The Most BORING Investment Article You’ll Ever Read…
WARNING: This article may cause drowsiness. Read with caution.
One of the major drawbacks of having written a number of personal finance books about stock investing is that many people ask me about my current ideas. Have I found a new tech stock to buy? How can people profit from the shift to driverless cars? Did I foresee the incredible success of Apple, Amazon, Facebook, or Netflix years ago – and what’s the next group of “millionaire-makers” out there. When I explain that I have never invested in any hi-tech stocks as I’m not smart enough to understand them, people are surprised. When I follow that point up with the idea that I am more excited about companies selling boring products like toothpaste, laundry detergent, or soft drinks, I have found people politely nod, but their eyes begin to droop. When people point out my investing approach is boring, I plead guilty – without apology!
In my very first book, Stop Working: Here’s How You Can, I explained investing using the analogy of an investor “planting trees.” Many investors buy stocks hoping to sell them for a fast gain – the “get rich quick” approach. In the tree-planting analogy, these investors want to plants seeds (invest their money) and let the trees grow, but as soon as they do, they want to quickly chop them down and sell them for firewood. I’m simply too lazy and also not smart enough to do this consistently – and many other investors aren’t either. So I focused on a different investing approach...yes, plant trees and let them grow, but only plant trees that produce fruit (pay dividends that preferably rise over time). I started investing as a teen, and by the age of 34, I was able to retire based on these recurring dividend payments.
I understand that my message is not flashy or exciting – and it’s a well-worn investing path taken by many investors, but it’s worth revisiting from time to time and analyzing the results. I’ve trudged down the adventurous investing path before – trying things like borrowing to invest, adding stocks with inconsistent dividend histories, or stocks which offered huge upside (but also huge downside). This gun slinging approach magnified my gains in good times, but also magnified losses in bad times. During the 2008/09 stock market crash, I was holding some stocks I shouldn’t have and losing money is a painful yet very effective teacher. I have learned that with investing, you can have an adrenaline rush or you can gradually become wealthy – BUT it’s very hard to do both! Some investors are addicted to the adrenaline rush associated with stock investing. Good for them! I prefer boring stocks that might put you to sleep – as long as they keep paying their dividends I don’t really care.
Since I prefer companies that have managed to increase their dividends for many years (or even decades in many cases), I have often owned a lot of US based companies with long-term track records. The US market offers a rich hunting ground for boring companies that any idiot can understand that have grown to become international in scope – simple stocks of companies that produce things like toothpaste or laundry detergent or potato chips. When it comes to investing, I admit to being a boring guy, but walking down the local toothpaste aisle and noticing how I own shares in the companies that have the two leading brands sets my heart racing! Every day people keep brushing their teeth and in the process I make money. My advice to those reading this article is simple – keep brushing!
With the start of a new decade, it seems like a good time to look at how this approach has faired… About a decade ago, the Loonie was trading around parity with the US dollar – a great time to buy US stocks! I added a lot of boring, century-old stocks during this time. Here are the stocks I bought (and still own)… Colgate, Proctor and Gamble, Johnson and Johnson, Pepsico, United Parcel Service, Visa. What did I do after buying these stocks? Absolutely nothing! These stocks had a habit of raising dividends, so I simply held them and spent the dividend cheques every year. Let’s take a quick look to see what has happened to their dividends per share over the last decade (and the percentage growth in that dividend):
These were the US stocks I originally bought after the 2008/09 crash that I still hold, aside from Berkshire Hathaway and Markel which are my only non-dividend payers. I also bought Coca-Cola, and Abbott Labs (which split into two companies a few years later), but sold them in 2016 when our Loonie touched 70 cents and redirected that money into Canadian stocks. I also bought other stocks over the last decade, but I haven’t held them as long as the ones listed above, so I won’t get into them here. These stocks are a few of the ones I listed in detail in The Idiot Millioniare book – simple yet profitable “idiot-proof” companies. The only Canadian stock I bought around this same time was TD Bank. Despite buying this stock right in the shadow of the financial crisis, the performance has been pretty good. The second table below shows a quick peek at how TD has done.
How these dividends have grown! As a basket of stocks, investors in this portfolio would have more than doubled their dividend income. I understand that many people had the foresight to buy the current crop of tech darlings or placed a wager on some junior mining stock and struck it rich. Kudos to them, but I’ll stick to my boring, dividend-based stock investing strategy – and if it bores me to sleep, it doesn’t matter…as a retiree I can pretty much nap whenever I want.
One final piece of advice - keep brushing!
Derek Foster (The Idiot Millionaire) www.stopworking.ca
PS: Moneysaver subscribers get an automatic 25% discount off all my books/book sets – email me for your discount.
Note: The dividend amounts shown in the above charts were from Value Line (which records the quarterly dividend amounts). There may be slight differences in annual dividend reporting amounts from other sources (depending on the timing of the dividends recorded).