Slow and Steady Versus Fast and Heady
Kyle is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I have read more than a few articles directed to new investors and unfortunately, for a few of you, I have even been known to write several, on occasion. I understand the apprehension of starting a new, risky endeavor, taking an unsure stroll into murky waters with a portion of savings that some of you may not be comfortable “losing”. But there are several tools available that help you along the way to an above average “winning” record. I’m not saying you should take my words as though they were coming from a successful investor’s handbook, but I was once in your shoes (unless they are Crocs), I understand your reservations.
One thing to get your new adventure off to a healthy run is to start off on the right foot. I apologize if you are left-footed; it’s merely a figure of speech I assure you. The best way to do this is to select a stock and ride it on the way up, high-fiving and chest-bumping your portfolio the entire way. These successful ventures will release just the right amount of dopamine in your grey matter to keep you going. There is a place in your portfolio for “safe plays”, long-term dividend stocks that don’t react as violently to market volatility, but they aren’t going to “beat the market”, either.
For the nine of you that have been on board from the start, and the four of you that have incredible recall, you know that my first purchase was Cisco Systems (NASDAQ: CSCO), over 10 years ago. I looked back, checked my first statement, and I purchased the stock for $18.10 a share (the broker’s commission was $50). Look where it is now. At least they instituted a tiny dividend over the course of my ownership; meh. Through my experiences, I have had the fortune of owning some stocks that have resulted in nice down payments for relatively comfortable homes. I have also had the displeasure of owning some flea-ridden mutts that I just keep pouring money into, and eventually the mutt vanishes and all that’s left is the stale odor that no amount of steam cleaning can erase.
With both wins and losses, I can tell you personally that I learned valuable lessons. I can’t say the same with Cisco, and I wish someone would remove CEO John Chambers from his tanning bed long enough to either sink the ship, sell it to a friend, or perhaps do something innovative.
When you start doing your homework, and you read someone’s recommendation regarding an individual stock, I want you to look at that stock’s chart over the course of time. Now for my new “fans” and those few family members left that are still with me, you all know too well that I don’t include charts and clutter my beautiful prose with graphics. What I want you to do is to look at the stock price of Procter & Gamble (NYSE: PG), 5 years ago; $64. Now look at it today; $63. I understand that P&G offers a juicy dividend yield of 3.3%. So you are basically investing in a consumer staple that is a savings account on steroids. You can do the same 5-year “test” for Johnson & Johnson (NYSE: JNJ). 5 years ago, $67. Now, $66. J&J offers a stellar 3.5% dividend yield (you guys know I love dividends), so your “savings account” is ramping up the testosterone and mixing it with HGH.
So for you new investors, as your last assignment, I want you to take a look at the same 5-year time span for a company like IBM (NYSE: IBM). IBM can be considered one of those stocks you can buy that is somewhat “safe”, offering a 1.6% dividend yield (still better than your savings account), but it’s also a “winner” over the past 5-years, nowhere near as “boring” as P&G or J&J. Five years ago IBM was selling around $99 a share. You tell me where it is now, and you have my recommendation for the type of “safe”, first stock for your shiny new portfolio.
Don’t get me wrong, it makes perfect sense to have a safe harbor or two in your portfolio, I own a couple, myself. But your investing will be more rewarding, in returns as well as your interest level, if you look for consistent outperformers that never stop innovating, while at the same time maintaining their relevance in environments that change daily. Consider the exciting new developments in shampoos, fabric softeners and bandages, and put those up against companies that constantly stay ahead of the game, not just in it. Now you tell me which one gets you more excited.
Motley Fool newsletter services recommendJohnson & Johnson and The Procter & Gamble Company. The Motley Fool owns shares of International Business Machines and Johnson & Johnson.Motley Fool blogger Kyle Metivier receives quarterly statements for his Cisco position, that's about it. He has no position in any other company mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.