The One Tried and True Investment Discipline

This tried and true investment discipline always pays off. [Liberty Through Wealth]( SPONSORED [Virginia Stock-Picking Millionaire Breaks No. 1 Rule of Investing...]( He bought Apple 22 years ago... Amazon 13 years ago... and Netflix more than a decade ago. Now one of the world's greatest stock pickers is breaking the No. 1 rule of investing... and targeting a $3 stock that trades under a secret name. [See him explain his crazy approach live on stage here.]( Tell Us... Are you feeling optimistic or pessimistic about the upcoming election? [Click here to vote in our Twitter poll.]( [And click here to join the conversation on Facebook.]( Note from Managing Editor Allison Brickell: Earnings season is just around the corner. And as Alex points out in today's piece, following company earnings is one of the smartest things an investor can do. In fact, Chief Income Strategist Marc Lichtenfeld has been pounding the table on the subject. He's determined to show investors that earnings announcements are a major catalyst for dramatic stock gains. At his free [Blockbuster Earnings Season Kickoff on October 21]( Marc will prove that we're about to enter the most important earnings season of our lifetimes. And investors who pay attention can triple their money in just three months. [Click here to sign up for Marc's earnings kickoff.]( And read on to learn more about the most tried and true investment discipline. THE SHORTEST WAY TO A RICH LIFE Most Investment Systems Won't Work... But This Will Alexander Green | Chief Investment Strategist | The Oxford Club [Alexander Green] Early in my career on Wall Street, I made an astonishing discovery: The overwhelming majority of my colleagues - bright, educated, experienced and articulate - didn't have the foggiest idea what they were talking about. This only became obvious in retrospect, when I saw how their carefully constructed financial theories and investment forecasts turned to dust rather than generating any significant profits. (You'd be surprised to learn how many investment "pros" lose a substantial percentage of their own money in the market each year.) The truth is that there are limitless ways to take a beating in stocks - and only a few methods that work well over time. These few methods are codified into more widely recognized investment principles, something I try to emphasize in my columns here. I was fortunate to realize this early in my career, although it still stings to think about the chunk of change I lost 35 years ago buying my own firm's "Strong Buy" recommendations. However, things finally began to turn around for me the day I read Harry Browne's - sadly out of print - Why the Best-Laid Investment Plans Usually Go Wrong. (I loved the title, but Harry, who ran for president twice on the Libertarian ticket, told me over dinner one night that he regretted the choice. "Too negative," his publisher told him.) Browne argued that the odds are stacked against the typical investor, who is overwhelmed by Wall Street's technical jargon, market volatility and the business of money management. (Read the investment classic Where Are the Customers' Yachts? for details.) SPONSORED [Volume Spike]( See that volume spike? [Somebody just decided to buy a LOT of gold.]( And I think I know why... If you own gold (even just a few ounces of it), you've got to see what's happening. [Click here.]( There are exceptions, of course, but the nation's brokerage firms are filled with well-dressed, smart-sounding men and women spouting a lot of self-serving nonsense. As Vanguard founder John Bogle once remarked, "It's amazing how difficult it is for a man to understand something if he's paid a small fortune not to understand it." The overwhelming majority of economic theories, market forecasts, trading strategies, hot tips and surefire speculations never pan out. Fortunately, we have the accumulated wisdom of history's greatest investors to guide us. I'm talking about people like Warren Buffett, Peter Lynch and John Templeton, individuals whose audited track records speak for themselves. Even though these individuals used very different approaches, they agreed that in the end there is only one thing that dictates where a stock will go: earnings. Earnings are the net profits of a business. They are what ultimately drive share prices. I challenge you to find a single company that increased its earnings quarter after quarter, year after year, and the stock didn't tag along. Conversely, try to identify a single company whose earnings declined quarter after quarter, year after year, and the stock advanced anyway. It just doesn't happen, even in a rip-roaring bull market. The reason is simple. A share of stock is not a lottery ticket. It's part ownership of a business. And just how much investors are willing to pay for those profits will determine what a company is worth in the market. Although there are always bumps along the way, you'll find there is a near perfect correlation between a company's growth in earnings per share and the movement of its stock from quarter to quarter and year to year. So forget all the technical mumbo jumbo about market breadth, trading volume, put-call ratios, short interest, mutual fund inflows, advance/decline numbers and other market trivia. And instead remember that share prices follow earnings. Period. Stamp that on your forehead - act on it - and you'll be using the one tried and true investment discipline that always pays off in the end. Third quarter earnings are poor at some companies right now, due to the pandemic and economic shutdown. But there are plenty of other companies in technology, e-commerce, food, pharmaceuticals, medical devices, healthcare services, defense contracting, gold mining and other recession-resistant industries that are making money hand over fist. Those companies are outperforming. And they're likely to keep outperforming in the weeks and months ahead. Good investing, Alex [Leave a Comment]( [Read Trend Lines]( [Click here]( to watch Alex's latest video update. For Alex's latest video updates, subscribe on [YouTube](. 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