There’s a lot going on in the economy, markets and geopolitical world that none of us should be wasting any brain power on. When you think about it, the vast majority of what we view, read and listen to is just noise, asserts dividend expert Kelley Wright, editor of IQ Trends.
The thing about noise is it catches the attention and before you know it you’re over the hills and through the woods on a dozen tangents that have absolutely nothing to do with meeting your financial goals and objectives. What is important is the ability to identify quality and recognize good value.
Look, I get it. Focusing on quality and value just doesn’t captivate the imagination of the average investor. Everyone wants to be entertained, and hard-core research and analysis just isn’t that entertaining. This isn’t to say that investing can’t be fun. I mean seriously, what’s more fun than watching one of your stocks grow 900% and the dividend 2000%?
It happens, believe me. We first recommended McDonalds (MCD) in February of 2003 when the stock was trading somewhere around $15 a share and the dividend was around $.19 cents a share. Today the stock is over $160, and the dividend is $4.04. Now that’s entertainment.
There was quite a bit of noise around that recommendation. Conventional wisdom was that MCD was a dinosaur company, just an old burger joint that didn’t have the cachet of a Starbucks. The thing is the management understood the power of their brand and the fact that they owned some of the best real estate in the world.
If you’ve got location, you can sell anything to anyone. Instead of throwing in the towel McDonald’s simplified their menu, cleaned up their restaurants, and focused on what they did best, delivering convenience to their customers. Today no other company in that space comes anywhere near the scope of McDonald’s.
The list of premature obituaries is long and illustrious. One of the more recent is Altria Group (MO) and Philip Morris International (PM). Look, I’m not advocating smoking or the use of tobacco products, but the fact is that there are millions of people around the globe use nicotine and my suspicion is that this isn’t going to change anytime soon, if ever.
Less than a year ago we were hearing about the death of retail, that Amazon was going to take over the entire retail industry. When Target (TGT) was going through their trials and tribulations I suggested time and again that it was a great company with excellent management and they would figure it out. Not only did Target figure it out but today they’re doing just fine.
Look at Walmart (WMT), which today blew Wall Street away with their earnings growth. The thing is we knew all along that both TGT and WMT would be just fine because under the hood, their economic internals (real numbers that can’t be fudged) told us the real story, that these great companies were performing and generating real profits.
What I am suggesting is that it pays to pay attention to what is important and not necessarily to the shiny, flashy object that so easily catches the eye. August has offered a lot of volatility specifically because the market has focused on the shiny things as opposed to things that are important.
There will be much handwringing about third quarter profits and what effect tariffs and the trade squabbles will have on them. What will have longer lasting consequences to the economy and the market is what the Fed will do with interest rates and the systematic removal of liquidity.
Already existing home sales appear to be slowing down due to elevated prices and mortgage rates. These are things to keep your eye on, especially as we head into the historically difficult months of September and October.
No matter what transpires in the economy and the market, however, there are always stocks that are of high-quality and that offer good value. If one of these fits a need in your portfolio I suggest you acquire the shares because it is always a good time to buy a high-quality stock that offers good value.
