WealthEffects LogoWealthEffects Portfolio  
 
The Strategy
by WealthEffect Staff
Return to Outline
 
 

Find great companies...buy them...hold them
 
  Great companies deserve the benefit of the doubt  
  Dollar-cost average  
 
1.

It's a simple strategy, based on two important factors. First, this strategy works — it has succeeded in the past and, given its underlying logic, it will succeed in the future. The stock market has consistently undervalued predictable long-term growth. Although the names of the players in the market will change over time, the nature of the players do not. With human nature, past is prologue.

Second, this strategy works for you. It is simple to understand and simple to execute. "The best being the enemy of the good," don't underestimate the benefit of a strategy you are able and willing to follow in good times and bad. There are other ways to do well with stocks, as there as many other ways to do poorly, but you should leave them to others.*

 
 
2.

The value of this strategy will become particularly apparent when circumstances turn against you — or, more to the point, against the stocks you own. The strength of your convictions will be tested when companies in your portfolio face problems and when stocks in general suffer a bear market.

When the news is bad, when fear seems like common sense, you will glad to be an investor in some of the world's best businesses. You'll be less tempted to sell, as the "experts" will be advising. Equally important, you'll have the courage to buy a bigger piece of these great businesses at sale prices because, unlike most companies, you can afford to give these the benefit of the doubt! By buying more when your heart argues against, you give yourself the chance at extraordinary returns.

 
 
3.

Beyond the occasional opportunities which arise when bad things happen to great stocks, you should get in the habit of adding to your portfolio on a regular basis. The percentage of your funds in stocks depends not just on how much you can afford to invest now, but also how much you'll be able to add in the future. If you are earning more than you spend, you will have additional monies to invest, and that will put you in an advantageous position.

You can buy great businesses driven by great managers with the confidence that their values will rise over time; in the meantime, you can hope for the stocks you own to decline since you will benefit from dollar-cost averaging.

Suggestion: Go to Dollar-Cost Averaging

* If you are comfortable with the logic behind long-term investing in stocks, but uncomfortable with building and managing your own portfolio, consider a qualified investment advisor or an S&P 500 index fund (which owns the five hundred stocks comprising this well-known diversified index).