On page 175 of Janet Lowe’s book, Damn Right! Behind The Scenes With Berkshire Hathaway Billionaire Charlie Munger, Ms. Lowe quotes Charlie as saying:
“People underrate the importance of a few simple big ideas. And I think to the extent that Berkshire Hathaway is a didactic enterprise teaching the right systems of thought, the chief lesson is that a few big ideas really work. I think these filters of ours have worked pretty well—because they are so simple.”
It’s Christmas time, and that’s as good a reason as any to engage in big-picture contemplative thinking about life. For a moment, let’s break down everything we do with our life into decision trees (Christmas tree edition).
Most of us, even we aren’t particularly materialistic about cars, houses, or clothing, recognize the use of money for the experiences that they are capable of creating. Super Bowl tickets. Hikes across Europe. Chilling on the beaches of Florida. And so on. Having money is great way to increase happiness by combining yourself, someone you care about, and an activity that can favorably color the moment and build a relationship. At the very least, money provides you the option to do so.
Once you decide that money is something you’d rather have than not have, the next step is to decide the style in which you want to create money. Unfortunately, the prevailing attitude among almost every human being you encounter is that the amount of money generated in exchange for your labor is the sole determinant of what you spend.
The problem with that is that such an attitude makes things hard on yourself. If you start to own business ownership stakes, then suddenly, your annual income is no longer solely determined by the amount of hours that you are willing to toil and labor.
People get put off by the thought of acquiring business stakes because the amounts are so small to begin with—when you buy a Johnson & Johnson share for around $90, you only get a $0.67 check every ninety days. Setting aside $1,000 to delay gratification is hard, and all you get right off the bat, is what: $30 per year? The immediate tradeoff seems like bullshit: you can’t spend $1,000 right now on something fun, and all you get back is half a tank of gas each year. . .so you can have a way of getting to that place where you toil and labor.
But here is what isn’t readily realized by those unimpressed with the early days of investing: you do not only own the rights to the current dividend, but you own the rights to all future dividends declared and represented by that share from now until eternity.
People tell me all the time that Procter & Gamble, Exxon Mobil, Johnson & Johnson, Colgate-Palmolive, and Hershey were great investments, with the implication being that the obviously excellent companies somehow no longer will be excellent investments going forward.
Fine, if that’s the conclusion you reach, there’s nothing I can do about it.
All I know is this—in 2003, people thought Johnson & Johnson was too big to grow. Then it grew profits from $2.70 per share to $3.10. To take care of shareholders, they hiked the dividend from $0.92 per share to $1.10 per share.
Another twelve months, another notice that you’ll be receiving more cash. Turns out people buy Johnson & Johnson’s Band-Aids in all conditions.
Then, as we transitioned from 2004 to 2005, the same company that is “too big to do anything anymore” grew profits from $3.10 per share to $3.50 per share. Oh, and as the custom had been for 4+ decades, the dividend rose from $1.10 to $1.28 per share that year.
Turns out Motrin, Sudafed, and Tylenol keeps the profits flowing.
Then, when 2006 came around, the profits grew yet again from $3.50 per share to $3.76 per share. You already know what the dividend did. It went up. Again. This time, from $1.28 per share to $1.46 per share.
Americans kept on using Johnson’s Baby Shampoo and Baby Powder like always.
This set the scene for 2007—I know, I know. Johnson & Johnson is still too big to grow. Don’t tell that to the executives at headquarters, as they managed to grow profits yet again from $3.76 to $4.15 per share. As usual, this meant more money in your pocket as the dividend grew from $1.46 to $1.62.
Americans seemed to continue buying Aveeno lotion for some reason.
Okay, 2008 and 2009. Economic doom and crisis. Product recalls at Johnson & Johnson. The world is coming to an end, the Red Sea is going to part again, and without Moses to save us, we’re all gonna drown.
Yet again, Johnson & Johnson didn’t get the memo. Despite the fact that it had become a punching bag in the national media for all of its recalls, it still managed to grow profits to $4.57 per share in 2008. And then increased them to $4.63 in 2009.
While the unemployment rate in America was rising, salaries were stagnating, and the stock market was crashing, Johnson & Johnson put more money in your pocket—they gave you $1.80 in 2008, and $1.93 in 2009. Making more money and giving you more money is kind of their thing.
And then there was 2010. Instead of doing the obvious—buy shares of Johnson & Johnson and never let go—people continued to criticize it, believing that its past glories could not be rekindled.
That turned out to be the cue for Johnson & Johnson to grow profits to $4.76 per share and raise the dividend to $2.11 per share. Like all their other brands, people like to buy Neutrogena skin care products through thick and thin.
Everywhere you look, the company keeps going up, up, up. Profits went up to $5.00 per share in 2011, $5.10 per share in 2012, and it’s probably going to end up being somewhere between $5.45 and $5.50 this year.
To anyone with their eyes open who hasn’t fallen asleep after sucking down some of the company’s Benadryl, the company has been saying “buy me, buy me, buy me.” What does the dividend do? It just keeps going up. It went up to $2.25 in 2011, $2.40 in 2012, and they paid out $2.59 this year.
You don’t have to make investing hard. You don’t have to go through life buying companies with terrible long-term fundamentals like Best Buy, Netflix, and Blackberry at the wrong times, wondering why this investing thing never works out. The answers to your investing concerns are sitting their right in plain sight. You have the tools and skill set to be better than the guys on Wall Street just by buying the most obvious things in the entire world.
Johnson & Johnson makes profits in over one hundred countries. They do it in dozens of currencies. They have so many profitable brands that they don’t get fully itemized on most reports until they start generating hundreds of millions of dollars in sales for the companies. It’s been making money for over a century. It’s been growing its dividend for over a half-century.
The company has over two dozen brands that generate $1 billion in sales. The profits go up every year in an almost linear fashion. Every year, like a good little money machine, the company puts more and more money in your pockets. Instead, people sit around saying, “Yeah, Johnson & Johnson had a great past, but who knows if the past will repeat itself??? Maybe the 13% growth will only be 9% growing forward???” Fine. Whatever.
It’s your life. You get to pick the terms you live by. But for your kid’s sake, teach them that they can tie their lives to magic money printing presses that give you more and more money each year. Show them what it means to have control over their own time, without having to go through life entirely at the hands of an employer with a company handbook by his side. Don’t give your kids some manufacturered electronic that was made in China and will be thrown into a landfill nine months from now. Teach them about business ownership. Get them a block of Johnson & Johnson stock. As they see money get deposited into their bank accounts every ninety days, they’ll finally learn what it truly means to receive a gift that keeps on giving.
Originally posted 2013-12-18 08:14:00.