I periodically get asked to write an article about investments. The asker is always specific. They want a REAL investment article. I usually respond with some parable about Ty Cobb or Walt Disney’s maid. Both are great stories, but not the article on how to invest that they wanted. So, here I will sum up in three words the best advice I can give. What you do with it is up to you.
BUY BORING STOCKS.
When most people buy a stock, they buy something that they think will go up a lot. It is usually something new and exciting. When I buy a stock, I look for something where I do not think I will lose money. Now that is impossible, because stocks go up and stocks go down. But I want my downside to be tolerable. I want a good basic business with rising revenues. Then I want to sit back and collect my dividends while I wait for those growing sales to compound over time.
Dividends are important. They matter because they demonstrate stability. If a business can afford to pay you a dividend, then they are a going concern. There are companies that have raised their dividend every year for the past 50 or 60 years. That stuff makes me salivate. I love money. I love making money. Dividends also help when the market goes down. A 3% dividend helps ease the pain of a market correction.
Once you buy a boring stock, all you have to do is hold it forever. I had a client early in my career named Al Slotnick. Al had a rule: “Never sell nothing.” Now that is a harsh rule, but it is far better than trying to buy and sell constantly. Every time you buy or sell a stock, you increase the chance that you will be wrong. To this day, I still cherish the “Al Slotnick Rule.” I like to say that you should be financially and emotionally invested in any stock you own. If you love the business, it will make it easier to hold during the bad times.
Sometimes when I talk about this stuff, I can literally see the listener’s eyes roll back in their head. They want to make fast money, and they want to believe they can. No one ever wants to get rich slowly. If you set out to beat the market, you are going to lose and lose badly. Guys like me are going to eat your lunch. UNLESS! Unless you are one in a million. If millions of people set out to trade their way to unimaginable riches, a few will succeed. Typically, we will ascribe great intelligence to those lucky few, when, in reality, it was just random chance.
Think of it this way. The chances of you (or anyone) winning half a billion dollars in the lottery are astronomical. But, but, but, SOMEONE IS GOING TO WIN, 100% of the time. If not this week, then next week, someone will win. It is guaranteed. That winner, maybe a widow on a fixed income from Dillon, South Carolina, wasn’t smarter than the millions of others who plunked down $2 and a dream. She was just luckier. And I hate the word “luck.” I prefer to use the term random chance. Luck implies some quality associated with the person that makes them worthier.
Someone out there is reading this and thinking, “Why bother with individual stocks at all? Why not just buy the S&P 500?” Buying the S&P 500, particularly if you do so on a regular basis like you would inside a 401k, is a good idea. (Make sure you are buying an actual S&P 500 fund and not some gimmicky insurance product that claims it will track the S&P.) For my purposes, I like to know exactly what I own. I think it makes it easier to hold through the declines. I want to open my pantry and see the names of the stocks I own and smile. I don’t want to see a whole bunch of indiscriminate packages all labeled food.
Over the long haul, the stock market is the best investment available to you. Strive to buy quality businesses at reasonable prices and hold those companies forever. Think of it this way, if you own a McDonald’s, you are not going to walk into work on a random Tuesday morning, read an article about how Americans are eating healthier or the price of cheese is going up, and decide to sell your restaurant. But people do that in the stock market. ALL. THE. TIME. Don’t be that guy. Be like Scott. If you need help, call me.
Scott A. Grant is chief investment officer at Standfast Asset Management in Ponte Vedra, FL. He has spent the better part of a lifetime learning his craft. He welcomes your comments at email@example.com.
The Disclaimers: Investing in the stock market involves risk. Investors can and do lose money. You should consult your financial advisor before investing. Scott A. Grant, his family and clients own stock in McDonalds. We may sell or buy that stock in the future. The reference to boring stocks is an adjective. It is not a solicitation to buy shares in The Boring Co. or any of its competitors.
No comments on this item Please log in to comment by clicking here