Stock Investing. One. Last. Time. 

We have been doing this investing and  trading game for now over 45 years.  We have had a real loss..not a paper loss.. more in one day than most people lose in a lifetime of owning securities. Mistakes you bet, lots of them.  We likely read more financial news in one day than most everyone reading this do in a month or more.  We are selling nothing and only offer advice from those years of experience so with that noted here goes.  Learn from our mistakes. 

Dividends from owning stocks is nice, especially if you need the income to pay your current bills either while working or retired.  However stocks that pay dividends are not the best path to wealth accumulation.  The recent 6 months is an example of exactly that.  Maybe, just maybe, owning stocks without dividends and selling the capital gains for income produces more income and the same taxation. 

What has been tagged of late as the Magnificent 7... are seven mega-cap stocks that have run up in value more than 30% the last 6 months.  The recent 20% plus move up by The S&P 500 Index was lead by those 7 stocks as that index is market cap weighted meaning the larger the market cap the bigger share of the index they occupy.  Apple, Microsoft, Alphabet, Amazon, Nividia, Tesla, and Meta have used the panicdemic to trim thousands of employees, cut costs, and now are literally printing cash for their shareholders.  Simply put these are companies which reinvest in their company and do stock buybacks as opposed to paying out dividends and are compounding wealth creators. Only two of these stocks pay dividends and the yields are so low they are meaningless.  The choice here is rather simple own a dividend paying stock yielding 5%, maybe a money market fund paying 5%, OR own a company that has a stock value run up 30% in 6 months....again...and again...and again...over decades plus.  As Warren Buffet notes the stock market is a vehicle that transfers assets from the impatient to the patient.  A dividend stock paying 5% with little or even no appreciation of value since they are paying out earnings in dividends would take 12 years to equal what one could have gotten owning the Magnificent 7 for the last six months.  The S&P 500 comparison would be 8 years to equal.  Patience indeed. 

So the bottom line here is simple own companies that grow faster than the economy by reinvesting profits and doing smart stock buybacks. Berkshire Hathaway for example is at an all time high and still going up as investors see the profits there reinvested by Warren Buffet's team.  Think you are smart enough to reinvest your own dividends?  Maybe so...but smarter than Warren Buffet's team at reinvesting profits?  Not likely. 

We personally have stayed nearly fully invested for years without going to cash.  We remain 80% invested in stock funds, mostly the S&P 500 Index/Berkshire Hathaway with another 10% in an energy ETF.  Cash invested in Money Market funds some less than 10% on hand for dry powder if needed but more likely for large ticket items since we are retired now 15 years next month.  Bonds in this environment or almost any environment are subject to Fed raising rates reducing their value and no compounding via reinvesting profits so simply avoid bonds.  We suggested over 6 months ago that the economic recession everyone was expecting was in our opinion not happening.  We suggested that the economic troubles brought on by Biden policies was less trouble than many believed them to be as the ridiculous federal spending was mostly about paying rent seekers who they would take that money and invest in America and Mexico,  and not China. That interest rates at 5% or so are not high, but well, normal.  What we did highly suggest was that the significant reshoring of manufacturing and services from China back to the US and North America plus the moving into the best earning and spending years of their lifecycle of the large millennial generation now entering their forties was a huge plus for businesses that sells to them and owning shares of those businesses was smart.  If you live in a boom area as we do like The Triangle NC the economic wealth being created and spent by the in demand Generation X management people in the mid 40's and 50's and up and coming Millennial generation is something to behold.  We are bullish on the American economy.  We do not see the above economic trends ending anytime before the mid 2030s.

Thus the stock market run up of late is now reflecting those economic realities noted above.  The forward PE of the S&P 500 is about 20, which is somewhat rich, but not as so rich to cause real concern of something like a crash.  Will there be a pullback at some point?  You can bet on it and smart investors will use that opportunity to deploy cash.  One more time buying individual stocks is like throwing darts at a dartboard and hoping you pick right.  Buying a basket of stocks means you take no risk at your future wealth creation.  The S&P 500 and/or Berkshire Hathaway is the way to go here, with some energy on the side.  Do the most you can investing into your 401k.  Do a Roth IRA outside work.  The amount you invest is not nearly as important as the amount of time you invest.  Compounding over time is your friend. Be a balance sheet investor, not a profit and loss investor. 

Ignore the economic doomsters, ignore the gold bugs, ignore the fiat currency fools, and ignore the political doomsters too, invest for YOUR long term.  If it does not have cash flow it needs to go. Investing in America going on 248 years through a Depression, a World War, a Civil War, and numerous recessions has been a big winning bet.  I only wish I was young enough to have another decade or two to be invested.  Sitting in my office chair early each morning thinking millions of Americans are getting up, going to work, and producing good, services, and profits at companies that they sell to others where I am partner owner and I get to share those profits is nice indeed.  Owning the S&P 500 and Berkshire means my biggest decision each morning is what to order when I head down to my local Bojangles, not if I picked the right stock or missed out on some higher interest rate CD. It Beats directly owning a business, directly owning real estate, since it is so much easier and at some point should help you to sit home in your office chair too and only have to decide on what's for breakfast.