Streetwise for Sunday, February 18, 2018

“The Dow Jones industrial average is going to crash,” one supposedly “world-renowned,” economist was given to pontificate. “We’ll see a historic drop to 6,000… then to 3,300. Real estate will collapse, gold will sink to $750, and unemployment will skyrocket. It is going to get ugly,” he said…a year ago.

That is a sample of the utter nonsense I am forced to refute on a regular basis. And by the way, for a “small” subscription fee, the writer will advise you on how to avoid the upcoming apocalypse.

As recently as a week ago we had an outbreak of inflation hysteria. Suddenly the era of 1979 with 13.8 inflation seemed to be on everyone’s mind. The result was a sharp rise in volatility as measured by the VIX, Wall Street’s fear gauge.

And who got hurt the worst? It was those investors who had been lured into believing that market volatility was dead and had been sold a 2X reverse exchange traded fund (ETF), meaning if the VIX went down your investment increased by a factor of two. Guess what happened when the VIX shot up in price last week. Yes, some ETFs became worthless.

Therefore, it is no surprise that dealing with Wall Street conjures up continual anxiety. It is not just the inherent concern over potential risk; it often embraces a repugnant opinion of those who are purveyors of both its prognostications and its products.

That the investment world has engendered such a paramount level of suspicion is a curse of its own making, a consequence of having gorged itself on fees and commissions through questionable tactics, while at the same time decimating the very nest eggs delegated to it for growth and safe keeping.

Tragically, for many it is too late to prevent the victimization perpetrated by those denizens of deceit and their uncanny ability to ferret out a combination of ample financial assets and a lack of investment sophistication.

They proffer as evidence a stream of letters after their name, or an association, however tenuous, with a firm or person of some repute, and finally, a gratuitous dinner offer.

And while often sufficiently on the side of the law to avoid prosecution; the promised returns are rarely forthcoming. Rather an intoxicating idea often degenerates into a situation whereby the invested funds become seriously depleted, illiquid, or possibly lost altogether.

To further complicate matters there are those seemingly endless economic scenarios being proffered up that depict an apocalyptic outlook for the world. However, assistance in negotiating such treacherous shoals is always available…for that small fee of course.

Ignore it all. Investing in common stocks is prudent and appropriate at virtually any point in time and generally entails little more than a modicum of common sense research.

You do not need professional advice or specialized computer software or expensive newsletters and whatever else is being touted these days by those claiming to have an “inside track,” to the Holy Grail of investing; that flawless method for deciding what to buy and when.

There is no Holy Grail, yet for some the search has become an obsession; for others, a hopeless crusade. In either case their frustration leaves them vulnerable to the vultures that prey on the uninformed.

Nonetheless, there is one method anyone can use to build a decent portfolio…in a period of about 20 minutes. I mention it once again as an antidote to the vicious and often mistaken commentary describing how Wall Street is about to collapse.

This often-maligned methodology is most often referred to as the Dow Five theory or Small Dogs of the Dow. Specifically, you select the five lowest priced of the Dow’s 30 stocks from the ten with the highest dividend yield, buy an equal dollar amount, not an equal number of shares, of each of these five companies and hold them for one year.

On the anniversary of your purchase, you again identify the five lowest priced stocks out of the ten with the highest yield and adjust your portfolio accordingly.

Lauren Rudd is a financial writer and columnist. You can write to him at LVERudd@aol.com. Phone calls accepted between 9 AM and 3 PM at (941) 706-3449. For back columns please go to www.RuddReport.com.