Whither the stock market? I wish I knew. On July 13, the Dow-Jones Industrial Average cracked the 3,000 mark, a historical milestone once thought unreachable. "Experts" are divided on its future course, both short-and long-term. Some expect it to continue to soar, while others are convinced the Dow is about to be dumped on its Jones.
You will read this article some time in late September or October, and I wouldn't dream of guessing where it will be then. I've learned in my twenty-five years in the investment business that such predictions are usually meaningless. I'm certainly not able to predict the Dow-Jones or any other average.
It is my business, though, to find individual stocks that will be worthwhile investments for the long pull. Sometimes my choices follow the market; at other times they don't. Some of them appear frequently on other brokers' buy lists; others, rarely if ever.
I have developed a concept that I call the "core holding list" approach. In my experience, this approach has proved far more likely to succeed in the long run than such currently fashionable strategies as short-term trading, anticipating corporate turn-arounds, trying to pick the newest high-tech phenom, or jumping in on highly leveraged buyouts. To me these techniques involve far too much risk, and the returns they provide are at best inconsistent.
My technique works well for the patient investor, and I would like to explain it to you.
The "Core" Concept
To quality for my list of core stock holdings, any company whose stock I recommend must fit seven fairly rigid criteria. These are:
1. Its primary products or services must be marketed to a broad range of consumers. Obviously, a large number of satisfied buyers for a standard, widely distributed product are not going to change their minds on a whim. They will stick with that company's product because it has performed well for them in the past, and they expect that performance to continue. Naturally, such products may lose their appeal or usefulness over time, but not overnight, which gives their companies time to regroup and deal with slowdowns in demand. In the consumer goods sector, well-known companies like Procter & Gamble or Coca-Cola fit these guidelines.
Businesses that sell to industrial markets can qualify also, as long as the same principles apply. E.I. DuPont, R.R. Donnelley, and Archer-Daniels-Midland are examples of companies whose industrial services and products are widely used and whose markets are well established.
2. Most of its products should be relatively low in price. By relatively low, I don't mean competitively low. I mean low in absolute price - less than, say, ten dollars. McDonald's, Anheuser-Busch, and 3M fall into this category.
3. Generally, its product line should be mundane. The line should not consist of one-shot items, like pet rocks, nor should it be subject to the vagaries of consumer behavior, such as certain video games would be. I'm talking about
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