When I began my wealth-rebuilding journey after losing everything in the 2008-2009 Financial Crisis… there was one man whose model I adopted to help me focus on the right things this time around.
Benjamin Graham is considered the father of modern value investing.
Now, when people hear “value investing,” they might think of boring companies that don’t change from year to year and a long, slow road to attaining wealth.
But that doesn’t have to be a bad thing. I’d take boring and dependable over wild and reckless any day of the week.
After I lost it all almost 15 years ago, the last thing I wanted was exposure to anything risky or speculative. I wanted a solution that was going to last and withstand economic drawdowns.
At Intelligent Income Daily, my team and I share our decades of investing experience, so you don’t make the same mistakes we did. Our goal is to help you find the best ways to safely grow your wealth through all market conditions.
And like I told you yesterday, the Fed continues to hint we’re headed into a recession.
So today, I want to share an important lesson we can all learn from the value investing mindset.
Like it did for me, it could help you focus on the right things to see today’s market as an opportunity… and help create lasting wealth over the long term.
Fundamentals Dictate Long-Term Results
Graham once said that in the short term, the market is a voting machine. But over the long-term, it is a weighing machine.
Meaning in the short term, market movements are driven by popularity and emotions. Most investors get stuck staring at the short-term picture because they can’t overcome their emotional human nature.
This results in an irrational herd, which falls prey to greed during bull markets and fear during bear markets. They end up buying low and selling high… The exact opposite of what they should be doing.
But it doesn’t have to be that way.
Instead, what we should focus on are the metrics used to “weigh” stocks. And you do that by following the fundamentals. Let me explain…
Fundamentals are a company’s operational results such as sales, net income, and free cash flow. These metrics dictate the share price trajectory over the long-term, which is why we pay attention to them over short-term market volatility.
And one of the primary fundamentals we monitor are earnings.
Investors who realize that earnings dictate share price movement over the long-term can step away from the herd and make rational – and oftentimes contrarian – decisions during periods of market volatility.
This is the key that sets them up to generate immense wealth while the rest of the market runs for the hills.
And it’s exactly what we do at Wide Moat Research. We ignore market momentum and, instead, pursue wide margins of safety with a focus on fundamental valuation and healthy dividends.
This won’t get you the big gains overnight. But it is what has historically proven to create lasting wealth.
Let’s take a look at an example…
Identifying SWAN Stocks for a Recession
One of my favorite stocks to consider during recessionary environments is McDonald’s (MCD).
Keeping Graham’s weighing machine quote in mind, when you take a step back and look at its fundamentals – which have been incredibly consistent over the long-term – this stock has delivered massive total returns.
Over the last 20 years, McDonald’s earnings have declined from the previous year just four times.
This reliable earnings-per-share growth has allowed the company to sustainably increase its dividend over time as well.
McDonald’s is currently on a 47-year annual dividend growth streak. That’s despite a marked slowdown in 2020 due to COVID-19 shutdowns.
Looking back at the Great Recession period, you’ll notice McDonald’s didn’t skip a beat. That shows strong resilience in the face of market downturns.
And that positive momentum has continued into 2022, where the company is expected to produce record results. Right now, McDonald’s shares sit near all-time highs, showing their relative strength during volatile markets.
The company’s 2.25% dividend yield looks extremely safe. And last month, the company announced a 10.1% dividend increase.
McDonald’s might not be winning any popularity contests right now. But no matter where the herd pushes the share price in the short-term, it pays its shareholders first. And it continues growing this payout over decades, with earnings bouncing back quickly after periods of volatility.
This is exactly why I consider it a perfect example of true sleep well at night (SWAN) stock.
So if you’re worried about where the economy is headed right now, the best thing you can do for your finances is what Graham suggests: Avoid irrational emotions and focus on fundamentals to help boost your income in the coming years.
Happy SWAN investing,
Editor, Intelligent Income Daily
P.S. Yesterday, we published our latest issue of the Intelligent Income Investor. In it, we covered a company that’s following the McDonald’s playbook for success. Right now, the market is ignoring its potential. But we believe it could deliver double-digit gains and boost your income every quarter with its healthy dividend.
It’s a perfect example of the kinds of companies we want in our portfolio to help weather these volatile times in the market. To find out its name and access the full writeup, click here to learn more.