Every time I glance at the pages, it causes me to pause and think about on my own financial freedom journey. I guess that’s the sign of a great book, it causes reflection.
Here is Part 2 of 2 of my favourite takeaways from The Single Best Investment.
“Dividends and dividend growth are the real-life signal that a company has the wherewithal to pay you…it is the logical and inevitable result of investing in a company that is actually doing well enough, in the real world, to pay both dividends and ton increase them on a regular basis. Dividends are paid from earnings. When a company has reached a certain level of maturity and stability, it begins paying dividends. What you see is what you get. Through the dividend, a company can show you how well it’s doing.”
“So dividends are real, like the income from an apartment building or a liquor store or a bank CD. And dividend growth is real. Neither dividends nor dividend growth are some propaganda from the company, nor some hype from a brokerage firm or newsletter writer, nor some error in judgement by a finance magazine. This is a good thing, for we wouldn’t want to build our compounding machine on a foundation of chimera or public relations ploys. We want our parts to be real, working, brand-name, durable.”
“No matter what Wall Street analysts or talking heads on TV may say, the dividend is the tell-tale.”
“Management is simply not going to put through an increase unless they are absolutely certain of its affordability and viability.”
“The simple fact in the real world is that success breeds success. If a company increases its dividend it’s providing a marker of success…”
On what is the Single Best Investment:
“The Single Best Investment approach relies on a simple formula, so simple it almost seems impossibly simple:
High Quality + High Current Dividend + High Growth Dividend = High Total Returns”.
• Low debt – company makes money without heavy financing needs.
• Strong cash flow – earnings should progress on a steady uptrend, growth does not need to be fabulous.
• Management quality – how has the company performed in difficult times? Does the company integrate acquisitions? Good management finds ways to extend brands, services and leverage strengths.
On The Future:
“Whatever the story, it’s always about the future, and the future is always ultimately unknowable. There are only probabilities. And there are factors, influences. What will interest rates be a year from now? What will inflation be? The factors proliferate, and the more they proliferate the more complex and variable the “story” becomes.”
“Think of the best apartment house in the best part of town. Is it ever empty? Think of your liquor store or wine shop. Any bankruptcies locally in that business lately? Think of your local water or electric bill. Ever decide not to play it?”
“As has often been said, quality is always a bargin. Better to attach yourself to a quality company in mid-move than to fret over whether or not you paid the lowest price in the history of the world.”
“The emotional odds are stacked against the shareholder. There are constant voices attempting to seduce you from your path and take you onto another. The emotions of a holder can be your undoing. The rules for picking a Single Best Investment stock aren’t that hard. What’s hard is keeping your mind on your wife when you’re a judge at the Miss Universe pageant.”
“In our portfolios for individuals and institutions we tend to carry thirty to forty stocks, though it’s about the smallest number of stocks that I’m personally comfortable with…the fewer stocks you have the more likely you are to experience greater volatility than the market. The more stocks you have, the more your group will behave like the index.”
“I think ten stocks are too few, if you want to have adequate diversification amongst industries, cap size, and nationality.” “Fifteen to twenty carefully chosen stocks will probably provide enough diversification to achieve the goals of a Single Best Investment (SBI) strategy.”
“Dividend-paying stocks are generally more seasoned and stronger companies; they don’t swoon and die as less seasoned issues are wont to do.”
Questions to ask, but no one “yes” is a signal to sell a stock, but an indicator for you:
1. Is the dividend in jeopardy?
2. Has the company changed its dividend policy?
3. Has the company failed to raise its dividend for one year?
4. Has the company cut its dividend?
On Asset Allocation:
“To some extent, this idea that portfolios can be balanced with fixed income comes from lessons learned in ancient history. Once upon a time, bonds did indeed fluctuate very little, because interest rates fluctuated very little. Back then, you were at least fairly certain to dampen the volatility of a portfolio with bonds…bonds are still a bit less volatile than stocks (today), but not by much.”
On SBI Stock Categories:
1. Utilities – “Frankly, it would be easier to imagine life without any government at all in Washington D.C. than to imagine life without utilities.”
2. Real Estate Investment Trusts (REITs) – “REITs are likely to provide good protection against inflation, since real estate prices have historically been sensitive to inflation rates.”
4. Oil & Gas – “I suppose you might say that I think every investor ought to own some oil.”
6. Service Companies
7. Food and “Defensive” Companies – “I’ve never understood why food and other consumer nondurable companies (soaps, razor blades, tissue paper, beer, aspirin, prescription drugs) are labelled defensive on Wall Street. If I’m not mistaken, this group has been the best performing category in the stock market for the past twenty years.”
8. Cyclicals, Commodity-Based, and Others
Have you read The Single Best Investment? Do you agree with what was said above?
Thanks for reading.