To achieve 11% yields and 12% average annual returns in ten years, we’ll need to make some assumptions. We’ll also change those assumptions so you can see what you’ll need to alter to obtain the 10-11-12 results you’re looking for.
As I stated earlier in the book, I don’t believe in dogma. Anyone who tells you that you should never, or always, buy a stock above or below a certain valuation, yield, payout ratio, technical indicator, etcetera, is either lying to you or themselves.
That’s a pretty strong statement considering how many people out there profess to have all of the answers to the investment world. But the markets just don’t work that way.
Stocks have a tendency to stay overbought or oversold, to move farther in a direction than most investors are prepared for. The market is a living, breathing animal that has a mind of its own and doesn’t concern itself with gurus’ hard-and-fast rules.
That said, we still can use guidelines to shape our strategy and use historical figures and averages as points of reference. Very often stocks do revert to the mean, so if you buy stocks trading below their historical average price/earnings (P/E) ratios, chances are, somewhere down the road, the stock will trade at that historical average once again.
Keep all of this in mind as I give you guidelines for the stocks that will create a great portfolio of income-producing assets designed to provide you in ten years with a yield of 11% and generate an average annual total return of 12% ...