Why "Boring" Businesses Are More Profitable Than "Exciting" Ones
InvestorEducation / Learning to Invest Apr 29, 2012 - 06:24 PM GMTBy: DailyWealth
Dan Ferris writes: This spring, a reader wrote to me with a complaint...
He was irritated with my coverage of "World Dominating Dividend Grower" stocks (WDDGs).
These stocks are too "boring," he said. Why pay to hear how these companies continue to do the same darn thing day in and day out?
If you're a regular DailyWealth reader, you know what I mean by "World Dominating Dividend Grower." These businesses are usually the No. 1 companies in their industries. For example, UPS is the No. 1 package-delivery company in the world. Wal-Mart is the No. 1 retail network. Intel is the No. 1 maker of semiconductors.
These companies have thick profit margins, fortress balance sheets, and pay out large and growing dividends. Because they are so good at what they do, and because of their dominant position in their industries, they are extremely resistant to outside competition. This allows their shareholders to safely compound their wealth over many years.
They are the ultimate safe haven in today's volatile market... even safer than gold. But according to the reader's complaint, there wasn't enough "new" stuff happening with these stocks to justify the time I spend telling readers about them.
It's extremely unlikely this person will ever make substantial money in the stock market.
You see, the urge for "action" is one of the hallmarks of the average stock market loser. Put bluntly, it's how poor people view the market. They see it as a place for "action." But investing isn't about action and excitement. That's what Las Vegas gambling casinos are about.
Only after someone grows to favor "boring" over "action" does he start thinking like a rich investor, rather than a poor one. You need to understand investing is about making money and keeping it safe, and that's what WDDGs do for you...
In fact, back in 2008, when the stock market fell 38% for the year, and more than 53% from its late-2007 highs, Wal-Mart returned 18%, and McDonald's returned 6%. Not all World Dominators performed that well in 2008, but they all did better than the overall market.
Yes, they're boring... But think about why they're boring.
They don't change much over the years. Coca-Cola looks a lot like it did 20 years ago, except it's bigger now. Same with Wal-Mart, McDonald's... and most other WDDGs.
Coke will continue to exploit the world's largest beverage distribution system. Wal-Mart will keep selling everyday goods at the cheapest possible price. McDonald's will keep selling fast food, based on what its customers demand. Boring. Very boring. But very profitable.
Contrast that with exciting businesses, like biotech. Most biotech companies don't have any sales, because they're just research companies. They usually wind up going out of business. Small exploration mining stocks are also exciting. And they, too, generally have no revenues... and most of them wind up worthless.
It's very hard to make money in exciting industries like biotech and exploration mining. But the WDDGs just keep doing the same old boring thing year in and year out... And their sales and profits grow almost every year, year after year, decade after decade. Their dividends keep growing every single year, year after year, for 10, 20, 30, more than 50 years in a row in some cases.
For investors, putting money into WDDG stocks is so boring, it's almost like putting your money in a plain old bank account... except this account can make you double-digit average annual returns over a long period of time, decades even... instead of the 0.2% you get in bank accounts these days. Over the past year, the World Dominators in my 12% Letter portfolio grew their dividends at an average rate of about 11.5%.
If you want excitement, go to Las Vegas. If you want to make money, invest in boring businesses that dominate their industries and pay higher dividends every single year.
Good investing,
Dan Ferris
P.S. I recently added a brand-new World Dominating Dividend Grower stock to my 12% Letter portfolio. This company consistently outgrows its industry, becoming more and more dominant, year after year. It's yielding almost 4% right now and has grown its dividend every year for 35 years. To discover this boring, wonderful business and others like it, consider a risk-free subscription to The 12% Letter here. (There's no long video to watch.)
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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