George Soros is an investing legend. His quantum fund earned an astonishing annual return of 20% from inception in 1969 to closure in 2011. Many investors can learn a lot from Soros teachings. But for me, one of Soros best pieces of advice and one of the great investment secrets in the world, is this:
“If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring” (George Soros).
Essentially, Soros is saying that when it comes to investing, boring is big money. Boring causes “investment magic” to happen.Boring stocks can make you earn 18% annual yield on one of the world’s safest investment. Read on to find out more.
Boring Stock : Unilever
Let’s take Unilever as an example, one of the most boring stocks out there today. Unilever is the king of consumer staples. If you’ve ever set foot in a supermarket anywhere in the world, then you are familiar with Unilever’s brands. Among many others, they include: Ben & Jerry’s, Dove, Flora, Lynx, Persil, Radox, Vaseline and Walls.
You could hardly think up a more boring product lineup. It’s nothing that will interest the average investor.But great investors see something unusual in it. They see something that others do not. They see Unilever as being this great cash generating machine that will provide that with safe returns no matter the market environment.
Many sophisticated investors have huge interest in owning stocks like Unilever. For many elite investors,boring stocks is all they want to own.
Boring Stock: Procter & Gamble
Let’s look at another boring but highly profitable company, Procter & Gamble (P&G). P&G produces a variety of products ranging from toothpaste to toilet paper to diapers to laundry detergent. Again, not the most interesting. But P&G has proved to be a highly profitable stock for investors for numerous years now.
Like Unilever, P&G products are designed to do well in almost any market environment. In testament to this, P&G has raised its dividend every year for more than 50 years. To P&G investors, larger cash payments are a fact of life. P&G is rewarding longtime shareholders with incredible amounts of cash.
An investor who bought P&G in 1994 at around $14.25 (split-adjusted) began earning a 2.3% dividend yield on his investment. Since P&G’s annual dividend has increased every year and shares have split a couple times along the way, that same investor is now earning an astounding 18% on his original investment.
Remember, P&G’s dividend yield rises every year. It’s one of the safest, most reliable income streams on the planet. Earning an 18% yield on P&G is incredible when you consider that many investors take huge risks in the pursuit of smaller amounts like 5% yields. They buy businesses with dangerous debt levels. They buy dangerous commodity investments that can plunge with the price of a commodity like crude oil. But not P&G investors who bought for the long-term. These long term investors are earning huge dividend yields that rise every year, paid by one of the world’s strongest and safest companies.
Boring Industry : Tobacco Stocks
Companies that operate in the tobacco industry can also be categorised as one of the ‘boring stocks’.
From an investors point of view, tobacco companies have produced excellent returns over a number of years. These companies are good solid dividend payers and have produced above average growth rates as well.
Thus Tobacco companies are not affected by the macroeconomic going-ons of the global economy. You can be assured that tobacco companies will still sell cigarettes when we are in a recession or not, interest rates are high or low and whether their is inflation or deflation. In short, tobacco companies are a safe bet.
One of Britain’s best fund managers, Neil Woodford has has this to say about the Tobacco industry, ’One of the most dependable sources of dividend income for the equity investor is the tobacco sector, which features prominently in the portfolio. Over the past 25 years, the tobacco sector has an unsurpassed track record of delivering superior long-term total returns, based on attractive starting yields and consistent, sustainable dividend growth.’
So why doesn’t every investor buy shares in these boring safe stocks?
You see, when it comes to choosing which investments to make, most people are drawn to companies with exciting stories. They seek companies that are “nearing breakthrough” or “set for 50% annual growth.” After all, the potential upside with these firms is huge.
But what people fail to realise is that buying these kinds of ‘exciting’ stocks is playing a low-probability game. For every mega-hit internet website like Google, they are 1,000 other Internet businesses that failed. For every McDonalds, 1,000 other restaurant franchises flopped. Sure, the one company you buy might beat the odds, but it’s unlikely. The odds greatly favour you losing money.
That is why it is important to stick to boring companies. Many boring companies have the most consistent and reliable cash flows in the world. Great investors looking to make long-term capital commitments are drawn to them because of it.
Warren Buffet agrees.
One of the best investors of all times Warren Buffet agrees with George Soros view on boring businesses. Buffett has throughout his career shunned high-tech investments. He has consistently focused on boring consumer businesses. He has made large investments in Procter & Gamble, beverage maker Coca-Cola, candy maker See’s Candies,
retail giant Wal-Mart, and gum maker Wrigley’s.
Buffett buys these boring businesses because new technologies are much less likely to disrupt their industries. They are likely to retain their economic moat. A decade ago, Coke was the dominant soda company. It will probably be the dominant soda company 10 years from now. It’s much harder to say those things about high-tech businesses or internet sites.
So why don’t you go ahead and become a boring investor today – the rewards can be great!