Contrarian Investments to Check Out

In their article, US News writes about stocks that are “due to bounce.” They offer stocks that are down at least 35% year on year. They consider why the stock is down and why they believe it will recover and grow even more than before. Here they are:

CBS

CBS has spent heavily on content which has reduced its bottom line. It also just merged with Viacom. As we noted in our article about Disney, content is increasingly important. As such the investment in more content can be viewed as solid planning for the future. And the Viacom merger can be seen as another positive strategic move. As such, the folks at Bank of America and US News are offering a target price of $63 for this stock that currently goes for $38.

The problem is that this is a very competitive environment with more and more people getting their entertainment and news online instead via the TV set. The question is if CBS can prosper in a world dominated by Disney Plus and Netflix.

Mosaic

This is a large fertilizer company that is a leader in production of potash and phosphates. Its stock is down more than 40% from a year ago. We don’t see this stock so much as a contrarian bet but as a cyclical stock whose value goes up and down with the needs of agricultural producers. This last year has been terrible for US agriculture with too much rain, too much heat, and being cut off from markets for soybeans, especially, in China. As conditions improve, they will be selling more fertilizer and making more money. The issue is that they are not a long term growth prospect as the stock started 1994 at $20 a share and that is what it sells for today despite being as high as $150 very briefly in 2008.

When Do Contrarian Investments Work?

Back in the last 1980s Warren Buffett lots of Coca Cola stock when it was a contrarian bet. His investment, like all of them, was based on an assessment of intrinsic stock value. His Coca Cola investment turned out exceptionally well because the company has grown even more and not turned into a value trap. Our concerns about both of the investments we mention here, as well as others mentioned in the article, are generally reduced in price for good reasons and do not have a clear path to long term prosperity in excess of what they have demonstrated over the years. In short, when contrarian investments work is when they have the prospect of strong long term earnings.

Finding Cheap Investments That Are Good Investments

When looking for cheap investments, investors need to constantly remind themselves that many cheap investments are really just value traps as they are cheap for good reasons. When are cheap investments the best investments? What you are really looking for are investments with good intrinsic stock value. The best stocks to invest in are those whose intrinsic value (based on forward-looking earnings) is substantially higher than their current stock price. This usually happens when the market reacts to temporary factors and discounts the stock. Here is a possible example of such a case.

Cheap Stocks Right Now

The Motley Fool writes about a couple of stocks that are absurdly cheap at this moment. The two stocks that they discuss are SciPlay, a smartphone game maker and Malibu Boats, a speedboat manufacturer. In the case of SciPlay, the market is looking at revenue growth instead of profits and discounting this profitable company. In the case of Malibu Boats, the market is concerned about two recent acquisitions at a time when recession fears are a real concern. However, these are both profitable companies with strong positions in their respective niches. So, if you are wondering are there any cheap investments left, take a look at either of these too. The Motley Fool article as more details.

Accurate Investment Valuations in an Aging Bull Market

The key to finding cheap and profitable investments in this market is being able to determine an accurate value of the stock going forward. So many stocks today are valued based on steady earnings growth. What happens if that growth cools off? Others are being propelled upwards by stock buybacks. What happens when the company does not have the cash to keep buying back their stock? Market Watch notes that while stock valuations have meant nothing for years, they are becoming important now.

While inaction has been the best course of action since the bull market in U.S. stocks began in early 2009, the risks have now piled up. According to my research, there’s a chance of near-zero returns for most stocks during the next 10 years and a very high likelihood of a 50% collapse at some point.

The risks of a prolonged trade war as well as other investment risks for 2020 and after are such that investors will do well to look at stock valuation and forward-looking earnings in both their current portfolio and any prospective stock purchases.

Is Microsoft a Buy and Hold Investment?

One stock that looks good to analysts of tech stocks is Microsoft. According Market Watch, Microsoft looks like the safest bet among the software giants.

Sky-high valuations for software stocks necessitate a more defensive view of the industry, according to Jefferies analyst Brent Thill, and Microsoft Corp. shares look like the “safest” bet.

He assumed coverage of the software industry late on Monday, upgrading Microsoft’s stock to buy from hold while moving to the sidelines on several other names, including Oracle Corp. ORCL, -0.22% 
Microsoft MSFT, +0.36%  seems like a smart way to play software due to its diversified business makeup and clear visibility into double-digit revenue growth going forward, Thill wrote. He sees numerous growth drivers for Microsoft, including its Azure, Office, and LinkedIn businesses, which give the company the “greatest exposure to [software-as-a-service] revenue among any of the major public cloud players.”

Computer chips are getting faster and faster and artificial intelligence is already in play. But, in order to make money from these technologies, you need to invest in a company that finds real-world uses. Microsoft got started by developing the operating system for the IBM PC and all other compatible computers. And, over the years they have moved into gaming hardware and software, touch-screen computers, cloud-based computing and an ever-wider range of applications. It is this ability to read the needs of the market and both develop and market more and more useful applications that will provide Microsoft’s income stream into the future. Their intrinsic stock value is such that they are a “buy” right now and will likely remain so into the indefinite future.

Investing in Stocks in the Computer Technology Sector

Warren Buffett has famously avoided investing in advanced tech. His concern is that you cannot predict who the winners will be five years from now because technology changes so rapidly. And, investors should note Buffett’s silent warning for investors which we described in an article about how he is holding cash right now.

In this regard, is Microsoft a buy and hold investment? However, Microsoft makes money by finding applications for technologies, making businesses run better, and making communication more efficient. These are services that people will pay for now and for a long time to come. The company is not necessarily where you want to put all of your money, but can easily be part of anyone’s portfolio of buy and hold stocks. And, if you like the idea of investing and not losing any money, Microsoft (along with Johnson & Johnson) has the only American AAA corporate bonds. Learn more about MSFT stock Nasdaq at this link.

Is Berkshire Hathaway Undervalued?

The Motley Fool says to in their article about three reasons to buy Berkshire Hathaway.

Over the last decade, Berkshire Hathaway has become a certified cash cow of the first order.

The gap between the stock price and the long-term value of the company has been widening lately.

They cite the profits that his whole owned companies generate and the fact that if they were to go public again, their values would be a lot higher than the book value at which they are now valued.

In addition, Buffett has been buying back shares. He has always been hesitant to do this, but as he sees his own stock as a bargain, he is buying his own shares at the rate of about $2 billion a year!

Why Invest in Berkshire Hathaway for the Long Term?

Many of us equate Berkshire Hathaway with Warren Buffett. As such, many might be tempted to get out of this stock when Buffet is no longer active in the business. However, the “Oracle of Omaha” has also been the planner and teacher of Omaha as well. Each of Berkshire Hathaway’s sixty business segments is run by someone who was trained by Buffett and follows his approach to fundamental analysis and working with the long view in mind. We can fully expect the company to follow the same approach to investing and business management when Buffett is no longer in the picture as now when he is still running the show.

Why Does Buffett’s Approach to Investment Work?

Buffett’s approach to investment, which he learned directly from non-other than Benjamin Graham, is simply to analyze an investment for its projected profit potential, determine an “intrinsic” value based on that assessment, and compare the intrinsic value to the current stock price. He has admitted that he and his team toss out 95% of stocks they analyze as being too difficult to make an informed judgement on. But, when they do pick a stock this way, they typically hold it for years. Buffett has been quoted as saying that his favorite holding period for an investment if forever. And, he and his team pick investments with that in mind. Thus, Berkshire Hathaway is comprised of companies selling products and services that are not likely to become obsolete with changes in technology and are likely to grow and produce more profits year after year after year.

Should You Hold Your Investments Forever, or Not?

Buffett has been quoted as saying that when he purchases stock in a strong company with strong management that favorite length of time to hold that investment is forever. And now, according to the most recent Berkshire Hathaway quarterly report, they are holding $122 Billion in cash while in normal times they would be holding something like $30 Billion. This is because in almost four years Berkshire Hathaway has not made any major stock purchases or acquisitions. And, in the first two quarters of this year, Buffett has be a net seller of stocks. The two parts of intrinsic stock value are the likelihood of a stock making money over the years and the current price of the stock, or any investment. What is happening with Buffett’s company is that they are not seeing any investments these days that combine growth and money-making potential with reasonable or low prices. This is the silent warning for investors.

Why Is Buffett Not Buying Back as Much Berkshire Hathaway Stock?

A third piece of the silent warning for investors is that Berkshire Hathaway has reduced its stock buybacks as well. Buying back your stock is done to increase share price and put excess cash to the best use possible. According to company reports, stock buybacks went from $1.7 Billion in the first quarter to $400 Million in the second quarter. We recently wrote about the potential dangers of stock buybacks. In the case of Berkshire Hathaway, the company has not been trying to artificially raise its share price and has rather been putting its cash to the best use. The fact that they are now keeping a large hoard of cash implies that the “better use” of this money will be in invest in the near future after a substantial market correction or even a crash. The likelihood of the trade war becoming permanent is such that smart investors will do well to hold a large amount of their portfolio in cash until the future becomes clearer and until the prices for stocks and other investments become more realistic.

Stock Buybacks

Investopedia poses the question, why would a company buy back its own shares?

The most visible result of share buybacks is that it preserves or increases share price. But, there are three other good reasons to buy back shares.

Consolidation of Ownership
Reduction of Dividend Costs
“Remedy” for Undervalued Shares

Companies issue shares to raise equity capital to fund expansion, but if there are no potential growth opportunities in sight, holding on to all that unused equity funding means sharing ownership for no good reason.

Businesses that have expanded to dominate their industries, for example, may find that there is little more growth to be had. With so little headroom left to grow into, carrying large amounts of equity capital on the balance sheet becomes more of a burden than a blessing.

Shareholders demand returns on their investments in the form of dividends which is a cost of equity – so the business is essentially paying for the privilege of accessing funds it isn’t using. Buying back some or all of the outstanding shares can be a simple way to pay off investors and reduce the overall cost of capital. For this reason, Walt Disney (DIS) reduced its number of outstanding shares in the market by buying back 73.8 million shares, collectively valued at $7.5 billion, back in 2016.

Another major motive for businesses to do buybacks: They genuinely feel their shares are undervalued. Undervaluation occurs for a number of reasons, often due to investors’ inability to see past a business’ short-term performance, sensationalist news items or a general bearish sentiment.

Therefore, a company that is not growing as fast as it used does not need to share ownership in order to raise capital to expand. It can reduce dividend costs by having fewer shareholders. And, the boost in stock price caused by share buybacks can fuel a bullish sentiment for their stock and further boost the share price.

Stock Buybacks Did Not Lead to Job Expansion in the USA

Part of what sold congress on the Trump tax cuts was the idea that US companies would bring offshore capital back to the USA and invest it. There was supposed to be lots of job growth as companies “invested in America.” The fact that much of the repatriated money went to buy back shares has not been appreciated by those in congress who thought they were essentially voting for job creation back home and not support of corporate share prices.

Are Stock Buybacks Dangerous?

The responsibility of a corporation is to its shareholders. As such, stock buybacks may well take precedence over R&D, expansion, or raising salaries. But, is there a risk to you, the shareholder? If you are seeing the share price of your favorite stock go up and up, what is there to complain about? The risk is that a company may be building a “house of cards” by artificially raising share price when business is not all that good. The answer to whether your company is doing this comes from an assessment of intrinsic stock value. The long term value of your investment will depend on its ability to make money with its business plan well into the future. If this part is solid, you can rejoice in your share price going up. If you do not see a happy future for the company, then stock buybacks are dangerous and simply being used to hide long term problems. At that point, you should start to sell and find other long term investments.

Lowest Risk Investments

Some time ago we wrote about how to invest without losing any money.

Yes, there are ways that you can do this. You will have to settle for lower returns, but for a person nearing retirement, for example, this is a safe way to preserve capital and see and earn a little extra as well. These are the four categories we listed with the addition of dividend stocks.

Bank deposits with Federal Deposit Insurance
US Treasury Bills, Notes, and Bonds
Investment Grade AAA and AA Bonds
Long term value investing, intrinsic value including high-value dividend stocks

Bank Deposits with Federal Deposit Insurance

Every time that we write something about how to start investing, we note that your first task is paying off the credit cards and putting enough money in the bank to cover several months of expenses. This is a great idea at any stage of your investing career. And, bank deposits are covered by federal deposit insurance. According to the FCIC, you get $250,000 of insurance for each deposit category.

Single accounts (accounts not falling into any other category)
Certain retirement accounts (including Individual Retirement Accounts (IRAs))
Joint accounts (accounts with more than one owner with equal rights to withdraw)
Revocable trust accounts (containing the words “Payable on death”, “In trust for”, etc.)
Irrevocable trust accounts
Employee Benefit Plan accounts (deposits of a pension plan)
Corporation/Partnership/Unincorporated Association accounts
Government accounts

And, this insurance is good for each bank at which you have deposits.
(Wikipedia, Federal Deposit Insurance Corporation)

US Treasury Bills, Notes, and Bonds

Interest rates have been historically low ever since the Financial Crisis. And, the Fed may again lower rates. Nevertheless, the next safest investments, after your bank deposits, are US Treasuries. Bonds mature in 30 years. Notes mature in two to ten years. Bills mature in a year or less. Any of these, when held to maturity, is about as safe an investment as you can make. As with your bank CDs, these are for absolute security and for money that you will need in a few years.

AA and AAA Bonds

There are only two US companies these days that have AAA bonds. They are Microsoft and Johnson and Johnson. Both of these are very solid companies that are leaders in their fields. As with US Treasuries, the best way to guarantee safety is to purchase one of these bonds and hold it to maturity. Of course, if interest rates fall, you can sell the bond for a higher price, but what do you invest in then?

There are a lot more AA bonds available and many are nearly as secure and the AAA ones. They typically have a little bit higher return as well.

Stocks Chosen Using the Intrinsic Value Calculation

The concept of intrinsic stock value goes back more than 80 years to the era following the Great Depression. The first part of this approach is that you will select investments with the potential for excellent cash flow and thus stock appreciation. If they are dividend stocks, so much the better! The second part is that you will only purchase these investments when they are underpriced by the market and not when they are overpriced. Thus, you will be making low risk high return investments. Read our article about intrinsic stock value to get you started in this direction. The reason to include dividend stocks in this grouping is that many have excellent intrinsic value and when you use dividend reinvestment plans, you bypass the broker and don’t pay any commissions on reinvested dividends or on new stock purchases.

Investing in Your Home

The Federal tax deduction for mortgage interest makes investing in your home a sweetheart deal that no one should pass up. However, as many learned to their dismay a decade ago, you need to look at the market, interest rates, resale value, and the stability of your employment. Here is also where having enough money in the bank to cover expenses, like your mortgage, for a few months is so important. But, the bottom line is that you want your monthly payment to be going toward creating long term value for you and your family and not for the person from whom you are renting!

Tax-Deferred Investments

IRAs and 401 Ks are excellent ways to get low risk high return investments. You can choose investment vehicles with lower risk because of the spectacular advantage of not having to pay taxes on dividends, capital gains and the rest during the time your retirement investment is within its plan.

Investing in What You Know and Understand

No less of an authority than Warren Buffett, one of the outstanding investors of all time, only invests in companies when he understands their business plan and how that business plan will make money over the years.

None of us are necessarily the next Warren Buffett, but we all have areas of expertise. This can come from our education and work or from other life experiences. The point is that computer techies are more likely to spot the next Microsoft or Apple and folks in the medical profession are more likely to recognize a good opportunity in the medical products or services sector. The list obviously gets quite long when you look at all combinations of experience and study. The point is that you can find higher returns on your investments by investing in things that you know about and reduce your risk as well.

Investments in China

For the average investor, the best ways to invest in China are through a mutual fund or other stock fund that holds Chinese assets or by purchasing ADRs. You don’t need to speak Mandarin or deal with a foreign stock market and can let someone with the time and expertise pick the individual stocks. But, if you want to pick and choose the right individual stocks, you can buy ADRs of large Chinese companies who provide financial reports on a par with what US companies provide when they are listed on the US stock exchanges. In regard to our concern about safe investments in China, here is where our focus is. Investor Place looks at 3 Chinese stocks which they say you should buy and hold. Their article not only offers three stocks that may be safe investments with high returns over the years and therefore safe investments for retirement. They also give us some insight into the current state of the Chinese economy what the future holds for investing in China.

To say that Chinese stocks have been a roller coaster over the last year would be an understatement. Already, China has seen slower growth as it shifted from being a solely manufacturing-based economy to one based on services/consumerism. But with the trade war, Chinese stocks have been hit even harder, only to bounce back as a deal with the United States seemed to be within grasp.

Then, President Trump tweeted. With no deal in sight, tariffs rising and even lower growth on the horizon, Chinese stocks have continued to sink over the last week or so.

But this could be an interesting opportunity for long-term investors. China continues to dominate on the world stage and is arguably one of the most important economies. And while a deal may not be in sight today, there’s a good chance that one will be ironed out eventually. Meanwhile, with its huge and growing consumer base, domestic growth continues despite various trade pressures. In the end, Chinese stocks could be a wonderful long-term play. And the recent hiccups have provided a “reset” in valuations ripe for the picking.

At this point, we are looking for safe investments in China and investments with high return. As China’s foreign sales level off or are rolled back due to trade war and cybersecurity issues, they have a huge internal market to develop and that may well be where to invest in China. And, in that regard, the first Investor Place choice fits right in.

Investing in Alibaba

Alibaba is generally thought of as the Chinese Amazon.com. They serve as a marketplace for selling products online but do not hold any inventory. As such, they may be more similar to eBay. Either way, Alibaba is a huge and growing company in the huge and expanding Chinese market. And, like Google, Alibaba is not resting on its laurels but reinvesting its profits in a variety of other businesses such as social media, cloud computing, mobile devices, and peer-to-peer lending.

In our article, Is There a Safe Fifty-year Investment, we noted that companies like AT&T, General Motors, Coca Cola, Kodak, and others were uniquely positioned to provide products and services to the growing US economy over much of the twentieth century. Their level of success and even dominance did not last forever, but it lasted for a long, long time. This is a good way to look at Alibaba. They are positioned very well in a very large and growing market. Their wide range of virtually recession-resistant products and services protects them again be totally devastated by a prolonged or permanent trade war.

Are there safe investments in China today? Yes, and Alibaba seems to be one.

Investing in Baidu

Baidu is often referred to as the Chinese Google. They control 80% of internet searches in China. Like Google, they make billions of dollars a year on selling ads. And, like Alphabet, Google’s parent company, Baidu has diversified into other tech areas such as autonomous vehicles, artificial intelligence, and video with its iQiyi subsidiary. Baidu’s growth is based on still-expanding use of the internet in China and not on exports to saturated and increasingly trade-protected North American and European markets.

Are there safe investments in China? Baidu is one and will likely be for a long time.

Investing in Ctrip.com

This is not a big company but rather a normal company that is well-positioned in a growing niche market. They run accommodation and travel booking sites. Airlines, hotels, cruises, and others use Ctrip.com to list their unsold services. This is an extremely low-overhead business in a growing market. As China shifts to a consumer-driven economy and focuses more on internal growth, this company has the potential to keep expanding the Chinese travel more and more. The risk of investing long term in these folks, like the rest, is that this is a business that competitors can mimic and take market share.

Safe Investments for Beginners in Chinese Stocks

Beginners at investing should typically stick with investments that they know and investment vehicles that protect them against undue risk. In regard to risks of investing in China, ADR’s of companies doing business solely in China, like Alibaba, Baidu, and Ctrip.com are a good idea. At this point, we prefer the few stocks mentioned because of their Chinese consumer focus. Our concern about Chinese tech companies and exporters is that the trade war with the US is not going to end soon and may spread to involve other nations. China has grown fast and is getting to a point where it wants to display regional and global dominance. This will meet resistance across the globe and make much of China’s export-driven growth slow even more.

Chinese Debt and Investment Safety in China

Much has been made of China’s increasing debt at a time when their economy is cooling off. Comparisons to Japan thirty years ago are appropriate and China seems to be concerned about following the same path into economic stagnation. There has been money flowing out of China for years is wealth investors there have been hedging their bets. Chinese banks and exporters in heavy industry are at substantial risk of a hard landing due to a debt collapse and loss of external markets. However, China has $3.25 trillion dollars in cash reserves which will provide a cushion if needed. It should be noted, however, that they had nearly $4 trillion in reserves just four years ago.

To sum up, there are safe investments in China, safe investments for seniors and safe investments for beginners. The first trick will be to invest in companies you can track. This means investing via ADRs. And, the second is to pick companies with a strong consumer focus in the still-expanding Chinese economy.

In today’s world of high-speed trading and short attention spans, it might seem unfathomable to hold any given stock for years, let alone decades. But the world’s best investors know all too well the best way to consistently beat the market is to buy high-quality stocks and hold them for extended periods.

To that end, we asked three Motley Fool contributors to each discuss a growth stock they think investors could do well to buy and hold for the next 50 years. Read on to learn why they chose Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), iQiyi (NASDAQ:IQ), and Shopify (NYSE:SHOP).

The rationale for each of these stocks is that they have the potential for significant long term growth. People who invested in American companies like AT&T, General Motors, Coca Cola, or Eastman Kodak early in the 20th century had at least 50 years of growth. These stocks grew with the US economy as phone service was extended to every corner of the land, more and more people had a car or two or three, everyone took photos, and everyone loved to have a Coke. It is useful to note that only Coca Cola has passed into the century relatively unscathed while digital photography essentially killed Kodak, General Motors lost out to foreign competition and passed through bankruptcy, and AT&T was broken up in anti-trust proceedings.

Reasons to Invest in Alphabet Stock

The rationale for investing in Alphabet is that they are using the dominance of the world of internet searches to fund their expansion into multiple, potentially very profitable arenas. Today eight of their products have more than a billion users each. These are Google Play Store, Gmail, YouTube, Android, Chrome, Google Drive, Google Search, and Google Maps. With their restructuring, they are now active in self-driving cars with Waymo, lifespan extension with Loon, drone delivery with Wing, life science products with Verily, and high-speed internet with Fiber. This “multiple bets” approach takes advantage of the huge number of smart people working for Alphabet and positions them for further growth in markets that are not dependent on the original internet search focus. This strategy will, hopefully, help them avoid the fate of Kodak whose business model became extinct, AT&T which was taken apart by anti-trust action, or General Motors whose product line came under unceasing attack from foreign competition.

Reasons to Invest in iQiyi

iQiyi is a Chinese company that was spun off from Baidu a year ago but which maintains a close relationship. The company is referred to as the Netflix of China. They aim to make premium subscription videos their core business. Right now they serve 20% of Chinese households compared to the 70% of American households that use Netflix. Considering that China has 1.3 billion people compared to 311million in the USA, the company has a lot more room to grow. Additionally, they are in video games and working on virtual reality. Right now the stock price is attractive because of the trade war between the USA and China. But, this is a Chinese company doing business in China and, would seem to be a Chinese company safe from tariffs. This company can be compared to Netflix, Microsoft, Apple, and other tech stories or to the early to mid-twentieth century stories of General Motors, AT&T, Coca Cola, and Eastman Kodak.

Reasons to Invest in Shopify

The rationale for investing in this company is that they appear to be well-positioned to take advantage of an expanding market in e-commerce. They are the “pick and shovel” approach when everyone wants to dig for gold. That is to say, Shopify assists businesses both large and small in selling their services and products online. This business niche is expected to grow to $25 Trillion by 2025. This company has a nice growth story but not the same sort of story as Alphabet or iQiyi when it comes to a fifty-year investment.

Is There a Safe Fifty-year Investment?

As we noted at the beginning, the Motley Fool article with its three suggested investments brought us to ask the question, is there a safe fifty-year investment? We write about the concept of intrinsic stock value so much that our readers can be forgiven if they get bored with the idea. Nevertheless, the best stocks to invest in are almost always ones that do well in intrinsic value analysis. However, this sort of fundamental analysis needs to be repeated on a routine basis. That is simply because the fundamentals change over time. New technologies replace old and Kodak goes from being the king of film, process, and printing photos to a footnote. Antitrust actions catch up with AT&T and break it up. The development of container shipping to support the Vietnam War effort brings cheap foreign products to America and undercuts American businesses including General Motors. The point is that in order to pick a safe fifty-year investment you need to be able to see into the future. What sort of investments will still be paying off half a century from now?

Your Home Is a Safe Fifty-year Investment

This is another point that we bring up every time that we write about how to start investing. You need a place to live and it is cheaper to own than to rent. The federal tax break for mortgage interest is unlikely to go away in the next fifty years. It is popular on both sides of the political divide and serves a good purpose of societal and financial stability. So, is there a safe fifty-year investment in home ownership? You bet there is and you should be taking advantage of that as early in your investing life as possible.

Are Investments That Don’t Lose Money Really Safe Investments?

We have written about how to invest without losing any money. Over the duration of a US Treasury, Bank CD, or AAA Bond, these are safe investments. You give up the potential for larger gains in return for protection against financial loss. But, over a fifty-year time span is there a safe investment in this arena? The problem with long term bank deposits, Treasuries, and AAA Bonds is that they may barely keep up with inflation or may even fall behind. As such, you will preserve your dollars at the same time that your dollars inflate and become less valuable. The closer you are to needing your investments in retirement the more you will want to be invested in this manner but over a fifty-year timespan, you need an investment that grows faster.

Dividend Stocks for Long Term Investing

In our article about dividend stocks, we provided a list of companies that have been paying dividends for more than 120 years. To keep paying dividends for this long the company has to be making money. Over the years, dividend stocks tend to outpace the market. As such, a safe fifty-year investment might come from a list of dividend stocks.

Technology Stocks for Long Term Investing

Is there a safe fifty-year investment in the tech arena? The telephone, automobile, and the film camera were “high tech” at the beginning of the 1900s. Companies that got in early and performed well dominated American business for nearly a century. And then they didn’t. The risk with tech is that you need a company that can “think on its feet” and not “rest on its laurels.” IBM comes to mind as a company that dominated the computer world until they missed the boat with small computers. Their mistakes allowed companies like Apple and Microsoft to become giants in the ever-evolving computer world. In this regard, we like Alphabet as much because it is diversifying and hedging its bets as for its dominance of internet search.

Safe Fifty-year Investments Are Ones That You Keep an Eye On

The bottom line for picking long term investments is that you need to choose wisely and, more importantly, you need to stay in touch with your investments. Whether your choice is an ETF that tracks the S&P 500 or an individual stock like Alphabet, you need to know why you choose that investment and you need to keep track to make sure that the investment still meets your criteria.

Where to Invest Money to Get Good Returns

Over the long term, the U.S. stock market has outperformed all other investment vehicles. When investing in stocks, the best approach is to start early, invest regularly, and choose a mix of safe stocks and growth stocks.

To get financial security is why people invest in stocks. Sometimes, people get lucky and pick just the right stock at the right time and get rich in a hurry. Much more commonly, people succeed by determining intrinsic stock value when purchasing and using dividend reinvestment plans to reduce the cost of buying new shares and to accelerate the growth of their investments.

To the extent that you need your money earlier, rather than later, you may choose stocks that have greater growth potential but these are commonly not good investments for beginners because it is all too easy to pick a stock that looks promising but fizzles out and takes your hard-earned money with it.

Safe Places to Invest Your Money

The first place that people should consider for an investment is their own home. Over the years, you will pay less on mortgage payments than for rent. And, the mortgage interest deduction on your taxes is a sweetheart deal that no investor should pass on. Then, the question is how to invest without losing any money. As we note in our article, there are four ways to invest and protect your investment capital.

• Bank deposits that have Federal Deposit Insurance
• US Treasury Bills, Notes, and Bonds held to maturity
• Investment Grade AAA and AA Bonds held to maturity
• Long term investing with a focus on intrinsic value

The first three best ways to invest your money, if you simply want to reduce risk to a minimum, are ones with lower rates of return than the stock market but the security of essentially holding cash. To make this work you need to hold your bank CDs, Treasuries, and corporate bonds to maturity or only sell when interest rates fall and you can make a profit on selling a bond or treasury. This is one of the best ways to invest your money if you want minimum risk and especially if you will need the money soon and don’t want to take the chance that the stock market will correct at the worst time for you.

The fourth of our best ways to invest your money is low-risk over the long term. You will invest in stocks that have been paying dividends for over a century and other very stable companies that provide a steady appreciation in value combined with maximum security. These are investments that let you sleep soundly at night

ETFs and Low Maintenance Investing

There are folks who have made millions and millions of dollars in the stock market by carefully researching their investments, precisely timing their purchases, and paying attention to the market every hour and every day. And, then there are the rest of us who have a regular job to go to and do not have all day to research stocks with fundamental analysis tools to find the best picks.

One of the best ways to invest your money in the stock market is to invest in an ETF (exchange traded fund) that tracks a broad range of the U.S. stock market such as a fund that tracks the S&P 500. Many of these funds have outperformed more closely managed investment funds in recent years. These are very good investments for beginners because they tend to do well and are diversified across the wide range of stocks. There is always a risk that the entire market will crash (and then return as it always does) but there is no risk that a single stock will tank and take down your investment with it such as happened recently with Kraft Heinz.

How to Invest Money to Make Money Fast

The best ways to invest your money are those that reliably offer the best return with the lowest risk. That having been said, there are times when a little research, a little foresight, and a bit of patience follow by prompt and well-timed action can pay off handsomely.

Beware of “investing tips.” All too often the person giving the tip wants you to invest in a penny stock to drive the price up so that they can sell at a profit before the stock falls again. If you think that a tip might be valid you need to analyze the fundamentals of the company and have a good sense of the technicals that drive day by day stock movement. This can be done, but requires attention to detail. Here is a personal example from years ago. It shows how an investor can pay attention to a stock, understand why it is going up or down, and profit by investing at just the right time.

Xerox Rise and Fall

Xerox developed the first plain paper copier in 1959. The Xerox 914 was the most successful single product ever sold at that time. Xerox dominated the photocopier market in the 1960s until the mid-1970s. They had essentially 100% of the photocopier market and were the subject of an anti-trust suit which they lost in 1975. They were forced to license all of their patents to competitors, mostly Japanese. By 1979 Xerox had 14% of the photocopier market and their Japanese competitors were selling copiers in the USA for less than it cost Xerox to produce them. At the same time, Xerox management decided to diversify into insurance. They took huge losses when a hurricane hit the Gulf Coast.

Xerox Recovery and the Take-over Bid

In the 1980s Xerox cut costs, reduced its insurance business profile, wrote off losses, and improved its product line. It started making money again and its stock price started to rise. At this time a group of “take-over” artists started buying up Xerox stock and buying options contracts on the stock. They drove the price up a bit and were close to being able to take over the company, which they would have broken up and walked away with a tidy profit.

But, the “take-over” guys were too highly leveraged. They ran out of money and had to start selling their shares. Xerox, had climbed to $60 a share with better management and paying off its hurricane losses. When the “take-over” guys ran out of money and started selling, the price of Xerox fell to $30 a share within just one trading session.

Best Ways to Invest Your Money when You Have Done Your Homework

Those who had been following the Xerox story and had invested in their recovery understood what had happened and that the stock would go back to its $60 range once the “take-over” guys were done selling and went away. So, some of us bought Xerox at $30 a share the first thing the next morning. By the next day, the price was back to $60 a share.

The point of this narrative is that you can make money in a hurry in the stock market but you typically need to do your homework first and then you need to stay in touch with the market in order to time your investment correctly in order to turn your research and insights into a profit. This really is one of the best ways to invest your money, providing that you have the time, energy, patience, and a knack for timing the market.