Reader Mailbag: “My goal is to beat the market.”

Dear DTA,

My goal is to beat the market. How much revenue is recommended to start making money?

-Adam P.

Hi, Adam. Thanks for writing in!

We want all of our readers to know how much they’re appreciated, which is just one reason why we’re taking the time today to respond directly to your inquiry.

Your goal of beating the market is certainly not uncommon, yet it’s something that eludes a lot of investors.

I have a simple answer as to why this is.

People in general (and investors specifically) like to overcomplicate things.

However, the answer is staring right at us.

If you want to do better than the average, you have to go to the best.

If the broader market (the S&P 500) is an average of the US economy (through the aggregation of the 500 or so largest businesses in the country), you want to instead own shares in above-average businesses (avoiding below-average businesses in the process).

This is just one reason (of many reasons) I invest in high-quality dividend growth stocks.

You can find more than 800 US-listed dividend growth stocks by perusing David Fish’s Dividend Champions, Contenders, and Challengers list, which contains invaluable information on stocks that have paid increasing dividends for at least the last five consecutive years.

A wonderful business becomes such because it’s able to regularly and routinely increase its profit, as it’s selling more products and/or services (likely at increasing prices) that the world demands.

Apple Inc. (AAPL) is able to grow its profit because ever-more people want more of their phones, tablets, and apps.

PepsiCo, Inc. (PEP) is making a lot more money now than it was five years ago, as more people are paying more money for their beverages and food products.

McDonald’s Corporation (MCD) is selling a lot more Big Macs today (at higher prices) compared to a decade ago, driving higher profit as a result.

So on and so forth.

But what’s really special about these companies is that they’re sharing that growing profit directly with their shareholders (who effectively own these companies – shareholders are the collective owners of any publicly traded company).

Said another way, they’re paying out increasing dividends to their shareholders, with these increasing dividend payments being largely funded by the growing underlying profit the businesses are generating.

Since a shareholder is the true owner of a publicly traded company, a shareholder should collect their fair share of the growing profit.

That’s where the dividend comes in.

As profit grows, so should the dividend.

It simply follows logic.

What’s fantastic about this is that it’s straightforward. It’s not a complicated investment strategy. These are businesses that offer business models that are easy to understand.

And it’s been shown (per Ned Davis Research) that dividend payers and growers (like those I just highlighted) tend to outperform the broader market over the long run.

It’s easy to understand why, as these are some of the best businesses in the world.

You can’t run a terrible business while simultaneously writing out ever-larger checks to your investors. It just doesn’t work that way. You can’t write (larger and larger) checks that can’t be cashed.

I’ve used this logic and straightforwardness to my advantage, building a real-life six-figure dividend growth stock portfolio from my day-job savings.

This portfolio now pays me five-figure and growing passive dividend income, which renders me financially independent in my 30s.

But while dividend growth investing is a fantastic long-term investment strategy, both for increasing one’s wealth and income faster than the broader market, you still have to make sure you’re doing your due diligence as an investor.

You want to buy shares in excellent businesses that are within your circle of competence. You want to see great fundamentals and durable competitive advantages.

And you want to pay the right price, which is one that’s as far below fair value as possible.

Fortunately, we have a lot of resources here at the site that can help you accomplish all of this.

Fellow contributor Dave Van Knapp has written an excellent series of articles that act as dividend growth investing lessons, explaining with detail how this strategy works, why it’s so viable and valuable, and how to implement it in real life.

And I also discuss an undervalued high-quality dividend growth stock every Sunday, which is part of a long-running series that I’ve been putting together since 2014.

While I’ve laid out how and why beating the market is straightforward, there is still an incredible amount of work you have to personally take on if you want to be a successful long-term investor.

The onus is on you, Adam, to gain access to capital in your life and intelligently invest that capital into some of the best businesses in the world, doing so in a methodical and patient manner.

You have to build a holistic lifestyle that prioritizes investment over other things and activities that could possibly limit your investment capital.

But I think the rewards are worth the stretch.

Either way, you’ll want to begin your journey as soon as possible, as generating strong investment returns requires time in order to turn into something truly special.

I wish you luck and success.

Jason Fieber


Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.