Young's World Money Forecast

I regularly meet investors who are going it alone. They are overwhelmed with choices and have little or no investment planning experience. Back in December of 1986, I told investors that they need a game plan and the tools to carry it out. I wrote:

“’It was an overcast day.’…Everything on the beach came to a halt…When he passed out 40 Redsand volleyballs,…’it looked like it had rained radioactive bowling balls.’”

These graphic quotes from Bruce Anderson’s recent “Shoptalk” column in Sports Illustrated describe the beach scene at Manhattan Beach, California when Olympic volleyball star Steve Timmons’ newly designed, shocking yellow volleyballs were passed out.

It was a great article on Steve and his new sports product. Steve Timmons has become somewhat of a Southern California volleyball legend. With his Grace Jones-style red flattop and standing 6’5”, Steve, like his shocking yellow volleyballs, is hard to miss.

I was initially drawn to the Timmons article because I am a long-term volleyball fan and had just recently spent time watching professional volleyball at Laguna Beach. The Sports Illustrated article described the U.S. Olympic team MVP and gold medalist as a “terminal” player, the type of player who is so dominant that “when he hits or blocks a ball, the point is usually over.”

A “terminal” player—strong words with meaning going beyond the world-class player volleyball circuit. The word terminal has a finality to it that few words possess. We would all like to view ourselves as having the ability to drive home the terminal point. One place that such a skill would be most beneficial is in the financial markets, a place where everyone wants to be a winner. But to possess the skill of the “terminal” player takes more than desire.

You need a game plan and the tools to carry it out.

My family-run investment counsel firm can help you develop a game plan and carry it out. If you would like to be contacted by a seasoned advisor who can help you set and achieve your investing goals, please fill out the form below.

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In 1993, Julie Krone became the first, and still only, female jockey to win the Belmont Stakes. As Julie, riding Colonial Affair, rounded the first turn, they sat in sixth place. A horse named Antrim Road had dashed out way ahead, taking a big risk with a fast pace.

As the horses came into the far corner, Cherokee Run took the lead, and still, Julie and Colonial Affair remained in sixth place. Then as they turned for home, Julie’s patience paid off. The five horses ahead of her had risked it all and gotten tired.

Julie had conserved energy and came on strong in the end to win. Finishing second and third were Kissin Kris, and Wild Gale. All the way back at ninth sat Antrim Road, who had risked it all with the big start. I wrote about Julie in October 1993:

A Heavyweight at 95 Pounds.

As Julie Krone made the final turn for home in the Belmont Stakes, she realized she was about to capture one of the horse racing’s most prestigious Triple Crown events. Later, sitting proudly in the winner’s circle, the enormous self-confidence of this 4’ 10-1/2” jockey was clearly visible to even the most casual admirers and well-wishers.

Self-confidence has made this diminutive young lady a champion. When you consider the massive energy of a 1200-lb. race horse at full gallop, it’s not hard to have the greatest respect for a 95-lb. rider with the confidence to rise to the pinnacle of her sport.

My goal each month is to give you the strategies you need to generate the same level of confidence in your investing s Julie Krone displays in the fast and dangerous sport of thoroughbred horse racing. The development of confidence takes time. It takes dedication. It takes consistency. With consistency comes confidence.

LANDMARK RESEARCH ARGUES AGAINST MARKET TIMING

Recently published results by Professors Chandy and Reichenstein of the Universities of North Carolina and Balor, respectively, show the consistency of long-term returns on the S&P 500. The professors found that by omitting the best 50 months of performance from the stock market’s 1926-1987 return, absolutely all the S&P’s gains for the entire 61-year period are wiped out. Being out of the market during much of the 50 months would have been a killer to a portfolio.

One of my foundation tenets is that you should not attempt to time the market. Stay fully invested at all times; do not trade in and out. This does not mean that you should not minimize risk (always your first job) and maximize potential total return (appreciation and dividends or interest). You do this by properly diversifying your portfolio to reflect (1) the stage of the economic cycle, (2) momentum in interest rates and inflation, (3) interest rate spreads between fixed-income securities of differing maturities and (4) the current yield of common stocks in general.

These four criteria are objective, clear signs that require no work from you. You do not base your decisions on guesstimates of the future. And you certainly do not engage in market timing.

A steady approach is best for both jockeys and investors. Don’t beat yourself in the investment race by creating volatility in your portfolio with market timing. You may miss out on the best days the market has to offer.

If you would like to learn more about the steady investment approach used by my family run investment counsel firm, sign up for the free client letter email alert from Richard C. Young & Co., Ltd. Each month you’ll read an update on our investment philosophy. The alert is free, even for non-clients. You can signup by clicking here.

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Of all the ways you can test the holdings in your portfolio, Ben Graham codified what he called the most persuasive in his book Intelligent Investor. Companies paying dividends for 20 consecutive years were first on Graham’s list of high quality. I explained high quality to readers in August 2007, writing:

Laurent & Villchur…

Back in 1967, Acoustic Research’s demonstration room on Mount Auburn Street in Cambridge, Massachusetts, was ground zero for state-of-the-art high fidelity. My experiences in Cambridge led me to buy the Acoustic Research AR3 speakers and AR turntable that I am playing today, four decades later, as I write to you. And I am also using the same Dynaco PAT-4 preamplifier and Dyna Stereo 120 power amplifier that first powered my AR3s 40 years ago. AR’s founder Edgar Villchur and Dynaco designer Ed Laurent were the legendary forces behind this ground-breaking equipment. Today, as I play Johnny Lytle’s The Loop, Jack McDuff’s Tough ’Duff and The Beatles’ Sgt. Peppers, the sound from vinyl is every bit as warm and enjoyable as it was with my earliest AR/Dynaco experiences back in the 1960s.

Vinyl for Warmth

CDs were never collectible and never matched vinyl for warmth. I own a number of high-fidelity systems, including a dearly priced and excellent Conrad Johnson-based reference system. But for day-to-day listening, I turn on my AR/Dynaco system and records—no question about it.

45-RPM Tops

All of this, of course, flies in the face of music industry hype for CDs and downloads, the ultimate in a low-fidelity music experience for the masses. While perfect for jogging and the Wal-Mart experience, this is not high fidelity. And the cherry on the cake of my musical high-fidelity experience for you is the revelation that sound from a properly mastered 45-RPM record is best of all. If you ever saw the classic 1982 movie Diner, you may remember the scene in which Shrevie utters, “Every one of my records means something.” Vinyl was and remains the way to go. What I find most encouraging is that young listeners are coming into the vinyl market every day.

Treasured Since 1934

As I write to you today, the single investment book on my desk is the same book that was on my desk when I began in the investment business at Clayton Securities in 1963. Graham, Dodd & Cottles’ Security Analysis is as treasured as it was since its first edition in 1934. Like high fidelity, the guts of investing have really not changed so much through the decades. Compound interest, value, and patience are still the key. Ben Graham was fond of saying, “One of the most persuasive tests of high quality is an uninterrupted record of dividend payments for the last 20 years or more.” In his Intelligent Investor, Graham followed up with, “Indeed, the defensive investor might be justified in limiting purchases to those meeting this test.” Nothing has changed.

Dividends Since 1893

Coke began paying a dividend in 1893, Exxon in 1882, GE in 1899. Things sure have gotten different, haven’t they?

Uninterrupted streams of dividends can lead to a cascade of compounding in your portfolio. Click here to learn more about the value of compound interest, and in particular the powerful Coca-Cola Story.

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As an individual investor, you may be confused by the hype and pressure aimed at you by the media and securities salesmen. The constant drumbeat of news, both good and bad, can create an emotional response from even the most stoic of investors. Couple that with many investors’ lack of experience, and trouble can erupt from portfolios during tough market times. In July 1993 I wrote:

You’re on the 15^th Tee.

At the Four Seasons golf course in Nevis, West Indies, high in the lush green hills of this remote Caribbean island, you are overlooking the yawning expanse of a many hundred foot deep gorge. Where’s the pin? Where do you hit? You hit over the gorge to some unseen and distant manicured green. For novices, it would take small-arms fire to hit the other side of the gorge. But for you, the seasoned pro, it’s but a well-timed whack with your Wilson #3 wood. No problem, you’re on the green.

The challenge of this extraordinary hole on one of the world’s most beautiful golf courses is nothing to you, because you are disciplined and practiced, and you concentrate on your game.

Investing is much like golf. Discipline concentration and a practiced stroke are paramount to winning investors as well as to steady golfers. Think about it. Do you apply the same level of concentration to your every investment move as you would on a tricky 20-foot putt? Have you mastered a practiced, mechanical, unemotional approach to your investment program?

Discipline, confidence and a mechanical approach work every time and make sense in many avenues of life. One of my regular monthly goals here is to logically convince you of the value of these vital traits.

Invest With the Slow Ebb and Flow of the Tides

Like many investors, you may often be confused by events of the moment. Media hype and sales pressure are difficult hurdles to overcome. Here, you learn how to overcome emotion in investing. You learn how to harness the awesome long-term power of compound interest and to invest with the slow ebb and flow of the tides. Do not invest on each crashing wave of headline news. If it’s a good idea today, it will be a good idea tomorrow and the next day. Take it easy, relax and do not be an in-and-out trader or market timer. Be ruthlessly organized using the principles found here each month.

Invest with the comfort and knowledge that you have a disciplined, long-term strategy. I help you plot your investment map monthly. If you’ve been with me for many years, you know the consistent approach used month to month to month. Over my three decades of investing, I’ve developed a series of disciplines that work well for me, with high odds of success. Each month I stick to these and emphasize their long-term success for you.

You don’t have to face the emotional task of investing alone. You should seek the guidance of a trusted fiduciary advisor, who will guide you through the construction of an investment plan, and give you the confidence to stick with that plan when times get tough.

If you’d like a glimpse at what a trusted advisor offers investors, signup for the monthly client letter alerts from my family run investment counsel firm. Each month in the letter my son Matt, President and CEO of Richard C. Young & Co., Ltd., explains the ongoing strategies we employ on our clients’ behalf. The letter is free, even for non-clients, and you will receive an alert each month when the newest is available. Click here to sign up.

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In the Spring of 1996, I explained how important just ten days of a 31-year period were to building 37% of their wealth. I wrote that March:

Market Timing Strategy—Bankrupt

Before I tell you what other funds I have bought this month and which funds I have on my short list for the next few months, I want to startle you, shock you, and convince you beyond any doubt that market timing is a bankrupt strategy whose time has never come.

Here’s the only example you’ll ever need to never market time again. T. Rowe Price put these numbers out a year or so ago. The original research was done by Towneley Capital Management.

If you invested $1 for a 31-year period (1963-1993), your $1 grew to $24.30 at year-end 1993. But if you missed just the 10 best trading days out of the 7,802 trading days, your $1 investment grew to only $15.40. That’s right, by missing just 10 days, your return was slashed by 37%. Do you know what percentage of the trading days we are talking about here? Less than one-quarter of one percent (0.128%).

Now then, if instead of only 10 days you missed the best 40 days of 7,802 trading days, your $1 grew to only $6.50. By missing just 0.51% of the total trading period, your return was slashed by an unimaginable 73%. How’s that for missing the boat?

OK, what if you missed out on just 1.15% of the trading days? Well, by missing just 90 of the total 7,802 trading days, your $1 made a glacier-like advance to $2.10. You would have been head-faked out of 91.4% of your long-term profits.

Still with me? The news gets worse—a lot worse. In-and-out trading necessitates not one, but two correct buy/sell decisions. It does no good to get out of the market advantageously unless you can also get back in advantageously—and both are low odds, big “ifs.” Furthermore, there is a substantial transaction penalty to pay on each and every buy and sell. You find commissions extracted from your hide. And you do not see the bid/ask spread that is also lost on each transaction.

Finally, in all non-tax-deferred accounts, a tax penalty will be extracted. And depending on your location, the onerous nature of state and local taxes along with federal taxes may be a back snapper.

Market timing is akin to trying to draw an inside straight in poker or to yank the mask off the Lone Ranger. Not good ideas—not good ideas at all.

You won’t be able to pick which days you earn your 37%, but if you remain invested with a balanced portfolio and a strong investment plan created with your advisor, you won’t need to. The market will do the work for you.

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Odd things are happening in the economy right now. The most obvious is the recent destruction of oil facilities in Saudi Arabia. But there are also subtler, less obvious warning signs, including the first injections of liquidity into markets by the Fed in 10 years on Tuesday and Wednesday.

Couple that with the Fed’s lowering of the Fed Funds rate despite economic growth and low unemployment, and things appear uneasy. These are the times at which it would be easy to make an investment mistake. I wrote in July 1995:

“My name’s Marlow. General Sternwood wanted to see me.”

Devotees of the classic black-and-white Hollywood films now hear original wording from Raymond Chandler’s 1939 movie, The Big Sleep, introducing a new CD produced by Charlie Haden.

Haden, viewed by many as today’s dominant voice in jazz bass, recently integrated to stunning effect a lead using the nostalgic Warner Bros.’ Fanfare theme music and the Marlow spoken word line as preludes to his own original composition Always Say Goodbye.

Always Say Goodbye was inspired by the few times Charlie felt he had not properly said goodbye to friends or family who, unknown to him at the time, he would never see again.

Haden’s thoughtful weave of Hollywood movie, theme music nostalgia and his own original composition reflecting his agony over failing to say goodbye built an emotionally charged piece of music that has rewarded him with the Down Beat International Critic’s Award for jazz album of the year.

In Always Say Goodbye, it was emotion that helped Charlie Haden win success. Unfortunately, in the world of investing, unlike musical composition and execution, emotion can be the trigger to financial disaster not success.

Responding to market movements emotionally or irrationally is possibly the worst mistake an investor can make with his money.

To give you an indication of how emotional a bad day in the market can get, imagine two scenarios. In both scenarios, you’re a 67-year-old who has $1,000,000 saved for retirement.

In the first scenario, imagine you have put $50,000 cash in a briefcase, and you’re headed along a crowded street to your bank to deposit it. Suddenly someone grabs the briefcase and runs off, never to be seen again. You never even had a chance to say goodbye. How emotional would you be? If you’re like most Americans your heart is pumping, you’re breathing heavily, you’re scared, and you want your money back.

In the second scenario, imagine your $1,000,000 is invested in the stock market, which drops 5% in a day. On paper, you’ve lost $50,000. On average since 1928, the S&P 500 has fallen by over 5% in a single day about once every year-and-three-months. If you panic, get emotional and sell everything in the face of this loss, you’re no better off than when the thief stole your briefcase. That money is gone forever.

The difference between scenario one and scenario two is that in the second scenario if you have confidence in your investment plan and an advisor to guide you through the turbulence of markets, you have the opportunity to avoid an emotional mistake, to avoid financial disaster, and even to get your money back.

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Diversification isn’t only a tool to minimize losses when assets fall in value, it has the power to actually increase your return while lowering risk. Here’s how I explained it in December of 2015 (with the chart and associated text updated to 2017):

Calculating the Efficient Frontier

You need to look at your asset deployment from the top down, focusing on diversification between stocks and bonds. My Efficient Frontier display shows you the power of diversification. Note the left-to-right uphill slanting curve that initiates with a position of 100% bonds and terminates with a position of 100% stocks. We have made our calculations using the Merrill Lynch 7-10 Year U.S. Treasuries Index and the S&P 500 total return index from Young Research for the period of 1977– 2017. We calculate the Efficient Frontier by using annual returns and assuming annual rebalancing.

Draw 1% per Quarter

Where is your best fit along an Efficient Frontier? To answer, you must first establish your ability to absorb risk in the hunt for returns. For decades I have written that in retirement, your target should be a 1% per quarter draw from your portfolio, and not a penny more. This does not mean, however, that you should not position yourself to potentially exceed 1% per quarter returns. Your actual return over any quarter will be controlled largely by the climate of the financial markets at the time, which neither you nor I control. And the climate itself will be determined by the stage of the economic and monetary cycles. I have studied these cycles over five decades and keep you updated regularly. The winter stage of the upside economic and monetary cycle is here, to be followed by a period of discomfort in the economy and the financial markets.

If you need help creating a well-diversified portfolio, fill out the form below. If you do, a trusted senior member of my family run investment counsel team will contact you. You will be offered a free, no-obligation portfolio review and an explanation of how we can help you achieve your investing goals.

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There are many investment maxims worth repeating, but one especially important today is don’t be shaken out of the market on bad news. Those are the ten words of advice I gave to investors back in June of 1991 in the midst of a recession, and I haven’t found a reason yet to doubt their value.

I told readers then:

The best time to make money in the business cycle is when recession is in place. Interest rates always decline during a recession, just as they have in the present one. And the stock market always explodes with its biggest cyclical gains during the heart of recession.

When was the low for the Dow in the current business cycle? It was last October with the Dow reading below 2400. Many investors busily sold common stocks last August as military hostilities broke out in the Middle East. That, of course, is the kind of move that kills nervous investors in every cycle. You don’t want to be a seller on bad news, and you certainly don’t want to trade out of stocks in a weakening business environment. Open your history book and you’ll find that every recorded bull market started in the teeth of recession.

Recently I began a monthly business cycle review asking “Is America on the Doorstep of Recession?” My answer today is no, but I hope you will follow along with me as I examine the evidence each month.

Don’t be shaken out of the market on bad news. Remain invested or you’ll miss the market’s best performance.

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Can you double your money in a year? Not many people can. But if you lost 50% of the value of your portfolio, that’s exactly what you would need to do just to make it back to even.

If the prospect of trying to double your money sounds unappealing, I suggest you try not to lose that much in the first place. On this topic, I wrote in November 1994:

Unchanged Since the Twenties

According to BBC television, the Classic Coke bottle, the VW Beetle and AGA Cooker are the three finest industrial design achievements of the 20^th century. You know the Classic coke bottle, you know the VW Beetle, but the AGA Cooker?

Contemporary stoves pale by comparison to this handcrafted, cast iron cooker that quickly becomes the heart and soul of any kitchen it inhabits. Available in a handful of vibrant enameled color, the heavily insulated, gas-fired AGA has no temperature controls and is always on.

In most kitchens, 80% of cooking is done on the stove top and 20% in the oven. With an AGA, the reverse is true—80% or more is done inside. Externally vented ovens prevent cooking smells from returning to the kitchen, while gentle radiant heat produces superb cooking results—never, ever dried out.

The AGA works on the principle of stored heat within the well-insulated cooker; your job is to simply choose the temperature you want from one of four separate ovens.

This timeless, handcrafted work of beauty, functionality and simplicity was designed over 70 years ago and remains virtually unchanged since the 1920s. For more info on the incomparable AGA Cooker, [visit www.aga-ranges.com].

Timeless describes the AGA’s design, and timeless is the first word I use to describe my investment principles for you. I hope you will embrace my timeless set of investment principles; they will allow you a lifetime of investment rewards.

As a serious, long-term investor, I want you to always consider risk before profits. Never forget, when you lose 50% on an investment, you must double your money next time out just to get even. And even then, you have earned zero return.

Reducing risk in your portfolio is the best way to prevent wild swings that could generate losses you can’t come back from. Focusing your efforts on diversification, dividends and interest, and on companies in industries with high barriers to entry can help you reduce risk in your portfolio. It’s hard to double your money in a year, but it’s easy to get started on reducing risk in your portfolio today.

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In April of 2004, I explained to readers three decisions about retirement that I was very happy to pass on. I wrote:

Long ago, I made three decisions that I am happy to pass on to you regarding retirement: (1) Don’t. (2) Live in a warm weather state. (3) Live in a warm weather state without a state income tax and with a homestead exemption. My clear choice for #2 and #3 was and is Florida. We’ve been homestead exemption Key West residents since 1992.

Debbie and I have traversed the complete 360 degrees of Florida. We don’t travel inland much. After all, if the choice is being near the water or not, it’s a no brainer, don’t you think? In that I write specifically to business owners, retired investors and conservative investors soon to be retired, all can benefit from my ongoing Florida intelligence seeking.

You probably want to stop working eventually. And you may enjoy the cold weather. And you may even enjoy the mountains more than the water. Even if you disagree on the three points I explained back in 2004, it’s important that you find the right retirement plan for you, and that you begin working towards it today.

If you need help achieving your retirement goals, my family-run investment counsel firm can assist you. If you fill out the form below, you will be contacted by a seasoned member of my staff, who will discuss your retirement plan with you, and provide you with a free, no-obligation portfolio review. We can help you achieve your retirement goals, even if they are different than mine.

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In September of 2014, I explained to readers my battle-hardened strategy for dealing with the worst of times in the stock market. My strategy was inspired by Ben Graham, and I have used it throughout my 55-year career in investing. Here’s how it goes:

Ben Graham’s The Intelligent Investor was first published in 1949. I came in a little late in the game with my 1973 edition, which I have in front of me as I write. It is important to me that you and all of our management clients are able to sleep well, even during the periodic stock market busts that we all have to ride through from time to time. I never get out of the market; thus, I require a battle-hardened strategy to stay the course during even the worst of times. Ben Graham wrote, “An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.” From day one, I have stuck to Ben’s foundation principle to the benefit of all our subs and clients.

Primary Concern: Conserve Principal

Ben built on his foundation principle by writing that truly professional investment advisors are quite modest in their promises and pretensions. As he noted, “The leading investment-counsel firms make no claim to being brilliant, but they do pride themselves on being careful, conservative, and competent. The primary aim is to conserve the principal value over the years and to produce a conservatively acceptable rate of return. Any accomplishment beyond that—and they do strive to better the goal— they regard in the nature of extra service rendered. Perhaps the chief value to clients lies in shielding them from costly mistakes.”

The Defensive Investor

I like to think that it is just this approach that allows our subscribers and clients to sleep well and remain comfortable that we are all on the same team. Part of the complete program is your portfolio balance. Ben Graham wrote, “We have already outlined in briefest form the portfolio policy of the defensive investor. He should divide his funds between high-grade bonds and high-grade common stocks. We have suggested as a fundamental guiding rule that the investor should never have less than 25% or more than 75% of his funds in common stocks, with a consequent inverse range of between 75% and 25% in bonds.”

With market volatility increasing, it’s time you reviewed your own strategy. You should consider a battle-hardened strategy that will protect you in the “worst of times.”

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With securities markets in a heightened state of volatility, it’s a great time to ask yourself how exposed your portfolio is to risk. Most investors, if asked, would be able to provide little detail about the risks to their portfolio. If you find yourself unable to answer, that’s ok.

It’s Not Too Late, Yet

Now is the time to begin assessing the risk in your investment portfolio. If your holdings are not balanced to help you achieve your goals, you should begin shifting them as soon as possible, because, as I wrote in April 2017, retirees cannot afford a walloping.

Retirees Cannot Afford a Walloping

Back in 1989, I said, “let capital appreciation come as it will.” Unlike dividends, capital gains don’t show up every year. Since 1960, the S&P 500 has recorded 17 down years, with one of those down years coming in at a stomach-churning 38%, two in the 20%–30% loss range, and seven additional years that recorded double-digit losses. Retired or soon-to-be-retired investors simply cannot afford to get walloped with double-digit losses without a steady stream of dividend income to soften the blow. The last thing you want in a bear market is to be forced into selling shares at the bottom to fund living expenses. Steady, increasing dividends provide the cash flow and comfort necessary to ride out down markets. Investors who bail at the bottom decimate their portfolios and are forced into playing a game of “catch up” to get back to even.

You can see on my chart the return necessary to break even after incurring a loss. Losses act like reverse compound interest on your portfolio. A big loss requires an even bigger gain just to break even. To recover from the losses shown in black, an investor’s portfolio must produce the return directly to the right in blue. As you can see, a 5% loss requires a 5.3% gain to get back to even, while a 50% loss requires a 100% gain.

If you need assistance in rebalancing your portfolio, fill out the form below. You will be contacted by a seasoned professional from my family run investment counsel firm, Richard C. Young & Co., Ltd. who will perform a free, no-obligation review of your current portfolio.

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Through more than half a century of guiding investors in their efforts, the greatest failure I have seen is an inability to learn from history. Repeatedly market participants set unrealistic goals, use overly complex strategies in an attempt to achieve those goals, and inevitably fail. In February of 2013 I explained this phenomenon, writing:

The Needy Investor

Most investors, I’m sorry to say, are greedy, lack perspective and even a modicum of patience, and simply will not embrace the ultimate power of compound interest. I have found that too many investors fail to learn from history and attempt to use projected portfolio appreciation to make up for past beatings or to meet unrealistic spending targets. These investors are what I refer to as needy, and hope is used as their strategy. They eschew common sense and reality, and are always reaching and grasping at thin air. I have found it impossible to influence this group of investors and have long since given up the effort. Both a former Harley mechanic and my current Harley mechanic have told me that they were breaking down Harleys since they were little guys. I have watched what they do with amazement, much as I do with the many jazz musicians I have studied over the decades. Whether a Harley mechanic or a jazz musician, it’s an aptitude one is born with. The same is true for the intuitive investor. Investors like you have the propensity to do the right thing. Investors who are needy will never get on the right track.

Keep It Simple, Stupid

Your next step is on the fixed-income front. You want short maturities and short portfolio duration. On the equities side, you want solid, blue-chip dividend payers with a propensity for increasing dividends. You want entrenched blue chips featuring a high barrier to entry. You never deviate from such companies. You do not guess market swings and market-time. You swear you will be patient and not greedy. Am I clear here? You may be a genius or know a genius that has a better master plan than mine. Great. But four decades ago, Ron Hoenig hired me to work at his institutional research and trading firm where he told me that he specialized in the KISS (Keep It Simple, Stupid) principle. Ron turns out to have been correct at every turn, and today, on your behalf and mine, I continue to stick with the SIMPLE approach.

In your efforts to invest successfully, I can give you no greater advice than to 1) don’t be a needy investor who sets unrealistic goals, and 2) keep your investing strategies simple and understandable. It should not be difficult for you to explain your investment strategy to your 10-year-old grandchild, let alone your spouse.

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During my 55 years in the investment business, two of the questions I have received most often while talking clients and customers, are “Should I get out of the market?” and “How should I weight my portfolio?”

The answer to the first question is easy, no. Stay invested. Jumping in and out of markets will only make you miss days you’ll wish you hadn’t.

The answer to the second question is straightforward but might take more discipline on the part of the investor to implement. It is balance. You should always aim for a portfolio that works to counterbalance risk. Here’s how I explained balance and staying invested in September 2013:

Harleys, Records, and Winchesters

It was 1957, and I owned all three. Today, 56 years later, I still have a Harley. The very same Winchester sits on a rack four feet from where I am writing to you. And my record collection could fill a closet. My current Harley is not the same old oil dripper from 1957, and my portable RCA record player has been replaced by an AR/Dyna system from the ’60s (still pretty vintage). On my desk is the single investment book I have ever relied on, Ben Graham’s Security Analysis, published 51 years ago. So a lot has stayed the same for me for over 50 years, since I first entered the investment business. There has been no reason for me to change my basic approach. I continue on making timely adjustments depending on the economic and investment climate at the time. Here is my approach in a nutshell.

As Always, Stay Invested, Stay Balanced

I rely on balance, compound interest, low turnover, dividends, and interest. That’s it. I do not market-time, and I stay invested in a finely tuned and balanced all-weather fashion. I have written in the past that I can be your economic and financial market weatherman, but I cannot be the weather. I tinker with my portfolio based on conditions as I read the daily tea leaves. I add to my portfolio to maintain balance. And I stick to a basic group of dividend- and interest-paying securities that I have followed for a long time. I invest to receive a stream of dividends for compounding. My annual returns show a general pattern of consistency with much less volatility than many other approaches.

Commit yourself to staying invested and to keeping your portfolio balanced. You’ll be glad you did.

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I have now been working in the investment industry for 55 years, and over that time I have lived through four stock market super cycles, including the present, and most dangerous one. I explained the four cycles in March 2011, writing:

Stock Market Super cycles

I assure you, I do not plan to get gored on the next angry charge. Here is exactly how to look at things. Read and re-read what I am going to tell you here, and remember this stuff for the rest of your life. Since I got into the investment business, there have been three completed big cycles swings in the stock market. Cycle number four has now begun.

The first cycle featured a nasty run-up in interest rates that ended with the 1981/1982 recession. During this period, the T-bill rate neared 20%, and the Dow ended 1981 below its year-end 1965 level. Not so good for cycle #1.

Cycle #2 kicked off at the outset of the 1981/1982 recession and ended as the decade of the ’90s came to a close. It was a great two decades for stocks and bonds, as interest rates collapsed.

With the new century, cycle #3 got under way. It was a roller-coaster ride in interest rates: rates declined in the early years of the new century, rose in the middle of the decade, and fell back to complete a final cyclical trough. The stock market completed a volatile 10 years right back where it began, with no net gain in the decade. Cycle #3 was a loser.

OK then, in the first three stock market super cycles, we had two losers and one winner. Now what? As cycle #4 is forming, interest rates could not be lower. The cyclical bottom has passed. The rate on Fed funds is basically zero. Savers are being paid squat while the Fed fraudulently subsidizes the Wall Street banks at the expense of America’s thrifty, retired savers. It is a travesty.

That fourth super cycle is still underway. Savers aren’t being paid enough, and interest paid to savers is set to decline before it rises.

In tricky investing times like these, it is important for investors to manage risk. If you are looking for ways to do that, fill out the form below. You’ll be contacted by a seasoned member of the team at my family run investment counsel, Richard C. Young & Co., Ltd. They can conduct a no obligation portfolio review for you, examining strategies to help you avoid risk.

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Investing wisely demands due diligence. While there are certainly thousands of variables affecting any investment decision, narrowing down your focus with some broad questions can help you get started. In August of 2003, I encouraged investors to start with these four questions. I wrote:

Ask These Four Questions

As I’ve written, the first four questions I ask about a company concern dividend increases, share decreases, debt reductions, and cash accumulations. Many managements decry each of my benchmarks, pleading that the reinvestment of cash is best for shareholders long-term; that actual share increases, as well as the buildup in debt, bring in more capital for expansion; that cash can’t possibly be a productive asset. You and I both know that there are management teams that win with such a strategy, but there are far more that do not.

There is ample historical evidence that investors are better off with dividends. Evidence suggests that managements are far less successful in reinvesting cash than is portrayed. As for debt, Microsoft has been pretty successful sans debt. And, by the way, has a cash horde of over $46 billion (not a typo).

Scrap Growth Stocks

If you stick with my four-part formula, you will bypass most of the hot growth stories. I am not a fan of the growth-stock concept. I’ll take my four-part mini formula any day. I can assure you with great confidence that any company that increases its dividend year after year, steadily reduces its number of shares outstanding, regularly reduces its debt load, and accumulates a healthy cash horde is doing a lot of things right. This progression indicates conservative management. It’s the type of investment that makes sense for seasoned, conservative investors likely to have a strong affinity for my basic investor tenet: diversification and patience built on a framework of value and compound interest.

Learn more about my dividend focused investment philosophy in the monthly client letter of my family run investment counsel, Richard C. Young & Co., Ltd. You can sign up for the letter by clicking here. It’s free, even for non-clients.

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Long time readers have surely heard about my Retirement Compounders® portfolio (as well as the Dynamic Maximizers®). I don’t publicize the securities included in these strategies anymore, but they are both still integral parts of my family run investment counsel’s planning toolkit.

Here’s what I wrote about the simple elegance of the Retirement Compounders® strategy in December of 2010:

Durability, Ease of Use, and Reliability

I t was minus 5 centigrade on December first, my 72nd birthday, as we departed Kabul, Afghanistan to be joined by Special Forces ODA 594 in the 2001 hunt for bin Laden. My personal gear included one AK-47 and seven magazines of 7.62 ammo. It would be my final combat mission. So recalls Sergeant Major Billy Waugh in Hunting the Jackal. Delta Force Commander Dalton Fury in Kill Bin Laden refers to Billy (a CIA contractor) as His Majesty Sir Billy Waugh. Russian Mikhail Kalashnikov developed the AK-47 that Billy relied on in the mid-forties. To this day, it is the most popular assault rifle in the world. I have fired one and can see how the durability, ease of use, and reliability of a Kalashnikov would be such a winner for America’s most admired and certainly most senior Special Forces/CIA operator.

The Retirement Compounders Model

Ease of use, durability, and reliability, so vital in a basic firearm, have broad applicability for someone like me who specializes in the keep-it-simple school of thought. The Kalashnikov has been used worldwide for over six decades. The durable, easy to use, and reliable formula I advise for you on common stocks has been my working model for nearly five decades. It also has been the basis for Young Research’s specific Retirement Compounders model portfolio since 2003.

Astonishing Record

Look at my display of the history of the Retirement Compounders. Until this writing, I had not worked out the annual Retirement Compounders’ advantage over the S&P 500. Why not? I do not invest with the thought of beating anyone or any index. I invest to collect a high level of dividend income today and a higher level of dividend income (to offset inflation and maintain purchasing power) tomorrow—period. So in all honesty, I was astonished upon calculating the results. I knew that the RCs had a nice annual record versus the S&P 500 (Young Research posts a display on the comparison at www.youngresearch. com), but the detailed results are indeed stunning. At least I think the results are amazing, especially considering that my approach is so conservative and straightforward—sans bells or whistles. At Young Research, we do not visit managements, attend analyst meetings, participate in management quarterly reviews, or calculate company earnings projections. I, for one, could not give even a wild guess on the probable 2010 earnings for a single company on our list. And yet with our basic approach, the comparative results have been remarkable.

Simple Can Be Elegant

My Retirement Compounders model has been in place for nearly eight years. This eight-year period has been hell for investors, as each of us knows all too well. Throughout the carnage, we have not deviated one iota from our reliable dividend approach. Perhaps this is the reason our family-run investment management company has such appeal for seasoned, discerning, conservative investors. Simple can be elegant, as I have found over many decades of doing the same thing year after year.

Find a simple, elegant plan for your own investing. Avoid complex strategies that place too much emphasis on timing and prediction. Remember that any plan worth pursuing should be durable, easy to use, and reliable.

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