In 2020 and 2021, COVID-19 wasn’t the only pandemic around.
A surprisingly different contagion overtook Wall Street… one many investors may still be paying for right now: Non-profitable tech.
It was a golden age for investments like the Ark Innovation ETF (ARKK), with stocks like Peloton, Carvana, and Zoom soaring high.
In this crazy bubble – fueled by almost $9 trillion in post-pandemic stimulus – even bankrupt companies sometimes went up 600%… on the day they announced bankruptcy!
But 2022 was the year that reality returned to Wall Street. Many red-hot speculative tech darlings crashed 70%, 80%, and in some cases, 99%.
Maybe you owned some of these stocks. And maybe you still own them today.
Which is why I want to share an important lesson with you.
Many investors hate selling at a loss. They’ll even cling to stocks whose thesis has been shattered, praying and hoping to “break even.”
But you shouldn’t have to stay up at night “hoping” for an unfounded turnaround… especially if you want your portfolio to weather through this market and pad your retirement.
At Intelligent Income Daily, we’re focused on guiding you toward safe, reliable income investments that can help you sleep well at night.
Today I’ll show you why this is one of the most dangerous investing mistakes you can make. More importantly, I’ll provide you with a highly effective strategy for rebuilding your shattered portfolio with far lower risk.
This simple strategy could be the difference between retiring in comfort, retiring in splendor, or not retiring at all.
Be Prepared for Busts
Enron… WorldCom… General Electric. These are all examples blue-chip stocks that went bust. They offer a cautionary tale of just how badly investments can go.
And they’re not alone.
(Source: JPMorgan Asset Management)
As you can see in the chart above, 44% of all U.S. stocks turned out to be disasters; in tech, it’s 59%. That’s why it’s imperative you take a critical look at your potential positions.
At Wide Moat Research, we use a safety and quality model that includes over 1,000 metrics to minimize the risk of owning one of these catastrophes.
One of those metrics is dividend growth streaks. And the strength and longevity of that metric is something we often focus on before making a recommendation.
But even if you buy the bluest of blue-chip stocks, from time to time, there’s a chance you could lose money…
Dividend Kings are companies with 50-year dividend growth streaks – or more. They’re the most dependable dividend growth stocks on earth.
But every five years, on average, one of these legendary dividend blue-chips cuts its dividend, usually during recessions.
What Happens When a Dividend King Cuts Its Dividend
That’s what happened recently with VF Corp (VFC). Just three months after raising its dividend for the 51st consecutive year, VF Corp. slashed its dividend by 40%.
VF Corp. is a global clothing and footwear company. It owns names like Vans, Timberland, The North Face, Supreme, and more. We liked it for its market dominance and growth potential in popular markets.
But our team at Wide Moat Research had been monitoring VF Corp.’s fundamentals. And as soon as the dividend was cut, we recommended everyone sell out of VF Corp. immediately for a 13% loss on our position.
We weren’t happy to see the dividend cut… but we did everything to protect our readers from that potentiality.
For example, we recommended a small position size. Meaning our 4.44% position totaled a 0.5% portfolio loss in our Fortress Portfolio. And based on that portfolio’s 6.7% yield, it’ll take about a month to recoup that amount.
We then recommended putting that money into a far higher quality blue-chip.
VFC fell 8% more after our sell recommendation, as dividend investors abandoned it and Wall Street steadily lost confidence in the turnaround plan.
Meanwhile, the stock we replaced VF Corp. with in the portfolio yields a much safer 4% and is growing at 13%, offering better income growth and total return potential.
We expect this better blue-chip stock to deliver around 18% total returns and more than make up for the modest VF Corp. loss within a single year.
That’s what a vetted and flexible plan can do even in downward markets like this one right now.
This was all thanks to our advanced risk-management techniques.
When the Risks Aren’t Worth It
No one likes losing money. And when you’re down, it’s easy to fixate on what you bought a stock for.
After a tough 2022, many investors are still underwater and “hoping and praying” to just break even.
But remember that 44% of all stocks turn out to be disasters. And this is why risk management and a comprehensive safety and quality model are so important.
A year ago, VF Corp. was an A-rated Dividend King, one of the world’s greatest companies. Now it’s a failed aristocrat, and the fundamentals continue to deteriorate.
Could VF Corp. still turn things around? Sure, it owns some strong brands and is the world leader in its industry.
But dozens of great dividend alternatives are available at any given time, so why take the risk?
Wide Moat Research uses several advanced risk-management techniques to minimize the losses when things go wrong. And things will inevitably go wrong from time to time.
Hope isn’t a good investment strategy. Don’t risk your financial dreams by praying that crappy companies will suddenly stop sucking.
There are no sacred cows on Wall Street or at Wide Moat Research. When a company breaks its thesis for buying it in the first place, it’s time to ditch it… and put the money where it’s most likely to increase your wealth.
That is why we immediately sold out of VF Corp. and bought a much higher quality blue-chip stock. So instead of holding on to losers, we can use a company that’s firing on all cylinders to fortify our portfolio.
If you’re curious to find out what that stock is and want a portfolio strategy that will protect and grow your retirement exponentially, click here to learn more about Fortress Portfolio.
Save Investing,
Adam Galas
Analyst, Intelligent Income Daily