Time Travel

Sometimes it seems as if investors are being asked to do the impossible: predict the future. And, to some extent, it’s true. We have to leap years forward in our minds to the point when we might expect to be cashing in some of our investments and, since we want our nestegg to be as large as possible, to predict what will have been the best stocks way back in 2008. Clearly, it’s a daunting task, and the difficulty of that task is no doubt one of the main reasons that even the Wall Street “experts” choose instead to focus on the short term. At times, we are our own worst enemies, constantly measuring our returns after a few months or years and, even worse, being easily led to the conclusion that we are lagging badly behind whatever investment vehicle that the financial marketers are pushing at that moment. The biggest conundrum lies in the standard disclaimer that “past performance does not guaranty future results.” While that may be true, the past is our best evidence of what an investment might be expected to do in the future. The “universe” of DRIP stocks is populated by a wide variety of companies, including many of the most successful firms in corporate history. We can rely on companies that have increased their earnings and dividends for many years, providing that their business model seems as viable for the future as it has been in the past. But if we listen to the short-term strategists, we might never choose to own those firms or rely on proven techniques like dollar-cost averaging and diversification, disciplines that our future selves will certainly applaud.

Our Speculative DRIP model portfolio on page 5 has done relatively well since the start of 2008. A gain of $40,790 on January 9 has turned into a profit of $40,692 on April 9. But being virtually unchanged is a pretty good result when you compare it with the broad market sell-off during that time. Declines by Schering-Plough and Sprint Nextel were offset by gains at Mattel and Quaker Chemical. More important, the portfolio still offers plenty of opportunity to buy depressed shares. In January, Countrywide agreed to be acquired by Bank of America. We will announce a replacement for that stock in the July 15 issue.