What a suicidal thing to do with money…
I can’t imagine anyone bought stocks last Tuesday when the talk was that Ben Bernanke might announce more quantitative easing at the annual economic policy meeting last Friday.
And I can’t imagine anyone sold on Thursday, simply because the talk was that he was not going to make such an announcement after all.
But it sure seems like somebody was trading on the Bernanke headlines, because the market was up about 3% on Tuesday and down about 2% on Thursday. You can use this nonsense to your advantage as an investor…[ad#Google Adsense 336×280-IA]Huge amounts of money are going in and out of stocks for reasons having nothing to do with the long-term value of the businesses involved… If you can get on the other side of this, you’ll wind up owning some fantastic businesses that are being discarded by people who have no idea what they own.
Of course, the businesses I’m talking about are World Dominators. A World Dominator business is the No. 1 company in its industry. You’re probably familiar with a lot of them. For example, UPS is the No. 1 package delivery company in the world. Wal-Mart is the No. 1 retail network. Intel is the No. 1 maker of semiconductors.
These companies have thick profit margins, fortress balance sheets, and typically pay out large and growing dividends. They are the ultimate safe haven in today’s market… even safer than gold.
These days, you never know what the next massive “stimulus” package will be or when it will be announced… You never know if the government is going to take over another industry or pass a new, gargantuan, super-expensive program… You never know what new, massive regulations are on the way to choke the life out of, say, the country’s community banks (like the new Dodd-Frank law).
All these things create enormous amounts of uncertainty… and the market hates uncertainty.
Once upon a time in America, you had a reasonable degree of confidence that the government wasn’t going to go too far. Then, after a while, all you had was a reasonable degree of confidence that the government would go too far, but not often enough to completely ruin our wonderful economy.
Now, all you have is a reasonable degree of confidence that the strongest, most competitive businesses – the World Dominators – will likely stay that way.
The federal government is bankrupt. Its credit rating should be triple-C (just a few notches from bankrupt), not triple-A (as it is still rated by Moody’s and Fitch). But World Dominators like Microsoft and Johnson & Johnson are truly triple-A companies. Their balance sheets are financial fortresses. Their businesses are incredibly difficult to compete with. They earn consistent profit margins, a sign of their superior ability to compete.
They generate enormous sums of cash flow, above and beyond what they need to keep their businesses growing. They pay out dividends and buy back shares, to the direct benefit of their shareholders.
In other words, though many World Dominators are really in bed with the government and gain substantial advantages from having the government on their side, they’re also, in a way, the antidote to the government and its fiat dollar…
The fiat dollar is in terminal decline. Many investors (including myself) are protecting their savings by buying gold, which is timelessly valuable. But what the World Dominators provide is timelessly valuable as well…
The government grows big by increased amounts of theft, via taxes and inflation. The World Dominators grow large by giving more value than they get. I wouldn’t be surprised if one day we were trading with shares of World Dominators instead of U.S. dollars.
After all, which would you trust to maintain its value? The government’s paper or shares of Wal-Mart?
I know my answer to that. Wal-Mart, and many other World Dominators have held their value and even climbed since 2006. This time period has included the credit crash, the recession, the “flash crash,” and last month’s panic. They’ve also kept up, and grown, their dividend payments.
So when I see the latest bout of uncertainty putting World Dominators on sale, I’m happy to take the other side of that trade. I’m happy to get the certainty that owning World Dominators provides.
— Dan Ferris[ad#jack p.s.]
Source: Daily Wealth