Page 426 - How to Make Money in Stocks Trilogy

296 BE SMART FROM THE START

This is America, where anyone who really works at it can become suc-
cessful at saving and investing. Learn how to make a net profit and, when
you do, be happy about it rather than complaining about having to pay taxes
because you made a profit. Would you rather hold on until you have a loss
so you have no tax to pay? Recognize at the start that Uncle Sam will always
be your partner, and he will receive his normal share of your wages and
investment gains.
I have never bought a tax-free security or a tax shelter. This has left me
free to concentrate on finding the best investments possible. When these
investments work out, I pay my taxes just like everybody else. Always
remember . . . the U.S. system of freedom and opportunity is the greatest in
the world. Learn to use, protect, and appreciate it.

Should You Invest in Income Stocks?
Income stocks are stocks that have high and regular dividend yields, providing
taxable income to the owner. These stocks are typically found in supposedly
more conservative industries, such as utilities and banks. Most people should
not buy common stocks for their dividends or income, yet many people do.
People think that income stocks are conservative and that you can just sit
and hold them because you are getting your dividends. Talk to any investor
who lost big on Continental Illinois Bank in 1984 when the stock plunged
from $25 to $2, or on Bank of America when it crashed from $55 to $5 as of
the beginning of 2009, or on the electric utilities caught up in the past with
nuclear power plants. (Ironically, 17 major nations now get or for years have
gotten more of their electricity from nuclear power plants than the United
States does. France gets 78% of its electricity from nuclear power.)
Investors also got hurt when electric utilities nosedived in 1994, and the
same was true when certain California utilities collapsed in 2001. In theory,
income stocks should be safer, but don’t be lulled into believing that
they can’t decline sharply. In 1999–2000, AT&T dropped from over $60 to
below $20.
And how about the aforementioned Citigroup, the New York City bank
that so many institutional investors owned? I don’t care how much it paid in
dividends; if you owned Citigroup at $50 and watched it nosedive to $2,
when it was in the process of going bankrupt until the government bailed it
out, you lost an enormous amount of money. Incidentally, even if you do
invest in income stocks, you should use charts. In October of 2007, Citigroup
stock broke wide open on the largest volume month that it ever traded, so
that even an amateur chartist could have recognized this and easily sold it in
the $40s, avoiding a serious loss.