“A cow for her milk,
A hen for her eggs,
An orchard for its fruit,
Bees for their honey,
And stocks for their dividends.”
— John B. Williams
From time to time, I get letters from people who have come into a considerable sum of money from an inheritance, an insurance policy or having sold their business, and want to know what to invest in.
I tell them upfront that they are at risk. Coming into a large inheritance or cash position is very dangerous to your financial health, because that’s when you are most vulnerable to bad investment advice or bad deals promoted by overzealous salesmen.
There’s also a lot of uncertainty and risk in today’s market: inflation, recession, taxes, rising interest rates, government regulations, wars, pandemics…
You wonder, “In today’s crazy world, where should I invest my money?”
I have a simple, but effective, solution.
To explain how it works, I’ll start with a story taken from the latest edition of “The Maxims of Wall Street.”
A Young Widow’s Simple Formula for Successful Investing
A young widow inherited a lot of securities from her deceased husband. Not knowing anything about finance, she took a very simple approach to this newfound wealth. She kept only those stocks that continued to send her regular dividend checks and sold any stocks which omitted dividends or which didn’t pay any dividends at all. Over the years, her wealth increased dramatically, and she died a wealthy woman.
See p. 184 of “Maxims” under the section, “Dividend-paying stocks.”
What is the #1 Lesson?
The secret to a low-risk, high-return investment is to purchase investments that pay something back every year, whether it’s interest, dividends or rental income.
But first, I must warn you: beware of guaranteed investments that play on your greed. As J. Paul Getty states, “Get-rich-quick schemes just don’t work. If they did, then everyone on the face of the earth would be a millionaire.” (p. 85, “Maxims of Wall Street”).
He adds, “The big profits go to the intelligent, careful and patient investor, not to the reckless and overeager speculator.” (p. 138)
Let’s talk about safe investments. First, bank savings accounts and money market funds.
Until recently, interest-bearing savings accounts or bank certificates of deposit (CDs) were lousy investments because the return was so low, sometimes less than 1%.
But today, thanks to the Federal Reserve, money-market funds and CDs are now paying decent returns. My money market account at Charles Schwab is now paying 4.5% a year.
How About Earning Rental Income?
How about real estate?
Rental properties on houses, condominiums or apartments can be a good source of regular monthly income and potential capital gains. But you can’t be causal about it. This is a business which requires training and skill. Mortgage interest, closing costs, taxes and repairs can turn positive cash flow into negative cash flow. And what happens if your renters stop paying?
Income-producing properties can be a great investment, or a disaster. If you go this route, do yourself a favor and read John Schaub’s classic book, “Building Wealth One House at a Time,” or attend one of his real estate seminars. For more information, go to www.johnschaub.com.
‘The Golden Age of Income Investing’ is Still Here
For most investors, the best route is the stock market. In my investment newsletter, Forecasts & Strategies, I’m recommending several growth & income stocks that are yielding 6-7% a year, and all of them are up by double-digit percentages this year. Plus, your money is always liquid — you can sell your position any time the market is open.
My ‘High Total Return’ Strategy
I call it the “High Total Return” strategy for financial success. Here is the formula, courtesy of money manager Lowell Miller:
Earnings growth + high dividends + growing dividends = High Total Return
The key is to find growing companies that are (1) profitable, (2) pay high dividends and (3) keep raising their dividends over the long term.
As Lowell Miller concludes, “Dividend growth is the true signal of a prospering company.” (p. 185, “Maxims of Wall Street”).
Jeremy Siegel, the Wizard of Wharton, says something similar: “Dividends are the critical factor giving the edge to most winning stocks in the long run.” (p. 185)
I call it the “lazy man’s way to riches.” As Jesse Livermore states, “The big money is not in the buying and the selling, but in the sitting.” (p. 196)
Proof that This Formula Works
There’s a classic book on investing published in 1938 called “The Theory of Investment Value,” by John Burr Williams, based on his PhD thesis at Harvard University under the great Austrian economist Joseph Schumpeter. It’s heavy reading, but his conclusion was simple: the best way to value a stock or other asset is based on the “discounted value of all future dividend” payments.
In short, getting your money back in the form of dividends is the best measure of a successful investment.
The danger, of course, is that the payments will suddenly stop — the bank that pays you interest will go under; the publicly-traded company will cut or stop paying its dividend; or your renters will stop paying their monthly rent.
That’s why you need to make sure all three elements are in place in the “High Total Return” formula.
‘I Make Money While I Sleep’
Another one of my favorite stories in “The Maxims” is “A Rich Man’s Pearl of Wisdom #3: ‘I Make Money While I Sleep.’” It tells about a group of investors who visit a retired millionaire at his estate. One of them asks the rich man, “Sir, tell us, what is the secret of your success?”
He responded, “It’s very simple. You must search and find someone who will pay you while you sleep, when you are not working! That’s what I did, and it made me a millionaire.”
I won’t spoil the ending for you, but it’s a very powerful lesson on how the rich man legitimately gets others to pay him while he sleeps. See p. 187-190.
Great Stories in ‘The Maxims of Wall Street’
My collection of Wall Street sayings is more than a book of quotations. I actually have over a dozen great short stories that offer sound advice and wisdom, such as:
–Three Other Rich Man’s Pearls of Wisdom: “The Story of the Rich Doctor” (28-31)… ”Two Little Words” (104-05)… and “A Young Man Takes a Journey” (206-08).
–The story of Arkad, who became the “Richest Man in Babylon” (24)
–Why Sir John Templeton became a better investor by moving to the Bahamas (41)
–How Joe Kennedy became wealthy during the 1929 Crash (46-47).
–The story of the “trading sardines” by Doug Casey (125).
–Bernard Baruch’s surprise answer to the question, “How can you sleep at night with all those investments?” (172)
–The time J. P. Morgan debated a doom-and-gloomer, my favorite J. P. Morgan story (220-222).
And my own short story with a clever ending, “The Extra-Ordinary Life of Warren G. Hardaway” (222-255).
A subscriber and I read ‘The Maxims’ on a cruise ship
Half Off for “Maxims of Wall Street”
If you haven’t received the latest 10th anniversary edition of “The Maxims of Wall Street,” do it today! Go to www.skousenbooks.com. It’s priced cheaply, only $20 for the first copy, and $10 for all additional copies. They make great gifts for friends, relatives, clients and investors. If you buy an entire box (32 copies), the price is only $300. I sign all books and pay for the postage if mailed in the United States.
Good investing, AEIOU,
EconoSummit, March 11-12, Ahern Hotel, Las Vegas: Join me for this two-day financial conference, sponsored by the Investment Club of America. The cost is only $99 per person. I’ll be speaking on “American Exceptionalism on Wall Street: My Most Successful Technique to Make Money in the New Roaring Twenties.” Join John Fund, senior writer for National Review, who will speak on “Election Geopolitics: Hard Lessons I’ve Learned After 50 Years at the Ballot Box,” and Floyd Brown, publisher of the Western Journal and author of the new book “CounterPunch.” Sean Flynn, a top economics textbook writer, will speak on “How Environmental Extremists Threaten Prosperity and Your Investments.” And Chuck Muth will talk about “Nevada Politics: The Good, the Bad and the Ugly.” Book your Ahern hotel room for only $159 a night. Call 1-725-414-4800, ext. 2, and use the code HighMark to get the discount. The NCAA tournament (“March Madness”) will take place in Vegas during our conference, so expect hotel rates to surge to over $300 a night. For more details, go to www.econosummit.com.
Investment U, 25th Anniversary Conference, The Ponte Vedra Inn & Club — Ponte Vedra Beach, Florida, March 26-29: My topic will be “My Most Successful Money-Making Technique: A Report Card After 25 Years at IU.” Other speakers include Alex Green, Marc Lichenfeld, Karim Rahamtulla and Marian Tupy, the author of “SuperAbundance.” For more information, call Opportunity Travel at 800-926-6575, or go to www.opportunity-travel.com.
Tulsi Gabbard to Address FreedomFest
FreedomFest, July 12-15, Memphis, Tennessee: If you’ve never been to Memphis, you are in for a treat. It is the birthplace of rock & roll, and the location of Elvis’s Graceland, the Martin Luther King Civil Rights Museum, Beale Street and the headquarters of FedEx, among other highlights.
We Have a New Speaker!
Tulsi Gabbard, a former Congresswoman and now a Fox News paid contributor, will tell us why she has left the Democratic Party, and why she is optimistic about the future of America.
New Debate! I’ll be moderating a special panel/debate on “Do Political Labels Offer More Heat than Light?” with Steve Moore, Richard Rahn and Hyrum Lewis, co-author of the new book “The Myth of Left and Right: How the Political Spectrum Misleads and Harms America.”
For more information on all the new speakers and topics, go to www.freedomfest.com.
Special Discount for Investor Cafe Subscribers Only: An Additional $50 Off!
Make your plans to attend THE liberty conference of the year. We are offering an extra $50 in addition to the “early bird” discount for my subscribers! To register and take advantage of this discount, go to www.freedomfest.com, and use the code EAGLE50. Or call Hayley at 1-855-850-3733, ext. 201. See you in Memphis!
You Nailed it! Chicago to Make a Comeback?
Good news from Chicago.
On Friday, my wife, Jo Ann, and I attended our grandson Luke’s graduation from basic Navy training in Chicago. Luke is a professional drummer who will perform in various Navy bands.
Luke told us that the 10-week bootcamp was tough going, but he came out a better man. He will now begin a career performing with various Navy bands around the country and the world.
Afterwards, we spent a few days in the Windy City visiting our daughter and family, going out to various restaurants and variety stores, and seeing a performance by the Chicago Symphony Orchestra, led by the preeminent director Riccardo Muti. I’ve always loved Chicago, its downtown area, the commodity trading pits, Wriggle Field, the University of Chicago (home of the late great Milton Friedman) and the beautiful skyline.
Chicago has had a long history of crime since the bootleg days of Al Capone, but in recent years, crime has skyrocketed, especially carjackings. Chicago is known as the murder capital of the world. On Tuesday, it was clear the public was fed up as they rejected the re-election of Mayor Lori Lightfoot.
Only 17% of voters approved of her job. Under her administration, public schools deteriorated, riots were rampant, the Covid lockdowns destroyed businesses, taxes rose sharply, crime soared and the Chicago Bears moved! Let’s hope the next mayor reverses the downward trend. It was time for a change and a return to the glory days of America’s “Second City.”