By: Dividend Sensei
In part 1 of this series, I explained the most important facts you need to know about the new super strain of the coronavirus, which is 70% more infectious.
In this conclusion, I wanted to highlight the best way to potentially profit from any short-term market freakout that may be coming in the weeks ahead.
The Important Difference Between Gambling & Investing
If you pray for luck in the stock market, it’s because you’re gambling, not investing.
I’ll give you a very simple example, of how to make your own luck in the stock market, which is what I did the day the market fell 2.4% on news of the new super strain of the coronavirus, before recovering 2% that very same day.
Risk Management: The Cornerstone of a Sleep Well At Night Portfolio
If you can’t stay disciplined when the market suffers one of its normal, healthy, and utterly expected short-term declines, you shouldn’t be invested in stocks period.
These are the risk-management guidelines that
- I’ve been perfecting over seven years
- with input from colleagues with nearly 100 years of asset management experience
- that have been stress-tested about 300 times
- using historical market data
- and JPMorgan’s future risk assessment scenarios
- and 30 and 75 year Monte Carlo simulations
- all Dividend Kings portfolios use these risk-management guidelines
- 100% of my life savings is entrusted to these guidelines
- whatever risk-management rules are best for your specific needs stick with them
Once you have a bunker portfolio that can withstand virtually anything the economy or stock market can, and will, eventually throw at you, then it’s time to get rich.
The Simplest Way To A Rich Retirement On Wall Street
Once you have a sleep well at night bunker portfolio, you can focus on the three fundamentals that drive 91% of long-term stock returns.
I use a combination of daily small dollar-cost averaging to target four kinds of companies.
- highest safe yield
- lowest PEG (Peter Lynch’s growth at a reasonable price)
- highest ROC/PEG (BM Cash Flow Detective’s super metric combining Joel Greenblatt’s ROC with Peter Lynch’s PEG to create a single metric combining quality + valuation + growth)
- highest discount to fair value
Then I set high priority limits on companies in these same categories, that combine as many of the proven alpha factors as I can.
When the market sells off, the same high conviction blue-chip bargains that I’ve been buying steadily in small amounts, become even better bargains.