Good Stock Market Tip; Good Return!

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Good Stock Market Tip; Good Return!

By: Charles M O'Melia

Forget making a profit; instead focus on the income provided from your stock portfolio. That's right! Forget making a profit. The burden is now lifted - no more pressure on making a buck in the stock market. (Instead of trying to bend the spoon, that is impossible, instead just think of the spoon as - omigosh! - I'm in the Matrix!) When you focus on the amount of money your holdings are providing in dividends - and when those companies selected have a history of raising their dividends each year - a lower stock price allows the dividends that are being rolled back into the stock to accelerate your income. The total value of your portfolio may go lower, but your income from that lower priced portfolio would increase dramatically. Profit by income!

To demonstrate this tip, I'm going to take you back in time, but the strategy of that time is just as viable today, as it was in the past. The year is 1990, the stock for the demonstration is Comerica, and the amount of money invested was $3,333.) 34.) Comerica (CMA) was selected for one simple reason - in 1990 CMA had a historical record of raising their dividend for the past 21 years. Today's CMA has a 36 year history of raising their dividend every year.

In January 1990 Comerica was selling at $48.) 38 a share, paid a quarterly dividend of 65 cents a share, with a dividend yield of 5.) 37% (.65 divided by 48.) 38 x 4 x 100 = 5.) 37%). The result of just holding this stock through the years, never taking a profit, and simply having the dividends reinvested each quarter (commission-free) back into the stock is chronicled below: These are the actual returns based on the closing prices of the stock on the company's dividend payout date (the date a company purchases their stock on the open market for investors enrolled in their stock dividend reinvestment plan; The figures were taken from the research I did, and is from an excerpt from my book The Stockopoly Plan - Investing for Retirement.)

Comerica: (with the dividend each quarter rolled back into the stock) $3,333.) 34 into CMA in January, 1990 at $48.) 38 a share: Shares purchased, 68.) 90 shares.

Total Amount of shares at the end of 1990: 72.) 92 shares.

Total Amount of shares at the end of 1991: 115.) 01 shares.

Total Amount of shares at the end of 1992: 118.) 85 shares.

Total Amount of shares at the end of 1993: 245.) 78 shares.

Total Amount of shares at the end of 1994: 256.) 96 shares.

Total Amount of shares at the end of 1995: 268.) 78 shares.

Total Amount of shares at the end of 1996: 277.) 83 shares.

Total Amount of shares at the end of 1997: 285.) 32 shares.

Total Amount of shares at the end of 1998: 436.) 65 shares.

Total Amount of shares at the end of 1999: 446.) 04 shares.

Total Amount of shares at the end of 2000: 463.) 82 shares.

Total Amount of shares at the end of 2001: 474.) 47 shares.

Total Amount of shares at the end of 2002: 490.23 shares.

Total Amount of shares at the end of 2003: 512.) 60 shares.

Total Amount of shares as of April 1, 2004: 522.) 23 shares.

On April 1, 2004 Comerica closed at $54.) 65, for the total market value of $28,539.) 87 for 522.) 23 shares of stock. To put the total $28,539.) 87 into perspective, an interest rate of 15 percent a year on $3,333.) 34, compounded annually for fourteen and a quarter years would return $28,282.) 15.)

Since this excerpt from my book Comerica has raised their dividend again, from 52 cents a share per quarter, to the current 55 cents a share per quarter, payable to shareholders of record on March 15, 2005.)

I own Comerica stock and I have no intention of ever taking a profit! I will continue being a buyer, as long as the company continues its program of raising their dividend every year.

However, I also understand that in the stock market there are no guarantees! It is for this reason and this reason alone, that diversity is a necessity. If I knew for certain that CMA would continue its program of raising their dividend every year, and that the next 14 years would provide better than 15 percent return on my money, I would only own CMA stock. It is because of this 'risk of no guarantees' in the stock market that the rewards for investing in the stock market are much higher than a passbook savings account, CD's or Bonds.

So, to beat the 'risk of no guarantees', and to reap the benefits of a better return, I diversify into other companies with the same historical performance. Through a systematic approach of dollar-cost averaging into my stock positions every quarter, along with my quarterly dividend reinvestment, I increase the amount of dividends paid to me each quarter, from every company that I own. My measurement for success in the stock market is not measured by the amount my portfolio is worth. It is measured by the amount of ever-increasing cash dividends received from every stock that I own. As a matter of fact, when my portfolio dips in net-worth, my dividend income accelerates. The reason for this is simple. The lower my port- folio's net-worth, the higher the dividend yields of the stocks in my portfolio.

All my personal holdings in the stock market have the same basic theme. They are all purchased commission-free, have a long-term history of raising their dividend every year, and are purchased with the intent of supplying ever-increasing dividend income for my retirement years. The Stockopoly Plan was written with this purpose or goal in mind. The Plan itself uses a timing approach for purchases of more shares each quarter, along with the dividend reinvestments.

For more excerpts from the book 'The Stockopoly Plan - Investing for Retirement' visit: http://www.thestockopolyplan.com

You have permission to this article either electronically or in print as long as the author bylines are included, with a live link and the article is not changed in any way (typos excluded). Please provide a courtesy e-mail to charles@thestockopolyplan.com telling where the article was published. (Word Count 1000)

About The Author

Charles M. O'Melia is an individual investor with almost 40 years of experience and passion for the stock market. The author of the book 'The Stockopoly Plan - Investing for Retirement'; published by American-Book Publishing. The book can be purchased at http://www.pdbookstore.com/comfiles/pages/CharlesMOMelia.shtml

chassmo99@yahoo.com

Comments

mvp_cody 18.05.2012. 02:31

How do I get involved in the stock market? Im new to the whole tock market. I'm 19 I took economic classes and wanted to get into the stock market . Any tips?

mvp_cody

Admin 18.05.2012. 02:31

My recommendation is to go the mutual fund route for investing. Many are based upon stock portfolios and have long histories of solid returns. They have professional managers that know the industry and where to put the money.

But if you want to gamble in the stock market, you first need an account with a brokerage. That's easy enough to setup. Many will allow online account setup. Next, pick a stock and make a trade. Expect to pay a fee for the trade, sometimes it can be high, depending on the brokerage you get with. Good luck!

Admin

MM 30.07.2009. 10:48

Please suggest a good strategy to earn from stock market? I want to invest 50K , and i am expecting atleast 2k returns per month.
Please do not suggest that stock market is not good or invest for long time etc etc.
I want strategy to earn from stock market atleast 2 k per month for 50k.
Will be very much grateful and if required i am ready to pay the charges to share the stragegy provided that it really works(Proven). Also please do not suggest join this tips service or so.

MM

Admin 30.07.2009. 10:48

You expect way too much. There is no such strategy. You expect 48% annual returns when the stock market, for the past 80 or so years has returned an average of 11%.

Admin

niel d 19.01.2007. 03:30

How can I make profits from the stock market? I am the person who is interested in making the proftis from the investment of the stock market. Could you kindly provide some tips to me to be successful and profitable?

niel d

Admin 19.01.2007. 03:30

Stay away from trying to buy and sell daily. You will end up losing a lot of money to commissions. Strong companies that you have heard of usually stay around so you won't lose all your money, but will have slightly lower returns. Mutual funds usually have decent returns and less risk.

I have been buying mutual funds and not trading. The balance has continued to grow.

Admin

mich_ivon 05.05.2006. 02:17

What is your tips on investing on stock market and what are its advantages and disadvantages? I want to invest in stock market with a certain amount so my money will replicate. I want someone knowledgable or some with expertise on stock market to help me with this.

mich_ivon

Admin 05.05.2006. 02:17

The first thing you need to do is read. Ben Graham's the intelligent investor is a good place to start and then look at books on Warren Buffets methods. Dont do momentum investing or day trading its to risky and the commisions will kill your returns. The best way to go is value investing all the way. I usually look intially for companies with 15 percent return on equity for at least 5 years and a p/e ration of between 5 and 15. Also look for a history of positive earnings. Thats real basic and then you will need to learn to read income statements, balance sheets, and understand cash flow and stuff but thats someplace to start.
If you dont have an ira you should get one a roth ira is best if you qualify. I recommend putting your ira in mutual funds and vanguard is by far the best company. Their expense ratios are way lower than other companies and this will pay off big in the long run. Well, I hope that helps. Good luck.

Admin

Jake 15.12.2012. 08:44

How to get started in stock Market for 18 year old college student With extra money? I was left a good amount of money from a family member. My college is all paid for and so on. There is extra money and I have always been interested in the stock market and making money in it.
-What are some good ways to start out?
-How much should Invest initially?
Also I know it doesn't just happen and you just make money like that, but any suggestions on fast return?
I have some knowledge in stock market and also taking some business classes as well.
I would be willing to try some risk but not all of it.

Jake

Admin 15.12.2012. 08:44

Hi Jake,

I understand that the prospect of heading straight into the stock market seems like an enticing one but without due diligence and learned decisions I can assure you that it would be a big folly.

I am, like you an 18-year-old student and I've gotten myself acquainted with the stock market through books. Reading books from legendary investors such as Warren Buffett, Peter Lynch etc. would be of immense assistance to you. Start with 'One Up on Wall Street' by Peter Lynch for a start, it is a very good book for laying the fundamentals.

Reading materials themselves contain a myriad of oft confounding jargon so investopedia.com would be a pretty useful website as well!

Other than that, as for how much you should invest, it depends on how much cash you actually have (go for personal finance classes where they teach you how to govern your own wealth and how much of it should be invested such that losing all of your capital would not compromise on your living standards as well as financial security) Ask people around you who have invested SUCCESSFULLY in stocks (be wary of their 'tips' though) for their advice and how they did it, you could probably pick out some tips from them.

And last of all, may I just say that risk is mitigated by knowledge and educated, informed decisions. Buying stocks is not a gamble, it only is so when you have not done your homework on the stocks you have bought and based your decisions upon pure speculation. As of such you're better off striking the jackpot in Vegas.

Investing is a partial ownership in the business which you have invested in. All the best in your future endeavours and undertakings in the stock market! :)

Admin

VT 05.04.2010. 19:30

What are good/safe stocks to invest in today's market? I plan to invest $30,000 in the stock market. My goal is to make more than 1.5% return since my high yield interest savings account guarantee me this much.

Any tips on what good stocks to invest in today's market?

VT

Admin 05.04.2010. 19:30

The thing with the market is, there is always risk of making a fortune or loosing a fortune. If you are worried about the risk I would dump it into a high interest certificate of deposit that gives you at least 3% that way you have a nice piece of mind knowing there is no risk.

http://www.igobanking.com/home/high_interest_cds

Admin

Dante 21.05.2009. 14:02

Stock Market Help- What is good to invest in now in the Stock Market? I am looking to invest in the stock market but I am new to it. I was wondering what are some good stocks to but now especially with the economy. Also does anyone have any tips for a beginner?

Dante

Admin 21.05.2009. 14:02

AIG was be a best stock to invest if you plan to invest for a long term, because AIG is too big to fail and beside AIG no longer need government bailout money. if you invest in AIG are now you returning profit is 10-30 times in 3-5 years.

Admin

FIL 12.07.2009. 06:50

What is the best way to invest money aside from the stock market? Please I want nothing to do with the stock market, that is a ridiculous spectator sport based only on others reactions and impulses. I am looking for ideas from large amounts to small amounts

FIL

Admin 12.07.2009. 06:50

Hi FIL,
First consider that there's a difference between saving and investing. Saving might be for a short or long time but always involves relatively safe ways of using money. Savings accounts, CD's, money market accounts, and putting your cash under the mattress are all examples of saving. The problem with saving is that while the risk to your money is low, the reward in the form of returns is also low. In fact, right now you're actually earning next to nothing in interest on any of the methods I mentioned above. Beyond that you pay an "opportunity cost" by saving. That is, you lose the opportunity to make a better return on your money had you invested it. Investing involves, at its best, a long-range strategy. Over 20-30 years money that's invested in stocks and bonds has a high probability of higher returns then a CD or savings account. A reasonable way of managing your money is to create a balanced portfolio of stocks, bonds, and short-term instruments like CD's that correspond to your risk tolerance and time horizon. That means not putting all your eggs in one basket. A good rule of thumb is to own your age +/- 10 in bonds, have 6 months worth of expenses saved in case of an emergency, and the rest in a broad no-load index mutual fund.

Given the high volatility of the markets in recent quarters I can understand your reluctance to invest there. Before you write off the stock market though, consider that over the long term there's been no better place to invest. Most people get into trouble in the stock market by trying to time the market or by investing in individual stocks based on a "tip" from a brother-in-law or neighbor. Take a look at Eric Tyson's excellent books on investing and mutual funds in the "Dummies" series. Best wishes.

Admin

Expert Advisor 20.05.2009. 10:15

What are sources for good stock market tips? I trade in intraday nse segment. I want intraday trading tips in indian stock market nse and BSE

Expert Advisor

Admin 20.05.2009. 10:15

AIG was be a best stock to invest if you plan to invest for a long term, because AIG is too big to fail and beside AIG no longer need government bailout money. if you invest in AIG are now you returning profit is 10-30 times in 3-5 years.

Admin

Dub 06.11.2010. 03:37

Could someone explain the basics of getting started in the stock market? I would like for someone to explain to me what exactly I need to get started in the stock market. Basically I would like to know everything needed for a "starter kit" I guess, along with what is the best brokerage. Please be thorough with your answer. Thank you and God bless.

Dub

Admin 06.11.2010. 03:37

It would be nice if there was a "starter kit" but I will try to give you some ideas. First the simpler answer. Any of your big online brokerage firms like Schwab, TDAmeritrade, Scottrade and the like are all strong viable options with low commissions. They also offer research tools and online trading courses and make setting up an account pretty simple. They also handle IRA's, ETF's, Mutual Funds and Options (these latter two generally have higher commissions) among other asset classes. Also try unbiased research sites like Morningstar.com, Motley Fool and Seeking Alpha for starters.

For the other part of your question. First, after researching and learning, figure out what amount you want to invest (capital) that you are willing and able to lose that will not hurt you and your savings. Then decide what your risk level is, conservative (more interested in maintaining capital, low growth) to aggressive (willing to risk high losses for big rewards) and if you mainly need growth or income or both. On the conservative side you want to stay with blue chip companies that have slow steady growth but pay a dividend (so you are assured of getting some kind of return on your money), mutual funds or ETF's (Exchange Traded Funds) that spread your investment risk over a group of stocks which decreases your overall exposure. The higher your risk tolerance, the more choices, from small/mid cap companies that have a higher and quicker growth potential, foreign companies (ADR's), beat down sectors or companies that may have a large upside and so on. Keep in mind what your outlook is for each asset, is it a buy and hold or buy and sell quick or buy, knowing what percentage you are anticipating by a certain period and once that goal is met or time frame passed, you sell. Outlook is something that can be your overall portfolio objective, sector based or individual asset based. But have an idea that way you have a strategy as to when to get out.


Whatever your risk level, you want to make sure you diversify to offset your exposure to any one sector or area. You don't want all your money in technology stocks for example, but want to have your money in different areas, consumer discretionary companies, health care, construction, transportation, banking, etc. This way if one sector gets hit hard, the remainder of your portfolio helps keep you in the green.

Be prepared to accept the fact that you can never know everything (if someone or some firm tells you that go the other way) about investing, that you will loose money because no one picks a winner every time. Don't buy and sell on emotion but on knowledge.

This is just a tip of the iceberg but maybe it has helped give you some ideas of where you want to start. Let me know if you have further questions on something I've mentioned here.

Admin

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