Investing in One Lesson

11/01/2007 12:00 am EST

Focus:

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Dr. Mark Skousen’s success on Wall Street speaks for itself. He has written numerous books, given countless speeches, and taught hundreds of classes and workshops to students and individual investors.

Yet, his investment success has not come from market timing or buying ‘hot’ stocks. Instead, for several decades, he has adhered to a simple strategy—investing for the long-term—which has been extremely successful for him and his newsletter subscribers.

In his many years in the financial arena, Dr. Skousen has seen thousands of investors fall prey to Wall Street’s shenanigans, believing in the ‘get rich quick’ method of investing. And he has spent his career counseling these victims and getting them back on the right track.

In his latest book, he attempts to get his message across by literally ‘pounding the table’, telling investors that the most important key to understanding the nature of the markets is relatively simple: Wall Street is not Main Street. In other words, the business of investing is not the same as investing in a business.

He spends the first half of his book explaining the workings of the stock market, discussing why some of the most successful people in business and life are just like average investors—hopeless failures on Wall Street. Dr. Skousen attacks each reason, one by one: the overwhelming range of investment choices, human emotions, lack of discipline, trying to time the market, and relying too much on the advice of others.

His solution is not easy, but it is simple: education. You need to understand that the movements of the stock market aren’t a result of common sense. Instead, they come about due to a number of factors, including changes in macroeconomic and geopolitical events, Federal Reserve machination, changes in business fundamentals, insider buying or selling, analyst recommendations, rumors, competition, new issues, fads, momentum trading, leverage, tax selling, short sellers, merger/takeover targets, changes in CEO, government investigations, lawsuits, and bad publicity.

In the second half of his book, Dr. Skousen goes into considerable detail on his strategy for successful investing, based on the way the market really works.

He covers the dangers of market cap indexes, and falling into the ‘growth trap’—buying fast-growing companies that often lead to poor market returns.

He then makes a case for contrarian investing by introducing the four stages of investment psychology: fear, euphoria, caution, and confidence. He tells investors that the extremes in the market—those times of great fear or confidence—often provide the very best buying opportunities. The challenge is to distinguish between those issues that are just temporarily or permanently undervalued.

Dr. Skousen’s strategy is to find stocks that are temporarily undervalued, and that pay regular dividends. He believes these companies offer several advantages, including:

• Require the dividend-paying company to be disciplined, by virtue of steady payouts to shareholders
• Have a track record of beating the market
• Are less risky than buying high-flying companies that are extremely volatile and speculative

And acknowledging that this strategy invites criticism from many factions of professional investors, Dr. Skousen spends a fair amount of time rebutting those critics.

He closes the book by listing his ‘7 Rules for Successful Investing’ and then leaves investors with some of his favorite investment choices.

While this strategy may seem simple and too conservative to many investors, Dr. Skousen does include some dividend-paying investments that would not usually be included in that category. Consequently, folks interested in a more aggressive portfolio might also find some recommendations that would suit their investing style.

This book is not a ‘barn-burner’ that promises untold investment riches, but it may be just the thing for investors looking for a simplified, all-weather strategy of steady investing in sound companies.

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