they're really in. And I think I've figured it out. CNBC's real racket...
CNBC exists for the primary purpose of pretending to know why various markets and securities just went up or down by a few points. Of course, the hosts have no idea why this or that stock or index just moved a few points. No one does. These events are random and attempts to assign meaning to them are futile.
But that's OK. CNBC's business isn't knowing. It's pretending to know. It can be in that business because its audience doesn't realize investing isn't about the movements of prices, but rather changes in value.
Looking good and speaking in a clear voice are important for CNBC personnel, too. But looking good isn't nearly as important as making sure you say something that amounts to nothing.
That's great for you and me, though. You don't get rich in the stock market by watching indexes go up and down and pretending to know why. You and I can seize upon that knowledge and use it to our advantage.
Oh, one more thing... Meaningless statistics are a big part of the illusion of saying something that appears clever. For example, yesterday's meaningless statistic was that the Dow Jones Industrials Average has moved 100 points or more in 17 of the last 22 sessions. Who cares? What I want to know is, did the values of the Dow 30 change much each day? If not, it sure looks like there's a great opportunity in there somewhere.
This up-and-down motion is great fodder for the cult of meaninglessness at CNBC. The favorite buzzword today is "volatility." Volatility is how much stock prices go up and down. What you'll never hear about volatility on CNBC is that business values don't change as rapidly as market prices do. And you'll never hear anyone complain as loudly about upside volatility as they do about downside volatility... even though the huge upside moves into overvalued territory set the stage for the big downside moves in undervalued territory.
I hope you see there's a conversation that the popular financial media never has with its audience, but which could benefit you greatly. I try hard to have that conversation with my subscribers.
The next question Stewart asked got away from the silly business of talking about price quotes and closer to the truly important business of knowing where to invest your money... "What's the World Dominator of the banking sector?"
Longtime readers know I've recommended "World Dominating" businesses like Wal-Mart, ExxonMobil, and Intel. So the question was really which mega-bank would I buy?
The answer is none. I challenge anyone to look me in the eye and tell me he's read every page of Bank of America's 900-page 10-K. And if he's really read it, I want him to tell me he understands all the pieces of the business so well that he can calculate its intrinsic value. I bet even the bank analysts on Wall Street don't truly know what these mega-businesses are worth.
Is it even possible for anybody to know what BOA's $2.5 trillion balance sheet is really worth? I have the same question for shareholders of JPMorgan Chase, Citigroup, and even Warren Buffett's beloved Wells Fargo. Yes, I seriously doubt Warren Buffett has a reasonable idea of the intrinsic value of Wells Fargo. It's too complicated. It's too big, even for him. And even if Buffett really knows... you and I don't and can't, and neither can hardly anybody else in the market.
So if you own any of these stocks, you're ratcheting up your risk of losing money... because that's the usual result of not knowing what you own.
The Wall Street Shuffle also asked me about companies like Wal-Mart, Intel, and Abbott Laboratories – all companies I hold in my
12% Letter. These are the World Dominating Dividend Grower stocks most individual investors ought to build their equity portfolios around.
They're better businesses than most of the stocks you'll ever own. They're more consistently profitable than any other company you've ever invested in. They grow their dividends every year like clockwork. They gush free cash flow every year and use it to pay dividends and buy back stock. Wal-Mart has grown its dividend every year of its existence as a public company. Abbott Labs has grown its dividend every year for 38 years. Intel started paying a dividend in 1995 and has raised it every year since 2003.
With markets bouncing up and down relentlessly and promising to deliver more of the same for years to come, you need to buy great dividend-paying stocks. And you need to reinvest those dividends if you want to make money in stocks over the next five to 10 years, maybe longer. You're not going to see a real, honest-to-goodness bull market for at least that long. So you have to earn some dividends.
World Dominating Dividend Growers are the big, safe, reliable dividend stocks you should buy first. I've got a whole list of them in
The 12% Letter.
After you buy them, you can add some of the other interesting income stocks I've found. In the current issue of
The 12% Letter, I've got one that's paying 5.5% today. Management has made it clear the dividend will grow as much as 10% a year for the next two years. It's one of the safest, best blue-chip companies in its industry. It owns some of the most essential infrastructure assets in the country, without which life as we know it would come to a grinding halt for about 30 million U.S. homes.
And it has exciting growth opportunities that will keep growing the business – as much as 50% over the next couple years. The dividend has gone up for six straight quarters. And with the projects it has underway now, this company could continue growing for another six quarters.
Crux Note: The 12% Letter is focused on helping folks find safe and unique ways to collect amazing amounts of investment income. Dan recently came across a series of income "loopholes" that could help you collect as much as $600 per week in extra income.
Click here for the details.
More from Dan Ferris:
Fantastic advice every novice investor should read immediately
Why you should own the No. 1 natural gas producer in the U.S.
Must-read: How the gov't could save $1.6 trillion and solve the "crisis" instantly WITHOUT raising the debt ceiling
