10 Best Stocks to Hold Forever (Part Two)

Finally Finishing Up our Look at StreetAuthority's "Forever Stocks"

By Travis Johnson, Stock Gumshoe, October 6, 2011

Stock Gumshoe readers clearly have a yen to find out which stocks are safe enough to “hold forever” — I wrote about a teaser from Paul Tracy for StreetAuthority’s Top Ten Stocks almost two months ago, but my plans to finish it up and complete the list of stocks for you drifted away in the dog days of Summer.

But you, dear readers, insisted — I’ve had tons of folks asking why they can’t find “part two” of our look at Tracy’s ten best stocks, and though I’d be delighted to tell you that it’s just a problem with the new site design and our search feature, I’m afraid the real problem is that I didn’t write it yet.

And that, I’m delighted to say, is a solvable problem — surely a rarity these days.

If you missed out on the basic idea behind this pitch, it’s that there are stocks with dramatic long-term performance that are held by lots of bigwig investors and politicians, and you can buy the same stocks they own. Here’s a taste:

“One of our “Forever” stocks is owned by a staggering 22 members of Congress. James Sensenbrenner Jr. (R-WI) reports that via his wife, he has a stake of up to $500,000 of the stock. And in 2010, that stake earned at least $15,000 in dividends from the shares.

“You can see for yourself in his latest financial disclosure I had our research team dig up on the Representative:

“Here’s the funny thing. When you find a stock that a herd of Congressmen love… you usually find that some of the richest people in the world also invest in it. It’s almost like there is a direct link between the two…

“In fact, Representative Sensenbrenner and his wife could shake hands with the world’s richest man — Mexican telecom magnate Carlos Slim — at this company’s annual meeting. That’s because along with a couple dozen members of Congress, Mr. Slim also has a stake in this world-dominating company… owning more than 12,550 shares worth $879,000.

“It’s the same story with another ‘Forever’ stock we found.

“It’s owned by dozens of the market’s biggest players. Legendary investment firm Fidelity owns more than 15,500,000 shares worth almost $8 billion. T. Rowe Price holds over 10,100,000 shares, according to Bloomberg.

“Twenty-five members of Congress also own the stock.

“That includes Jane Harman — the second-richest member of Congress, with an estimated net worth of $293 million. That is to say she was the second-richest member of Congress.

“Ms. Harman resigned in 2011. At last count, she held over $250,000 in this company’s stock.

“But what’s most surprising about this select group of 10 stocks we’ve identified? It’s not the fact that millionaire Congressmen… or billionaire ‘super’ investment firms like Fidelity and T. Rowe Price… are lining their pockets with the shares.

“Instead, it’s that everyday investors like you, your family, and your friends are able to invest in these exact same companies.”

So there you have it — what could go wrong, right? Of course, the fact that Jane Harman has $250,000 invested in a stock means less than one tenth of one percent of her portfolio is in this stock, which ain’t exactly the kind of conviction that you’d think would maker her move hell or high water to get that firm some gummint contracts … but still, I like the idea of “forever” stocks even if we have to put quotes around the “forever” part — I’m a big believer that long-term positions in strong, growing, dividend-paying companies that can compound your money over decades is probably the best foundation for an investment portfolio, even if I sometimes am less disciplined than that in practice.

Or, as Paul Tracy puts it:

“I believe the simplest way to turn any amount of money into a windfall is to find a stock you want to hold forever, invest, and then forget about it.”

That’s the way most of us were taught to invest, and there’s a certain logic to it — along with, as we’ve learned over the last decade, a fair amount of risk if you do the first part (the “find a stock” bit) poorly … many brokers don’t even like to use the terms “blue chips” or “widows and orphans stocks” anymore, and it’s not just because big stocks (like Eastman Kodak most recently) sometimes die long, slow deaths but because everyone now watches their portfolio tickers on an hourly basis and is now so much more focused on the minute wriggles of the global economy — even if you do “find the stock” right, having patience to let it grow and compound is far more difficult today than it was 50 years ago, when you might only check on the stock tickers of your holdings in the newspaper from time to time.

So let’s look into the remaining teasers, shall we? I think I covered six of ’em back in early August when this ad began to run (BIP, GOOG, PM, MA, AMJ, MKL for the quick shorthand), and most of those stocks are still within a pretty short hop of where they were then, so we’ll look at the clues for the rest … Oh, and that one that’s “owned by dozens of Congressmen” is Google, by the way, so that’s already on the list …

Next?

“‘Forever’ Stock #4 is a fund whose job is simple — invest in the most stable utility stocks on the earth and pay investors a fat dividend yield.

“It owns telecoms in New Zealand, electric companies in Brazil, and energy businesses in Wisconsin.

“It’s returned 11% per year since its inception in 2004… and it has boosted its dividend 28.9% along the way. In total, the fund has paid 89 consecutive dividends and currently yields 6.0%.

“But don’t expect to have heard of this one… it trades only 80,000 shares a day — about what Apple trades in two minutes.”

This one must be the Reaves Utility Income Fund (UTG), a closed-end fund run by a utility-specialist investment firm that’s been around for about 50 years (the managers, not the fund — the fund IPO’d in 2004). They basically take the relatively small universe of what they consider to be “utility” stocks (a few hundred), pick their favorites, and manage that portfolio. Oh, and they also borrow money to magnify their returns (and their risk, which is why the shares of the fund collapsed in the credit crisis, though they recovered fairly quickly).

They use a pretty broad definition of “utilities” — they currently hold a bunch of high-yielding telecom companies (AT&T, Verizon, BCE, Frontier) and a few MLPs along with the more traditional electricity, gas, and water utility companies (and a few oddball names, with tiny positions in Annaly Capital, Cellcom Israel, ExxonMobil, Nalco and the like). There are some foreign names in the list, but the majority are US companies.

Closed-end fund usually trade at a discount to net asset value, but in some cases, as with this fund, they trade at a premium — the fund is currently trading for about 8% more than the underlying investments are worth. There are some times when it works out to buy a great Closed end fund at a premium, but it’s certainly risky and represents another kind of leverage — if utilities fall out of favor or their performance slips, the shares would undoubtedly fall due to the drop in price of the stocks they hold, but would probably also fall further because investors would no longer be willing to pay a premium over the net asset value if performance were flagging.

Right now UTG is levered up 37% (meaning they have borrowed 37 cents to expand the portfolio for every dollar they raised by selling fund shares), which seems like a lot to me, and that and the telecom and MLP holdings help them to pay a far higher yield than the average plain-vanilla utility (yield right now is 6.5%, the average big utility yield according to the Utilities Select SPDR — ticker XLU — is about 3.9%). They have a 1.5% management fee, which isn’t that crazy for a closed-end fund but certainly counts for something. You can see the basics on their portfolio, leverage, and historical premium/discount valuation from the closed-end fund association here.

I’d be inclined instead to maybe buy a couple telecom shares and a low-fee utility etf (like Vanguard’s Utilities fund, VPU) rather than lever up like this with a riskier profile just to get another percentage point of dividend yield, but that’s for you to decide … it is, after all, your money.

Next one?

“‘Forever’ Stock #7 is a fund that holds more than 260 of the fastest-growing companies in the world. But you won’t find these companies here in the United States.

“That because this fund only invests in fast-growing emerging markets like Taiwan, Brazil, and Malaysia. At first glance you might think that’s risky… until you think about where our economy is in the United States.

“Here at home we’re struggling to see 2% economic growth… and that’s with massive stimulus spending. But Brazil’s GDP grew at a 5.4% annualized rate in the first quarter of 2011 alone. Economies like Taiwan, China, Brazil, and others are growing 2X or 3X faster than the U.S. economy. This ‘Forever’ idea is one of the best ways to profit from that trend.”

So are those clues enough to identify the ETF? Not really, there are several decent ETFs that are widely diversified (more than 260 stocks, as teased) in emerging markets stocks, including the granddaddy for the sector, the MSCI Emerging Markets index ETF from iShares (EEM). But a commenter on the first article suggested the WisdomTree Emerging Markets Equity Income Fund (DEM) as the match and I like that one a lot better than the index, so we’ll go with that — DEM, like most of the WisdomTree funds, is fundamentally weighted … meaning that they weight the percentage of the investment in each stock by the valuation and/or the dividend yield of that stock, not just by the size (as with the S&P 500 or most market cap-weighted indexes, including EEM).

Market cap weighting means you put the vast majority of your holdings into huge companies that everyone knows about — which isn’t necessarily terrible, but there’s been a lot of research to support fundamental indexing/weighting instead. So while EEM’s largest holdings are Samsung, Gazprom, Petrobras, China Mobile, Vale — stocks we all probably have heard of, DEM’s top ten includes some cheaper “value” and income picks like Taiwan Semiconductor, Banco do Brasil, Malayan Banking Bhd, Chunghwa Telecom, Kumba Iron Ore and the like. And it carries a current dividend yield of almost 4%, versus about 2% for EEM and has outperformed EEM by a bit for most of its existence (though, to be fair, that’s a very short measuring stick). The two funds have almost identical expense ratios, by the way (around 0.65%) and pretty wide diversification across the top 10 or 15 “emerging” countries, though DEM has far more allocated to Taiwan and Malaysia right now and almost ignores mainland China, which is the largest allocation for EEM.

So I can’t tell you for sure that DEM is Tracy’s “Forever” pick, it ain’t half bad as a play on the theme he hints at. If you’ve a preferred fund that aims for this same target, feel free to shout it out with a comment below.

Next pick?

“Every $200 you invested in ‘Forever’ Stock #8 back in 1972 would be worth $280,000 today. Maybe that’s why it’s one of Congress’ favorite ‘sweetheart’ stocks. In total, more than 50 members of Congress own a stake.

“Former Presidential Candidate John Kerry and his wife own at least $452,000 worth.

“Meanwhile, the company is raising its dividend, spending billions to buy back its own shares, making smart acquisitions, and according to investment research firm Morningstar, owns an ‘80% stranglehold on a $30 billion market…'”

Well, since we’re given the year 1972, that massive growth rate, and the “80% stranglehold” and “$30 billion market” stuff … the Thinkolator tells us that this must be … Intel (INTC).

Another stock I own and am happy to endorse, by the way. The computer microprocessor market was estimated at being around $30 billion a year by Morningstar, and Intel does own about 80% of that market — enough of a monopoly that it seems like Intel tries to prop up AMD just enough so they can tell regulators that it’s not really a monopoly.

Intel certainly has challenges, but personally I think the idea that the mobile world will be their downfall (as Qualcomm and Arm Holdings, among others, dominate mobile chipset designs) is a bit overdone — as is the notion that personal computers and laptops will disappear because you can buy the iPhone in Shanghai.

OK, I’m exaggerating — but so, I think, are those who see Intel’s business evaporating to the point that they’ll only pay 9X earnings for a near-monopoly that yields 4% and is still growing … even if that growth is challenged to some degree. Intel has $10 billion in cash to spend, and they’ve proven that they will invest in R&D and invest in mobile chips, even if they’ve had stumbles in mobile so far. You may see better growth opportunities in smaller chip stocks, for sure, but not many who can pay out a high current yield and increase that dividend. Change happens, and dominant market positions can erode, but Intel’s not eroding yet … and rarely does that decline come about as quickly as investors fear.

And one more to close out the “10 best?”

“I looked all the way to Brazil for ‘Forever’ Stock #10, but don’t worry… it trades right on the New York Stock Exchange.

“It’s the largest electricity transmission and distribution company in Brazil, boasting more than 6.5 million customers. Like many utilities, its profitability is also supported by its monopolistic position. Roughly three-quarters of its total power sales are to captive customers who do not have the option of switching to another electric distributor.

“Meanwhile, the company makes semi-annual dividend payments, with a policy of distributing at least 50% of net income. The two most recent dividends add up to $1.60 per share, giving the stock a yield of 6.0%.”

This one, sez the Thinkolator, is big Brazilian Utility CPFL Energia (CPL) — they do reach “more than 6.5 million” customers (they say 6.7 million) — and they do say they’re the largest public company in the sector, though there are some other big ones. The trailing yield, per Yahoo Finance, is 5.7%, so not bad but also not particularly high for a Brazilian company. Interest rates are far higher than that in Brazil, with benchmark rates around 10%, so as a utility they’re paying 6% while folks with a savings account might get a bit more than that. And thanks to regulation and tradition, Brazilian companies generally pay a high percentage of their income as dividends, 50% is fairly typical. As with most utilities, CPL pays out far more than half of their income as dividends so the “promise” of at least 50% is not particularly critical at the moment.

There are other electric utilities in Brazil if you’re interested too, including ElectroBras (EBR), which has a more global presence and similar yield, and there are several other regional power utilities with investments in Brazil, including Chile’s Enersis (ENI). I have not looked closely at them and I don’t know the Brazilian utility market particularly well, though I find it surprising that the yields are not substantially higher given the interest rate environment in Brazil. If you’ve a favorite South American yielder or more info on CPL and its competitors, feel free to share your thoughts with a comment below.

So there you have it — some utilities and foreign exposure and a big ol’ tech stock, think they’re “hold forever” material? Let us know with a comment below.


For full disclosure, I own shares of Google, Markel, Berkshire Hathaway, Verizon, and Intel of the shares mentioned above. I will not trade in any stock covered for at least three days.


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42 Comments on "10 Best Stocks to Hold Forever (Part Two)"

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n. montrose
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n. montrose
October 6, 2011 7:10 pm
WHAT STOCK IS THIS?? GOOGLE? .. It’s owned by dozens of the market’s biggest players. Legendary investment firm Fidelity owns more than 15,500,000 shares worth almost $8 billion. T. Rowe Price holds over 10,100,000 shares, according to Bloomberg. “Twenty-five members of Congress also own the stock. Does Goldman Sachs know something about this company that most investors don’t? After all, they own over $1.5 billion of its stock. Maybe it’s the fact that 20 Congressmen own the shares… or that the stock is up 353% since going public in 2004… or that the company currently holds $121 per share in… Read more »
Robin Hewitt
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Robin Hewitt
October 19, 2011 3:01 pm
Cool. I’m with you on INTC. Loaded up on it at 17 a couple years ago. I figure with its dividend I can afford to wait for the rest of the market to realize it’s not a vanishing concern. Not so sure about GOOG. They may replay the IBM story of being split apart at some point. In any case, they’re no longer the young, vibrant company they once were. Not saying it’s a poor investment or won’t do well but I wouldn’t want to just buy it and forget about it. Don’t know any of the rest so thanks… Read more »
guruji
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guruji
November 7, 2011 12:48 am

I certainly dont think mastercard,intel and the MLP picks are a bargain. It may suit the politicians. For the average investor stocks like bralzilian oil giant petrobas, America’s own Apple are good picks. Streetauthority sucks.

dcejka
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dcejka
November 8, 2011 12:03 pm

I wished I owned a million shares of JNJ. Johnson and Johnson has always provided an excellent dividend even when the markets have been up and down! It is like money in the bank for an upcoming retirement.

stock searcher
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stock searcher
November 12, 2011 11:50 am

I must say, looking at all these stocks.. one year and year to date, most have made over 5%.. some 20%. quite impressive research.

Deborah
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February 10, 2015 7:33 pm

I made 21% last year , this year its hovering around 19%-18% I tried some of the rest but find the steady Eddies are the way to go for me.

Kim
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Kim
December 19, 2011 3:13 am

Good article, great research–thanks for doing the digging for us!! One question: you seem to indicate that 4-5% returns are considered “good” and you’ve used that as a basis for making it a “forever” stock several times. That number seems quite low to me–I always consider 10% to be my average for considering something to be good and wouldn’t care much for a 5% return. Remember I’m using the term average. Mr Travis? What you say?

Srini Iyengar
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Srini Iyengar
December 29, 2011 1:24 am

could you please say explicitly what these stocks are?

SWW
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SWW
January 2, 2012 5:08 pm

Read the article dude.

china finance,china economy
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January 13, 2012 10:50 am

What?s Taking place i’m new to this, I stumbled upon this I’ve found It positively useful and it has aided me out loads. I’m hoping to give a contribution & help other users like its aided me. Great job.

Tap Sum Bong
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Tap Sum Bong
January 18, 2012 8:12 pm

Thank you for taking the time to identify these stocks as well as provide your supportive analysis. Much appreciated.

Derrick
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Derrick
February 28, 2012 2:34 pm

For those that wanted the straightforward list, see below:
#1 BIP – Brookfield Infrastructure Partners L.P.
#2 GOOG – Google Inc
#3 PM – Philip Morris International Inc.
#4 UTG – Reaves Utility Income Fund
#5 MA – Mastercard Inc
#6 AMJ – JPMorgan Alerian MLP Index ETN
(ALT #6 AMLP – Alerian MLP ETF)
#7 EEM – iShares MSCI Emerging Markets Indx (ETF)
(ALT #7 DEM – WisdomTree Emerging Markets Eqty Incm Fd)
#8 INTC – Intel Corporation
#9 MKL – Markel Corporation
#10 CPL – CPFL Energia S.A. (ADR)
Enjoy!!

paul
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paul
April 18, 2012 9:38 pm

How can I invest in that corporation/company? I’m in the Philippines.thanks

edski
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edski
February 10, 2015 6:21 pm

Some of us here will open an account up for you.
Just send all of your cash to………………………..
Your welcome! Ed

SoGiAm
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4774
February 10, 2015 10:44 pm

Paul I believe that you can open an account with interactivebrokers.com and trade globally. Best2ALL!-Benjamin

Saquina Akanni
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May 25, 2012 5:36 pm

Thank you Derrick for giving us the straightforward list.
Sending Love and Light
Saquina

Fredo
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Fredo
March 15, 2012 11:06 pm

Fantastic research, you’re the best, thank you!!!

rey
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rey
March 27, 2012 8:51 pm

How can I invest in that corporation/company? I’m in the Philippines. If I don’t want to invest in online stocks.

Mrs. H.
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Mrs. H.
April 17, 2012 5:21 pm
I still own some T-Rowe Price, but otherwise have gotten out of the market. As a widow, mother of 2 teens, and home-owner, I fail to understand how putting a few thousand dollars into a company and “forgetting about it” is going to improve my circumstances. It’s not exactly a bird-in-the-hand. Your funds are locked away, growing, while you continue to struggle to pay for mortgage, home improvements, food, clothing, transportation, and education costs. If you just “forget about it”, at what point do you begin to have more to live on? If anyone can explain this clearly, I would… Read more »
songdancer
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songdancer
July 7, 2012 10:36 am
The ‘forget about it’ improves your circumstances around retirement time. It is the same reason you own a home–so that 20 years down the line, you no longer have house payments. You do still have home repairs (unlike renters), but if you save the previous house payment, then you should be able to cover repairs with those saved funds (unlike when you still had a mortgage and had house payments + repairs), and you will also have a hedge against rent inflation (which those who rent are subject to). Investing now is just like that…you struggle a bit now so… Read more »
SageNot
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SageNot
February 10, 2015 6:02 pm
Hello Mrs. H. : “Hold & forget about them” is merely a figure of speech. If it was so true why are the trading volumes of any 10 stocks so high? Obviously, there is some guess work & praying involved, but there are a few guys/gals out there that can match or beat this fixed “10.” One guy (I don’t think it’s right for me to identify him on this forum) but he’s called Doc & I’m certain that Travis knows him. Very reasonable yearly cost & he doesn’t forget anything. Trust me, this is one talented adviser. It’s like… Read more »
edski
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edski
February 10, 2015 6:32 pm
Mrs. H, Please know that investing in a few companies is not the only thing a person has to do, to prepare for the future. It is one of many plans to help secure your future. Some of us here do not have a lot of money, and invest a very little bit. But we do invest what we can, hoping that it will add to our income in our later years. (Sometimes, even we don’t think that we have any money to put towards investing. It is a lesson you must learn, and it is not easy.) You can… Read more »
rick
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rick
April 19, 2012 12:37 pm

re: #10….What do you think about Companhie energetica de Minas Gerais (CIG) also on NYSE

MisterMighty
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MisterMighty
April 29, 2012 11:38 am
Nice work…I fell for the StreetAuthority advertisement…watched their video but DID NOT sign up for their newsletter thingy. Instead, I did a quick google for “top 10 forever stocks” and this page was first on the list. Pretty decent work, thanks. Mrs. H…in your situation, I would carefully read a book called “Alpha Strategy” which was written in 1980. The information in the book is fantastic, and even more appropriate today than when it was written. You can find the alpha strategy online for free right here: http://zombieprepdotnet.files.wordpress.com/2012/01/book2-preface.pdf If you really apply it, you should have at least a couple… Read more »
Bob Gifford
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June 4, 2013 1:49 pm

Devide it up into $10.000 for 5 difrent stocks. Pick out the best stocks you
thank would be best, oil, mpl,s, food, something that people eat, gold and silver,
The stocks listed are the best you can find and have been perfonming miny years.

Kato
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Kato
May 7, 2012 10:11 am

Me too didn’t fell so quick for the StreetAuthority ad and after googling i came here, the analysis is objective and accurate unlike StreetAuthority ad which seems ‘to easy to be truth” anyway im willing to invest 50K in some stocks and forget about it for the next 15 years! i don’t want my money in the bank “sleeping” some advice please? how can i split my 50k? I know stocks are risky but what is safe in this world? im in and i will thank you after 15 years. (or curse you)
Thanks!

Grecko
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Grecko
May 14, 2012 1:43 am

Invest in commodities markets. Corn, wheat, oil and the like. First, gas prices are directly tied to agriculture industry, coupled with concepts such as peak oil, it is the safest market to be in, i think. More to it than that, but, in short form.

Edward Binns
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Edward Binns
October 1, 2013 4:04 am

I just feel that JNJ and CREE ought to be on a list of ten stocks to hold forever. World leaders in their fields…

Cathy
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February 10, 2015 6:00 pm
This is a great day to compare highlights. Could any of the Thinkolaters HONESTY be of question to the wording of for lack of better word sales men ship. The Thinkolater honest and Nieve love the capital letters that are not words but have a good knowledgeable meaning, Travis excuse me if I say what you have created is beautiful and not upsetting! May I ask or bring up any other things these 10 could compare with. Volume, ROI, CTG =(CAPITAL TAX GAINS) but are they paid or written off well that is depending on a fund’s methodogy! just joking… Read more »
jonomalley
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86
February 10, 2015 6:37 pm

Is there an app on Google to translate this to English?
Ps didn’t mean to hit the “like” button. If there was a “dumber now than before I read it” button I would have hit that on purpose.

gguy
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gguy
February 10, 2015 6:47 pm

love the idea Jon, would the icon be a sideways thumb?

Quincy Adams
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Quincy Adams
February 10, 2015 10:22 pm

What I’d like to know is does “forever” end at the end of 2015? I’m not building a portfolio for my great-great grandchildren here…I want to be paid THIS year, which I thought was the title of this tease. So, here is MY list for the top stocks of 2015, guaranteed to outperform the above list or your money back. (For the list, not what you may have lost on any of these investments.) In no particular order, they are:
S—Sprint
SPEX—Spherix
XONE—ExOne
GTE—-Gran Tierra Energy
CLDX—Celldex Therapeutics
SAND—Sandstorm Gold
SDRL—Seadrill
BBOX—Blackbox
RLD—RealD
GPK—Graphic Packaging

web
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0
February 12, 2015 1:32 am

I’d like to invest in some oil & gas MLP’s but dom’t know how to evaluate them or how to become familiar with them. Where can I find info and analysis and recommendations?

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