By the two most important criteria that make an investment a candidate for super long-term consideration (diversification and high-quality name brand products), Clorox would seem to be a dream holding. In addition to all the products that actually contain the word Clorox in its name, you also have a bunch of brands under the corporate umbrella like Pine-Sol, Kingsford charcoal, Glad trash bags, K.C. Masterpiece BBQ Sauce, Hidden Valley ranch dressing, those Brita water things, Ajax, Scoop Away, and on and on it goes.
Friday is here. Way back machine time!
How far back are we going? 1984.
I wanted to look at some hard numbers to expound upon my previous post about the Babe Ruth style of investing, to point out how different your investing life looks when you choose to play it safe by selling a successful investment to apply the “you never go broke taking a profit” logic and, say, decide to inventory the profits at a certain point by diverting them to something like an S&P 500 Index Fund.
Candidate 1: Disney
If you’re in a hurry and don’t have the time to make it through this article, here’s the entire point in one sentence: Almost everyone is trained to think linearly in a way that suggests the frequency of getting investment correct is the most important individual endeavor, when really, it is the magnitude of our investments that matter.
For instance, an aspect of Benjamin Graham’s legacy that is almost never discussed is that over half of his lifetime success came from his decision to break all of his self-imposed rules about value and diversification to make a big $712,000 bet on GEICO in 1948. That changed his life—no way The Intelligent Investor becomes the bible to investors that it is today if Graham didn’t make his big bet on GEICO—although Buffett citing Chapter 7 and 20 with such regularity might have given it a fighting shot. The irony, of course, is that Graham is highly associated with buying something cheap and then selling it at the moment it reaches a value that reflects what it’s really worth—perhaps that’s an incorrect legacy—it is owning a lucrative asset and letting it grow, grow, grow that may be the more meaningful lesson from Graham’s life.
If you are a regular reader of the site, you’re probably not trying to answer the question “how can I make as much money, as fast as I can, at any cost”, but rather, you’re probably after a satisfactory investing strategy that answers the following question: “How can I craft an investing strategy that will not only provide sustainable gains for the long haul, while also doing it in a style that will leave me generally content and allow me to live without regrets?”
The answer to that question is a two-step process; the first simply involves thinking about the long term in the first place. To paraphrase Seth Klarman—the greatest advantage that the average guy with $1,000 here, $10,000 there, or even $250,000 on the horizon, can get himself compared to the average professional on Wall Street is to adopt a truly long-term perspective that thinks in terms of decades, not months or quarters. That’s what makes all of this racket so funny: everyone and their mother knows that, come 2024, Coca-Cola, Nestle, and Johnson & Johnson will create wealth at a rate in excess of inflation, but the question they can’t answer with any certainty is whether those three stocks will beat the S&P 500 over the next 12 months, 24 months, or 36 months. And that’s why people end up arguing whether Coca-Cola is worth $35, $40, or $45, whether Johnson & Johnson should trade at $90 or $110, and so on.