Nothing is guaranteed in the markets. But if you own businesses that create value for shareholders – and pay a reasonable price for them – you’ll do well over time.
The problems start when investors stray from this simple path.
The markets are filled with false financial idols. You’ll find new ones all the time… They drive real investment dollars, and they seem like a sure path to profits. But they will lure you away from what works.
In my Income Intelligence newsletter, we’ve been specifically rejecting the broader market consensus in recent years. That’s how we’ll keep ourselves safe.
Three of these financial false idols are especially dangerous to worship today. They’re some of the market’s favorite investment strategies…
The first false idol is to invest in the most beloved stocks on the market.
If a stock has legions of fans and a can’t-miss opportunity to take over the world… we don’t want it.
Now, don’t mistake us for deep-value investors who haven’t made money for nearly a decade…
There are companies that will change the world and grow right through this recession and the next. Sometimes you can even buy them at reasonable prices.
Here’s the problem, though… Over the past two years, investors have clamored to put their money into stocks. That drives up a popular company’s valuations because new investors will keep trying to get into the stock no matter the price.
If you can spot those opportunities ahead of the crowd, it can be a great way to invest. We do it all the time. But when the crowd stops clamoring for its beloved stocks, those premium valuations will fall. And right now, it’s time to avoid those highly loved investments.
The second false idol is focusing on growth stocks.
Instead, my team and I have been trawling the waters for companies in decline… or at least ones that investors expect to decline.
When investors expect little, they can’t be disappointed.
In November, we added shares of Organon (OGN) – a pharmaceutical firm with expectations for declining sales for years – to our Income Intelligence portfolio. Based on those projections, the stock traded at a price-to-earnings ratio of 5.
Since then, Organon reported better-than-expected earnings in mid-February. And shares soared even as the market has fallen. Take a look…
“No growth” is the way to go, at least for new positions you add today.
Finally, avoid the latest Wall Street hype machine… “ESG.“
ESG stands for “Environmental, Social, and Governance.” It’s supposed to be a measure of corporate ethics. This trend is driving hundreds of billions of investment dollars… sparking millions in consultant salaries… and wriggling into the brains of every C-suite executive in the world…
And it’s all built on nonsense.
Look, we wish with all our hearts that investors and corporations could make the world a better place. It won’t work.
That’s not because investors are powerless or businesses don’t care. It’s because the underlying issue is too complicated to fix with money.
Rather than merely work for profit-minded shareholders, companies are trying to appeal to broader social goods. It’s admirable. But as New York Times and former Bloomberg columnist Peter Coy wrote earlier this year, “When companies take into account the interests of a broader set of stakeholders, morality may be gained but clarity is lost.”
For example, one key target of ESG investors has been oil companies. But in the wake of Putin’s invasion, domestic oil production has become a path by which we defend democracy. Oil went from pariah to global good in a single week.
Or consider this… Amazon (AMZN) often comes under fire for poor working conditions in its warehouses. But it also helps struggling consumers by lowering prices on necessities like diapers.
Or what if Amazon replaces those tough warehouse jobs with robots? Socially, is that an improvement, or a mass layoff?
Everyone on Wall Street is scrambling all over themselves to sell answers to an unanswerable question: What is good?
It’s possible that ESG will last for a while. But we wouldn’t be surprised if it joins a long list of failed Wall Street fads, favoring investors who paid less money for better (though less ESG-compatible) stocks.
These three financial idols are important to avoid today. They’re precisely the type of investments I’m tilting away from in 2022.
We haven’t given up on growth in my newsletters… But when we can find a safe return, we need to take it. Companies outside these loved areas will give you the opportunity to do better with less risk.
Here’s to our health, wealth, and a great retirement,
— Dr. David EifrigYour One-Step Inflation Survival Guide [sponsor]
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Source: Daily Wealth