One of the best things that Calvin Coolidge, the 30th President of the United States, ever said was this: “If we judge ourselves only by our aspirations and everyone else only by their conduct, we shall soon reach a very false conclusion.”
What I find so appealing about that Calvin Coolidge quote is that it completely cuts through any tendency we might have to give ourselves credit for things we have not yet accomplished—the exercise not yet run, the book not yet written, the degree not yet completed, and so on.
You don’t get credit for having dreams—you get credit for pursuing dreams. Knowing about how Coca-Cola, Johnson & Johnson, Colgate-Palmolive, ExxonMobil, and Procter & Gamble make people rich over twenty and thirty year increments is nearly useless if you do not actually go out there and acquire the money necessary to establish ownership positions in these excellent companies. Mark Twain once said that the man who knows how to read but chooses not to read books has no advantages over the illiterate man who cannot read it all—well, the investing equivalent of that is knowing that these companies provide a straightforward, reliable way to building wealth but not actually using that information to acquire as many shares in the aforementioned companies as you can.
Instead, the best way to living the kind of financial life you want is to break each goal down into a funnel that eventually becomes discrete, executable steps:
Step One. If you are reading this site, you probably have the long-term goal to have so much passive money coming in from rents, interest payments, MLP distributions, and dividend income that you never have to formally work again for a paycheck out of necessity.
But this is an abstract idea—it’s not something you can go out and do today. Which leads to…
Step Two. You identify the conduits that you can count on to give you both reliable and growing income over time. You saw some of the companies I have in mind up above, but I could have just as easily included General Mills, Chevron, IBM, PepsiCo, and a few others for consideration. The specific selections are somewhat personal and subject to your own taste among the top 50 or so companies in the world, but the point is to make a list of your top thirty or so companies that you will use to get you to where you want to be financially.
Step Three. Think in terms of months, and specific companies, to craft a plan to acquire shares in an excellent business that you can begin working towards now and actually execute in the near future.
I chose ExxonMobil in my article title because it is the dominant energy company in the world, and because it seems fairly valued at $87 per share. If you can find a way to buy $1,000 worth of Exxon in the next week, month, or months, you will begin executing a plan to make your dreams a reality.
That $1,000 would get you 11.5 shares of the oil giant, which should pay out a little over $28 in immediate annual dividends. That’s when the fun begins—at this point, you would actually be an owner in a company that has been paying dividends consistently since 1882 and raising them for over three decades now. And better yet, Exxon is currently in the middle of a mini-golden era in which it is raising its dividend by a 10% annual clip, and that is precisely what will make the current yield below 3% tolerable—when you reinvest more cash automatically every three months, and combine it with a dividend growth around 10%, that 2.7-2.8% initial yield on cost begins to climb pretty quickly.
Or better yet, you could go to computershare.com and enroll in the ExxonMobil automatic investment program, which lets you have money deducted from your checking or savings account up to twice per month (minimum $50 per withdrawal) so that you could benefit from income investing’s holy trinity—dividend growth, dividend reinvestment, and the constant addition of new funds.
Once you get your hands on that $1,000 worth of Exxon, then you can move on step by step to build a portfolio you desire—next up might be $1,000 worth of Coca-Cola, then $1,000 worth of Johnson & Johnson, then $1,000 worth of Procter & Gamble. Slowly but surely, you will acquire ownership stakes in the most dominant enterprises that the world has to offer. That gives you a proportional share in the future profits that each of those companies generate, some of which will be deposited into your account via dividends, and some of which will be retained by management and be the primary determinant of the stock price for the company.
The key is to remember that success does not just appear instantaneously. As Muhammad Ali liked to say, he didn’t win his fights in the ring, but rather, in the months of preparation up to the fight. New houses do not show up fully formed, but have to be laid down brick by brick. You get the idea. And a successful portfolio is constructed in $1,000 increments at a time, a little bit of Exxon here, a little bit of Coca-Cola there—and if you stick to executing $1,000 steps long enough, you’ll wake up one day to find yourself fully loaded, wondering how it became easier to write $10,000 checks without thinking about it than it was to buy cereal while you were in college.
Originally posted 2013-10-13 19:02:04.