Just before my book, Millionaire Teacher, was released late last year my publisher, John Wiley & Sons, hired a reviewer to assess the manuscript. I was a first time author, and my contract suggested that if the book wasn’t worthy, the publisher had the right to terminate the contract. For some reason, I had a bad feeling about this anonymous reviewer. And I was right. He hated the book, suggesting that Wiley should ditch it.
Tail between my legs, I waited for the book burning phone call. But it never came. Fortunately, Nick Wallwork, my editor at Wiley, kept the book alive. It became an Amazon bestseller in the United States and Canada, while international store retail sales have continued to gather momentum each month.
So what upset this reviewer so much? I’ll never be sure, of course, but his critique grew feverish when I suggested that a stock investment club I was involved in wouldn’t buy Apple shares because we didn’t understand the company and we thought Apple would face stiff future competition. We weren’t suggesting that Apple was a bad company. We just didn’t understand the business thoroughly enough to warrant purchasing the stock. And the trickiest companies to assess can be tech stocks, based on their unpredictability of products and markets.
I certainly didn’t expect the reviewer to slap me with his blairing upper case response:
“DON’T YOU REALIZE HOW MUCH MONEY PEOPLE HAVE MADE ON APPLE STOCK!?”
Wow… I really upset him. From that point forward, his review was harsh. He was an Apple shareholder—and a recent one. At least, that was my guess.
I’d still be afraid of getting hurt if I ever met this guy face to face. But I’m going to hold to the original premise that my book expanded on: if you do want to dabble with individual stocks, it’s easier to succeed, long term, when buying businesses in predictable industries, rather than getting seduced by companies battling a daily research and development war that they must win to survive.
In my book, I gave an example of a stock our investment club did purchase, back in 2004. It’s called Fastenal. You probably haven’t heard of them because they’ve never had a publically charismatic leader and they don’t sell sexy products. They sell building fasteners—mostly nuts and bolts. Boring stuff.
But it’s portfolios of sleeper stocks that typically outperform portfolios of high growth trendy stocks. In his excellent book, The Future For Investors, Wharton professor Jeremy Siegel demonstrated that dull, solid, blue chip businesses (while reinvesting dividends) outperformed higher growth tech stocks between 1957 and 2003.
Many people also jump late onto a racing trend. In 2005, for example, when Apple shares traded at just $40 per share (they’re nudging $600 today) far fewer investors were piling in. The investment club tracking service at Bivio.com now shows Apple as the top stock holding among 33% of American investment clubs.
It’s never a bad idea to site the wisdom of Benjamin Graham when looking for gems of stock picking wisdom. As Buffett’s former Columbia University professor and friend, he suggested in The Intelligent Investor, that companies never continue exponential earnings growth forever. Businesses become mature, level out their profit levels, stabilize or revert downwards. Many times after Graham wrote that advice, stock market dreamers pointed to hopeful prospects and said, “This time it will be different.” But it never was. Whether we’re talking about Texas Instruments (a darling of the 50s), Microsoft (a darling of the 90s) or Apple (the darling of today) the growth rates eventually slow. Then the stock prices drag their feet or plummet when investors grow disillusioned by a present that doesn’t reflect the past. Most investors unfortunately, get drawn to these stocks when the companies already have a high profile. And many of them, who climb late on the train, don’t reap the rewards they hope to.
Apple, of course, could prove history wrong. But I don’t think it will.
As for that boring nuts and bolts business I mentioned, Fastenal, you won’t find its leader on the cover of People magazine. Nor will you see its 2013 trend-setting screws touted in the media. But according to Bloomberg, from 1987 until February 2012, Fastenal’s share price grew 37,178 percent, compared to Apple’s 5,542 percent.
Perhaps, if you are going to dabble with individual stocks and shoot for the moon, it’s better to stick to something dull, predictable, and far from the limelight.
Andrew Hallam is a Digital Nomad. He’s the author of the bestseller Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas