How to beat the market

Look at that dark green line. That’s where you want to be — over 30% greater returns than the next best group­ing of stocks.

Notice the long time­line of this chart. When you have a long time hori­zon, and stick to your strat­e­gy, you can do real­ly well regard­less of short­er-term mar­ket dynam­ics (like the inter­net boom/bust of the late 90’s or the reces­sion of 2008/9).

The chal­lenge about long term invest­ing is that you can’t go back in time. Once you’ve ‘placed your bets’ you’ve got to ride them out. That’s why I like to use his­to­ry as my guide.

Focus

From Blackrock’s blog, an easy to read post on div­i­dend invest­ing and how it’s changed over time: ‘where div­i­dend investors are seek­ing income’

It’s fash­ion­able in the mar­ket to focus on growth. Yet so many of the new econ­o­my lumi­nar­ies don’t pay a div­i­dend – not yet any­way. No mat­ter. Whether it’s car­ing for peo­ple or help­ing them com­mu­ni­cate, there’s noth­ing old-fash­ioned about total returns that top the mar­ket. Focus on qual­i­ty busi­ness­es capa­ble of sus­tain­ing and grow­ing earn­ings – and div­i­dends.

Here at Elephant’s Paycheck we believe in the same and know just where to find com­pa­nies that are capa­ble of sus­tain­ing and grow­ing div­i­dends. We also know how to find com­pa­nies who have the intent of using grow­ing earn­ings to increase the div­i­dend.

Dividend aristocrats

If you recall, div­i­dend aris­to­crats are large com­pa­nies who have increased their div­i­dends every year for at least the past 25 years in a row.

I have a daugh­ter now. When she’s dat­ing I hope I’ll have the oppor­tu­ni­ty to share advice. The biggest piece of advice is know­ing if a guy likes you. How do you know? Look at his behav­ior. Does he want to spend time with you? He’ll tele­graph his feel­ings with his behav­ior.

Executives and com­pa­ny lead­er­ship do the same. They tele­graph their val­ues with their behav­ior. Companies that val­ue the div­i­dend increase it, and man­age their busi­ness to pro­tect their abil­i­ty to do so.

Sometimes, it’s not even as dif­fi­cult as that. Both GE & Apple have said explic­it­ly on earn­ings calls recent­ly that they intend to increase their div­i­dends reg­u­lar­ly. Neither are aris­to­crats, but if you hear a clue like that it’s a com­pa­ny that would fit into an Elephant’s Paycheck port­fo­lio.

Of course, there’s still risk. Just because they have an estab­lished his­to­ry doesn’t mean they’ll be able to keep it up. (Financial peo­ple like to say past per­for­mance does not guar­an­tee future results.)  During the late 2000’s GE & Bank of America were forced to cut their div­i­dend. Having been aris­to­crats, that was a tough time. That’s why we select a port­fo­lio of com­pa­nies for our Elephant’s Paycheck port­fo­lio.

That good feeling

If you’re just get­ting start­ed invest­ing, get­ting a div­i­dend check, even a small one, is fun.

Investing in aris­to­crats (and then rein­vest­ing the div­i­dend pay­ments) helps you be cer­tain that your Elephant’s Paycheck increas­es over time for as long as you keep your port­fo­lio.

It’s like your port­fo­lio is a busi­ness and you have just got­ten your first pay­check.

I’ll nev­er for­get mine.