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Tue. Aug. 18, 2009

Focus On Stocks, Not The Market *

In one form or another, I get the question daily, “What do you think of the market? Where’s it headed?” Normally, I politely respond as expected, but occasionally I will startle the person with a reply like, “I don’t know. For me it really doesn’t matter much.” My investing goals are not defined by movements in the market.

Many people define the market broadly as the S&P 500. Very little of my total portfolio is in a S&P 500 index. Its movements up or down have minimal effect on my goals. As a value-based dividend investor, it is in my best interest to have stocks depressed and yields high, at least for the short-term. This provides a choice between worthy investments, unlike the market boom years when it was a struggle to find fairly priced stocks.

Focus On Solid Dividend Stocks, Not The Market

Instead of looking at the market and its direction, investors in dividend stocks should focus on quality, price and ultimate value. Below are several quality 3, 4 and 5 Star dividend stocks selling below their calculated fair value (as of 8/11/09):

  • McDonald’s Corp. (MCD) – 3-Star – Buy Price: $67.86 – Recent Price: $56.02 – Analysis
  • Walgreen Co. (WAG) – 3-Star – Buy Price: $35.79 – Recent Price: $30.74
  • Lowe’s Companies Inc. (LOW) – 4-Star – Buy Price: $30.92 – Recent Price: $23.26 – Analysis
  • Emerson Electric Co (EMR) – 5-Star – Buy Price: $38.34 – Recent Price: $35.97 – Analysis
  • Cardinal Health, Inc. (CAH) – 5-Star – Buy Price: $41.49 – Recent Price: $32.90 – Analysis
  • Dover Corp. (DOV) – 5-Star – Buy Price: $33.37 – Recent Price: $35.97 – Analysis

The time will come at some point in the future where we once again struggle to fairly priced stocks. At that point, we will likely look back and regret not buying more when we had the opportunity.

Full Disclosure: Long MCD, EMR. See a list of all my income holdings here.


3 Responses to “Focus On Stocks, Not The Market *”

  1. When the market goes up, 80%-90% of all stocks follow its moves. when it goes down 70% of companies go lower in tandem with it. While dividend investors do care mostly about stability and growth of their dividend income, capital gains are important as well.
    Mr market might be telling you something about a company that successfuly increases its dividends while the stock price is down or flat.

  2. While I see DGI’s point, I agree with the point that investors who choose to pick individual stocks should focus more on a “bottoms-up” strategy as opposed to a market driven strategy. Buying individual stocks at a value will give you the best probability of gaining as the market gains and losing less (if not preserving capital all together) as the market falls.

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