Chris’ note: Tech stocks, crypto, NFTs, and “meme stocks.” If their wild volatility makes you want to throw up, today’s insight is for you.
It’s from friend of Legacy Research Brad Thomas. He’s one of America’s most widely followed income investing experts. And he’s out with a new strategy for building fortress-like wealth… in any market.
And it’s based on businesses that have wide moats…
Most folks dream of getting rich overnight.
That’s what drives speculative frenzies. The crypto, NFT, and “meme stock” crazes are classic examples.
Early investors make wild profits over a short time. They spread their success stories on Reddit and other internet forums. And FOMO (fear of missing out) sucks in hordes of buyers all seeking sky-high returns.
Some lucky investors cash out at the peaks. Most are left holding the bag.
That’s why I urge my readers to follow a different path to wealth.
Instead of shooting for the moon with risky speculative plays… I focus on building fortress-like wealth in the stock market.
I’ll show you what I mean in today’s dispatch… and how you can spot those fortress-like opportunities.
But first, there’s something you should know about my background…
Before I started my own newsletter business, I was a real estate developer.
At the peak of my career, I had more than 100 rent checks coming in every month.
I was working hard to make money. But I was enjoying spending it, too.
I went on lavish vacations… I sent my five kids to upscale private schools… I bought jewelry for my wife in the spur of the moment.
Then 2008 came… with its subprime mortgage mess and the financial crash that followed.
And I lost my properties, my franchises, my millions, and my career.
I was in worse financial shape than I’m willing to write even now.
I had five kids. The youngest was just one year old. And I had no idea how I was going to provide for them…
So, I set about building back my wealth. But this time, I approached it in a more intelligent, sustainable way.
And in 2010, I launched an income-investing advisory business from my kitchen table. I wrote to folks like you to warn about what I did wrong… and how to do better.
And I made the idea of a wide moat a core part of my mission…
A physical moat surrounds a fortress to protect it from attackers.
As an investor you want to own shares in businesses that can’t be easily attacked.
And that comes down to the following four factors. I look for these factors every time I consider a new recommendation for my readers…
Factor No. 1 – A competitive advantage
To be successful, a business must have a unique advantage that separates it from its competitors. Without this, a business is vulnerable to attack.
Consider how many smartphones are on the market today.
They all do much the same thing. But many people – including me – would rather spend more money and buy an iPhone.
Why?
They look good…. they perform well… they’re easy to use… And they’ve become a status symbol.
But the iPhone’s real competitive advantage is Apple’s ecosystem.
When you buy an iPad, a Mac, or an iWatch, you join an ecosystem of hardware and software that fit seamlessly together.
So, once you start using one Apple product, it makes sense to stick to the Apple ecosystem.
There’ll always be competition for iPhones. But Apple’s ecosystem is the best in the world. This gives it a distinct advantage over its competitors.
Factor No. 2 – Exclusivity
Another factor that gives a company a wide moat is a lack of competition.
For instance, you probably don’t have much choice when it comes to who you pay for utilities. In many parts of the country, the law allows only one utility company to service an area.
That kind of exclusivity makes it difficult for these companies to fail.
And it’s hard to live without electricity or running water. This gives utilities even more protection. They know people can’t do without the services they’re selling.
Factor No. 3 – Experienced management
The success of a business often depends on its leaders. They call the shots on everything from operations to employee attitudes.
Companies need executives who have clear, realistic, and inspiring visions of where their businesses will be tomorrow… next year… and next decade.
This requires experience, connections, a can-do attitude, and a willingness to prepare for the future.
Continuously successful business leaders know how to fit growth plans into their budgets without breaking the bank – come rain or shine.
The best way of knowing whether these leaders fit the bill is by talking to them.
This is something I do often when I’m researching a new idea. In 2022 alone, I interviewed more than 40 corporate CEOs.
But you can find out a lot on your own, too, by reading their interviews and communications.
Factor No. 4 – Respect for shareholders
Paradoxically, a company can have a great business and still be a poor investment.
That may be because it focuses too much on growth at the cost of stability. Or it may pay too much in executive compensation. Or it may make decisions that benefit its executives more than its shareholders.
My favorite sign of shareholder respect is a healthy and growing dividend.
It’s more than just extra cash in my pocket to spend how I see fit… It’s also a great way of keeping companies accountable.
They know they must reward shareholders with dividends. So they don’t make rash moves that put those dividends at risk.
There’s no such thing as a guarantee in the stock market.
But buying income-paying stocks with these four factors in play is a great way to build wealth over time.
A speculator may trade the stock of an unprofitable business hoping to make a quick buck. And that’s fine.
But I’m an investor. I’d rather own shares in a high-quality, profitable, growing company that rewards me over time.
It’s why, earlier this month, I launched a new advisory called Fortress Portfolio.
It focuses on growing your wealth through recessions, inflation, crashes, and corrections with dividend-paying blue-chip stocks.
And today, I’m offering folks who get in on the ground floor a special discount.
To watch me share more about the Fortress Portfolio strategy, and claim your discount, go here now.
Happy SWAN (sleep well at night) investing,
Brad Thomas
Editor, Intelligent Income Daily