Growing Rich - Arabictrader.com

GROWING RICH WITH GROWTH STOCKS
pennies a share, the commission penalty is not as high as it once was.
“But taxes are still a major issue, especially for older investors,” he
adds. “When they get to be 80-plus years old and have a long list of
great companies that have gone up in value by ten times or more,
selling triggers an enormous capital gains liability. If you’re selling
for personal reasons, like to pay for medical costs, that’s understandable.
But to sell just because your broker thinks it’s a good idea is
often a mistake. This is especially true if an older person is trying to
grow their portfolio as a legacy to leave to their loved ones or designated
charities. After all, when they die, the cost basis becomes the
date of death, and the huge capital gains liability suddenly disappears.”
INVESTING FOR THE LONG HAUL
The term “buy-and-hold investing” has become almost a cliché.
You’ve no doubt heard experienced professionals dole out this advice
time and again. It’s simple, it works, and it’s easy to understand. Unfortunately,
few people heed this counsel. As a result, their returns
suffer. As Shelby Davis puts it, you should go into every investment
with the intention of sticking with it forever.
“I like to buy stocks that I call core holdings rather than trading in
and out of the market,” he says. “As a long-term investor, I measure
success by the long-term wealth I build. I strive to create an environment
in which compounding can flourish. One way I do this is by
sticking with a universe of companies growing between 7 and 15
percent a year, selling for 10 to 15 times earnings. That range is attractive
because time is your friend in the compounding process.
Nobody thinks twice about investing in a 30-year bond. Likewise,
they think nothing of buying a house and owning it for 20 or 30
years. A stock is just another way to invest your cash. I feel that over
time if the Dow compounds at just 7 percent a year, it will trade for
between 50,000 and 60,000 in 30 years. Compounding is really the
eighth wonder of the world. Using the rule of 72, you can easily calculate
the number of years it will take to double your money. You
simply divide the rate of interest into 72. In this case, 7 into 72 equals
about 10 years. In other words, if you can compound your money at
a rate of 7 percent, it will double every 10 years, quadruple in 20
years, and be up eight times in 30 years.”
17