The year 2020 is finally upon us.
The 2010s were a fantastic decade that delivered all sorts of surprises, including some surprising election results, undreamed of technological breakthroughs, and miraculous medical advances.
It was an excellent decade for investors, as well.
I know a lot of people like to focus on what went wrong, and there are plenty of examples there, but the truth is that the 2010s were a pretty good time to be alive and living in the United States.
There were annual returns of more than 13% for those who took the less adventurous route of owning the index funds, and much higher results for those who used quantitative techniques like the ones I’ve been sharing with you here at Max Wealth.
No one is sure what the 2020s might hold for us, but if you look at what worked in the 2000s as well as the 2010s, you can get a good idea of what we need to do to get rich over the next decade.
Let’s get started…
The Good, the Bad, and the Profitable
The possibilities for the decade ahead are endless.
We should see driverless cars continue to develop (although I’m not too excited for that one, I like driving), more diseases cured, technology that is better, faster, and in all likelihood smaller than what we use today, along with many other positive developments that we can’t even imagine right now…
But as exciting as all of those stories are, history suggests there will be a few bumps along the way.
The bad news is that decades with double-digit stock market returns are usually followed by decades of subpar returns.
Since 1880, back-to-back decades with double-digit gains has only happened once – the 1980s and 1990s.
The hallmark of those two decades were interest rates falling from all-time highs and rapid technological advances that fundamentally changed the way we live. We also had corporate reengineering thanks to Mike Milken and the junk bond market, and valuations that were much lower than today’s nosebleed levels.
Those who go with the same as usual approach, or – worst of all – buy the index funds all the wise and wonderful people think you should own, will most likely find the 2020s to be painful and unprofitable.
The current valuation of the stock market and low bond yields suggest that the magical 60-40 blend of stocks and bonds has a better chance of helping you qualify for food stamps than making your retirement dreams be a reality.
The good news here is that, if you’re willing to set aside conventional wisdom and think outside the box, you should do just fine.
The key is to find those strategies the institutions cannot use that make money regardless of market conditions and put those strategies to work building your wealth in the 2020s while everyone else is grinding sideways.
We Can Do What Wall Street Can’t
Buying shares of companies that have sound fundamentals that are unlikely to face real financial distress but trade for less than their liquidation value will make you money no matter what the stock market does at any given point in time.
The stuffed-shirts in Lower Manhattan don’t seem to care about Universal Stainless & Alloy Products Inc. (NASDAQ: USAP) because they’re in the steel business, but the stock could be liquidated in a rational manner for about twice the current stock price.
That seems to be a better bet than hoping some penny stock isn’t going to implode and take your money with it.
These big guys can’t do this as there are never very many of these opportunities, and they tend to be much smaller companies than the big funds can buy.
You and I don’t have that problem, so we can use that to our advantage to dive right in and buy these undervalued gems.
Small Banks with Big Bang
Buying bank stocks with low PEs and high dividend yields worked exceptionally well in both decades.
There was a bump during the financial crisis, but it was no worse than what an index fund buyer experienced, and the strategy recovered quickly.
While an index fund buyer had less money than they started with, every $10,000 invested in the ten highest-yielding bank stocks with a low PE ratio turned into $59,000.
Investing in high-yielding banks like PacWest Bancorp (NASDAQ: PACW), with its 6% dividend yield, is a much better bet than hoping the indexes can repeat last year’s performance.
Again, it’s a concentrated strategy featuring smaller banks, so the big money is shut out on the high-yield bank strategy.
The REIT Dividend Double-Digit Return Machine
Owning equity REITs and reinvesting dividends would have provided you with double-digit returns during both the 2000s and 2010s as well.
The credit crisis caused some bumps, but when the Internet bubble blew up, the owners of REITs that owned offices, apartments, shopping centers, and warehouses never even noticed the collapse because they made money at the same time. The madness happened in the broader market.
A high-yield REIT like Apple Hospitality REIT Inc. (NYSE: APLE) fits the bill nicely.
The Virginia-headquartered company trades for less than asset value and has a much higher probability of delivering huge returns than chasing the latest wildly-speculative idea being pitched by the know-it-alls in the media.
Making the Most of Cash Flow
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About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the “projects” of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing – and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find “unreasonably good” bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked “hidden gems” in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the “Little Book of” Investment Series and a “Junior Chamber Course” geared towards young adults that teaches Graham’s principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of “Max Wealth” and Heatseekers.
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