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Investing For The Long Term on The EBB Tides

Posted on | October 10, 2012 | Comments Off on Investing For The Long Term on The EBB Tides

If you’re primarily an income investor – are you the type of person that likes to tinker continually with his / her portfolio, reviewing yields continually and shifting your money around – or do you prefer to make the bigger strategic calls over a much longer time period?

Although this is a contentious issue, it’s clear that the most successful private investors, on the whole, take the latter approach. This is contentious, though, because there are always examples of success and failure on both sides of the long term / short term fence.

As a private investor, though, you have to have an edge to beat the market. And the ability to buy stocks on a ten year view is one of them. When the market takes a severe blip, as it always does and will continue to do from time to time, fear abounds and the opposite of Warren Buffet’s assertion that “a rising tide lifts all boats” become  true i.e. perfectly good quality defensive stalwarts stock get carried out on the ebb tide. Then is the time to buy for income on a view which looks at the very long term.

Let’s look at a recent example from the UK market. UK supermarket giant Sainsbury’s shares could be bought for as little as 266p in the summer sell-off of 2011. At this price, the company’s anticipated forward yield was around 6.5%. Perhaps more to the point, the company as at a P/E of around 8 and, best of all, has a real underlying tangible book value (basically, the supermarket buildings) far north of the share price.

In other words, this big defensive stock had a little bit of everything and the shares have duly rallied. But anyone buying around then has locked in the yield at their low buy price and the shares still don’t look expensive.

Getting yourself on the plus side of the equation and investing steadily for income rather than capital growth is a great long term way of avoiding the need to seek debt help.