Last week, I attended the Berkshire Hathaway shareholder meeting in Omaha, Nebraska.
This is the annual meeting the world’s best investor – Warren Buffett – holds for his shareholders.
During this conference, I was reminded of the greatest secret in all of investing. Most people don’t know it, but this secret is responsible for a huge portion of Buffett’s wealth. It’s a secret that hides in plain sight. And if you’re like most people, you need it badly right now…[ad#Google Adsense 336×280-IA]While I was in Omaha, the hotel delivered the USA Today to my door.
The headline read, “Invest in stocks? Forget about it.”
The article says essentially that individual investors are still worn out by the 2008-2009 crisis.
Last year’s 20% market drop didn’t help, either.
Ever since late 2008, I have been “pounding the table” on my World Dominating Dividend Grower (WDDG) stocks… repeatedly extolling the virtues of highly competitive, cash-rich businesses with growing dividends.
Investing in these stocks allows you to compound your money at high rates over long periods of time.
Part of the message I’m trying to get across to investors is that these stocks are indeed different from all the speculative biotech and mining stocks (some of which are admittedly attractive today). WDDGs are cash-gushing businesses, and competing with them is insanely difficult.
For example, consider Buffett’s largest stock holding, Coca-Cola (KO). If you add up Coca-Cola’s debt and tangible equity, you get about $36 billion. Do you really think if you had $36 billion, you could create a business that could dethrone Coca-Cola not only as the world’s No. 1 beverage brand, but also (according to global brand consultants InterBrand) as the world’s single most valuable brand of any kind for the last 10 years? I doubt it.
THAT is a stock you can buy, no matter what’s happening in the world.
THAT is a stock you buy when you’re scared about what’s going to happen over the next several years.
If Coca-Cola’s share price dips in the near term (as long as you haven’t overpaid for the stock), you’re still going to do really well over the long-term, thanks to that growing dividend.
I recently raised the maximum buy price on Coca-Cola, giving 12% Letter readers a chance to buy the stock if they’d missed it the first time the previous editor, Tom Dyson, recommended it. The stock rose about 10% above my maximum price relatively quickly.
Aside from the opportunity to make a lot of money over the next several years… think about the safety of a stock like Coca-Cola. It’s got the biggest beverage-distribution capability in the world. No matter what type of new nonalcoholic beverage comes into existence, the best way to get it to the maximum number of new customers as quickly as possible is for Coke to take it over and distribute it.
Every now and then, you might hear someone that Pepsi is a better business than Coke. And after all, Pepsi is always right on Coke’s heels, isn’t it?
Well… not really… not from an investor’s point of view.
Check this out… From 2009 to 2011, for every $1 of earnings it retained and reinvested in the business, Pepsi added $2 of market value. For every $1 Coke retained during the same period, Coke added $4 of market value.
There’s a reason for that. Coke is a better business. It’s No. 1. Being the biggest is much more valuable than most investors realize. By definition, it means this business is the most successful in its industry. Odds are excellent it’ll continue being No. 1.
Coke isn’t the only such business (though it’s one of the best)… We recently added a brand-new WDDG stock to The 12% Letter portfolio. This is a fairly rare event, so it’s pretty exciting. It means we’ve found the “Coca-Cola” of another industry.
There are lots of No. 1 companies in the world. And lots of companies grow their dividends. But you can’t count on a lot of companies to both crush their competition and grow their dividends for decades on end. That’s what WDDGs do.
It’s no accident Coca-Cola is the largest stock holding of the world’s greatest investor, Warren Buffett. He knows the business isn’t going to change much over the next several decades. It’s just going to keep growing…
Think about it another way, too. Warren Buffett is 81 years old. He just bought a railroad. He owns a huge electric utility. His largest business is the sleepy, steady, inflation-beating business of insurance. He’s building an endowment… an investment that will stay safe and continue to perform for decades after he’s dead.
That’s why Coke is still his biggest stock holding at more than $15 billion.
So if you’re like those folks in the USA Today‘s front-page article and you’re still scared of the stock market, please consider putting some money into the World Dominating Dividend Growers. That way, you’ll beat inflation, compound your money at high rates for many years, and sleep well at night.
If the market drops, you’ll have little to worry about. When you’re getting a 10% dividend yield on your original purchase price, you don’t care what the “market” does. You just keep making more money – in cash dividends – year after year.
WDDGs ought to be the core of your stock holdings. They’re great long-term investments… You can always count on them to pay you higher cash dividends every year. And they keep your money safe no matter what happens in the stock market.
Last year, WDDGs in The 12% Letter portfolio raised their dividends by an average of 11.6%! A few additional years of that will be more than enough to convince you that holding shares of these companies is the wisest stock market investment you can make for the long term.
I’m glad my publisher sells The 12% Letter at a low price. I truly believe every individual investor ought to own WDDG stocks. Selling the letter at a low price can help it reach as many people as possible.
Right now, The 12% Letter only costs $39 for a year. Anyone can afford it, even a high school student. Come to think of it, it wouldn’t make a bad graduation present for a child or grandchild…
So if you want to get past the fear of stocks that’s so widespread today and set you, your children, or your grandchildren up for decades of safe compounding, click here to sign up for The 12% Letter (without watching a long promotional video). If you don’t like it after four months, you can always get your money back, no questions asked.
If this approach – of buying the world’s best businesses at great prices, and compounding for years – is good enough for the world’s best investor, it should be good enough for the rest of us.
Dan Ferris[ad#jack p.s.]
Source: Daily Wealth