Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

What You Should Do If the Stock Market Falls Farther from Here

Stock-Markets / Stock Market Valuations Jul 16, 2009 - 12:35 PM GMT

By: DailyWealth

Stock-Markets

Best Financial Markets Analysis ArticleDan Ferris writes: Though the big stock market indexes are well below their late 2007 highs, I don't expect investors will make much money in stocks on the long side from current price levels. Record dividend cuts, weak earnings, and unattractive valuations are telling you to be careful buying stocks these days.


Most of the return in stocks over the long term arrives in shareholders' pockets in the form of dividends, not capital gains. Consistently earning big capital gains in public securities markets full of arbitrageurs and big institutions is too hard for the overwhelming majority of investors.

Earning dividends is much easier, providing a steady source of return that only requires you to buy a stock and hold it. And this is where I'm worried...

This year might just go down in history as the worst year ever for dividends. In the first quarter of 2009, companies cut $40.8 billion in dividends, more than were eliminated in all of 2008.

Though I don't have dollar totals, I do know that, in the second quarter of 2009, 250 corporations reduced or completely canceled cash dividends, the worst performance since the second quarter of 1958 (during a recession), when there were 272 reductions and omissions. Only 97 companies reduced or eliminated dividends in the second quarter of 2008.

As the primary source of return for the overwhelming majority of investors, dividends are a critical bellwether for stocks, one that routinely goes completely underappreciated by Wall Street. When dividends go away, investor returns suffer. They're going away faster than ever, so you need to be extra careful about them.

I keep a "World Dominators" buy list in my Extreme Value advisory. It's where I believe the majority of your stock portfolio should be. This list contains the best dividend-paying stocks in the world. For instance, portfolio holding Procter & Gamble has raised its dividend every year for 53 years. ExxonMobil has done so every year for 27 years.

But be careful, even with blue-chip stocks. For months, General Electric said its dividend was safe, then cut it by two-thirds, its first dividend cut since 1938.

Besides dividend cuts, another important reason you should be careful buying stock is that most stocks are just too expensive compared to earnings. Stocks were cheap in March. But since then, they've risen nearly 40%. They're no longer cheap, so you shouldn't be too eager to follow the trend.

Standard & Poor's 2009 earnings estimate for the S&P 500 is $55.61. At 882, the S&P 500 is trading around 15.9 times 2009 earnings. The index's long-term average, a reasonable proxy for its fair value, is 16 times earnings.

To expect anything more out of stocks overall, you must make a strong case for earnings growth. That's hard to do with banks failing, unemployment pushing 10%, and the largest debt market in the world – the U.S. residential mortgage market – in the middle innings of a once-a-century meltdown.

People who don't have jobs and can't pay mortgages spend less than people with jobs who can afford to live in their houses. With housing in charge of the economy now, more unemployment means a worse outlook for corporate earnings and stocks in general.

Instead of expecting growth, try calibrating your expectations based on the 1970s. Do that, and you'll easily see how valuations could sink lower and stay there for a decade or more.



Compared to the 1970s bottoms, the March 2009 bottom, at 666.79 (12 times the 2009 S&P 500 earnings estimate), doesn't look at all like a bottom. Based on historical valuation, the ultimate bottom, the one where you buy every share you can get your hands on, could be another 39% below the March bottom.

Not all is gloom and doom. There's some good news in that table. Notice in each year after a highlighted year how the P/E multiple expands at least 22%. Also notice that stocks remained at attractive valuations for 10 solid years. You could have bought stocks every year and made a fortune by hanging on for the long term.

What should you do to prepare if I'm right about further market declines? Use panic selloffs (like we had in February and March) as a chance to buy World Dominating businesses like P&G and ExxonMobil. Focus on using the compounding power of dividends, rather than on the next great growth stock.

As you can see, the next decade could be rough for the stock market. But if you stick to buying World Dominators when others are selling, there's no reason you won't make plenty of money in stocks.

Good investing,

Dan Ferris

P.S. If you'd like access my World Dominators list - plus two of my favorite ways to make money from a market decline - come on board as an Extreme Value subscriber. If you have a lot of money in stocks, I think this list of companies is the single most valuable piece of information in the world. You can learn more about Extreme Value here.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2009 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules