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Monday 09/27/2004

Building Wealth in Any Market!
by Nich Sheldon

Many investors alike would love to believe that the market as well as the economy is growing stronger with each passing week. It's easy to believe, especially since the cornucopia of economic data has been upbeat for the better part of the year. On the other hand, I feel that a new tide is on the horizon.

Call me crazy, but the current market trend resembles that of the secular bear market of the late 1990's. From a historical perspective, most secular bear markets usually take at least ten years to settle. For instance, half a decade ago we had a sixteen-year secular bear market (1966-1982), which featured four recessions. Ready for the kicker? During this time span, there was a five-year upswing, which was mistakenly thought to be the beginning of a new bull market. Sound familiar? How about the tech rush of the late 1990's? One could practically throw a dart at a list of tech stock and ride that stock for a gain of 50-150% over a two or three-year period. Low and behold, April 2000 arrives and the bubble popped, as well as most tech savvy balance books.

Does this mean that I am bent out of shape over what to do to diversify my portfolio? Does this mean that a wise trader would pull all of his/her money out of the market and wait for a confirmed bull market? Does this mean that we should lose all hope of earning ten percent per DRIP year over year? The answer to all of these questions is a firm NO. The reason I have told you this is not to scare you, but more because I want you to know that secular bear markets can be not only an asset to the long term trader, but a chance to add shares at lower premiums, which usually means you are getting more for your money.

The truth is that long-term bear trends are almost always accompanied by changes to nearly every industry. If you think about it, each company is going to do what it can to remain producing positive earnings no matter what type of market they are in. This means that each of these companies is going to have to adjust to the markets new conditions. This change alone usually creates exceptional opportunities for the long-term investor.

This, my faithful readers, is why I love dividend-bearing stocks. John Mauldin, author of "Bull's Eye Investing," noted that dividends account for about 40% of the 10% average annual gains returned by the broader markets.

Another thing to keep in mind is that stocks that offer dividends are -in a general sense- usually the strongest companies to invest in. This means that those of you invested in dividends, are going to benefit from the strength that these stocks see when the market and the economy improve. Secular bear markets always have upswings, or bullish counter-trends, which dividend investors can see capital gains in, if they are willing to sell. Historically in down trends, thousands of investors saw their dividend portfolios become growth stock portfolios, and I intend to help you capitalize on this in the coming years.

How about one last tool to put in your toolbox? New tax laws have reduced the rate on dividends by as much as 50% for most investors. This change has helped to urge a significant increase in dividend yields, and you, my friends, are among the few investors who know about this.

A word to the wise...
Stocks that offer dividend reinvestment plans are basically offering their investors the opportunity for absolute returns. This means that no matter how poor or well the market is trending, you are going to receive a payout, quarter after quarter (in most cases). This means you need to choose your dividends wisely, and focus on the fundamentals, as well as the technical catalysts, that may make or break your portfolio. It's an exciting time to be a dividend investor, and I hope to educate you as well as inform you of wise dividend reinvestment plans for years to come.

This ends another exciting episode of the News and Views. On Friday, I will spotlight another stock worthy of the limelight.

Until Next Week,
Nich Sheldon
Editor In Chief


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