After 19 years covering the stock market for USA TODAY, Adam Shell gives his best advice on how to successfully invest in the market.
Just about anyone can tell you what sways the stock market.
“Someone needs to take the president’s phone away,” remarked a D.C. taxi driver.
“Stocks have gone up for a long time—they’re due for a slide,” a New York City bellhop confided.
“Amazon is taking over the world!” said a shoe salesperson in Scottsdale, Arizona.
All good points. But not necessarily correct.
Stock prices are driven by company earnings, influenced by interest rates and sensitive to economic growth. Other factors affect stocks to be sure, and anyone — including the pundits — who tells you how stocks will perform in the near term are either lucky or reckless. Careers have been made and lost on one big market timing call. The odds are very low for getting in and getting out at the right time. Remaining invested is a much better long-term strategy.
As you build your portfolio here are three things any laywoman can keep her eye on.
Dividends and dividend growth
Dividends let you peek inside the minds of company managers, revealing their view on the future earnings power of their corporation. Companies pay dividends out of free cash flow. When a company raises its dividend, it usually reflects optimism about future growth. In addition, dividends grow and compound over time, contributing significantly to total return.
Think swoosh, golden arches, a white apple with a bite out of the corner. You get the idea. Brand dominance is a powerful weapon that provides a cushion when a product or company leader inevitably stumbles. Beloved brands give companies pricing power and the ability to weather the unexpected. And if there is one certainty in business, it is this: Expect the unexpected.
Many great companies have made great big mistakes. How they respond to the crisis, product flop or technological miss, marks the difference between sustainable success and eventual failure. Companies like Polaroid and Xerox were household names. We took Polaroids of friends, made a Xerox of a document. These brands owned the market — until they didn’t. They rested on their laurels and missed technological trends, until they lost market dominance. Management teams that evolve with technology and remain sharp can navigate these shifts. Car companies who embrace electric vehicles, technology companies who have moved to the cloud, and staid retailers who embrace e-commerce are all examples of adaptation.
Investing can be daunting. Especially during times like these. But a disciplined investment approach in which you regularly commit money to stocks will yield attractive results over the long-term.
Focus on companies you understand. That knowledge will provide you with confidence during difficult times.
If you are investing correctly, you will live in a constant state of dissatisfaction: When your investments go up, you’ll wish you bought more, and when they go down you’ll think you own too much. Remain disciplined. Pay attention, but focus on the long term.
And whatever you do, don’t take advice from strangers or even friends. I have noticed one thing over the years: Rarely has the friend whose stock just “doubled” picked up the lunch tab. And the bellhop and taxi driver, while delightful to talk to, are still slugging it out in the workforce. Do your own analysis and invest wisely.
Nancy Tengler is chief investment strategist at Tengler Wealth Management, ButcherJoseph Asset Management. She is the author of “The Women’s Guide to Successful Investing.”
Overconfidence and bias are among the biggest mistakes for investors who want to protect their 401k savings.
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