The Sequoia Fund vs. Conoco Phillips

For those of you that keep up with your stock market history, you know that the Sequoia Fund was the mutual fund that Warren Buffett recommended investors should choose during his transition period between closing down his privately run partnership and gaining control of Berkshire Hathaway. Investors listening to Buffett would have been well-rewarded for following his advice, as the Sequoia Fund is one of the best performing mutual funds of the past half-century.

But one thing I do want to show you is that active management, even when it is well-earned, does carry consequences. For a moment, let’s hop back in the wayback machine and travel to December 31st, 1981, the first day on which I can find publicly accessible trading data for the company that is now Conoco Phillips.

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The Rewards of Truly Patient Dividend Investing

I love this chart.

trulypatient

It shows what happens if you had purchased and reinvested dividends in McDonald’s stock over the past two decades. For most of McDonald’s history, the initial dividend yield was terrible. As you can see in this picture, someone who purchased McDonald’s twenty years ago had to settle for an initial dividend yield of 0.9%. Understandably, a lot of income investors don’t get excited by that.

I mean that: it is understandable. If income is your game, you don’t want to set aside $10,000 to receive what amounts to a little over $8 per month in immediate income. That keeps your car washed for the year.

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