What Is Investment Success? This.

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What is investment success? Growing at a solid clip, on average, over the long haul. Beating your benchmarks and inflation, too. Collecting dividends and being patient are also powerful drivers of success.

If you want to invest in the stock market to plump up your nest egg, that's an excellent idea. Few investments can build wealth over the long run as effectively as stocks. Be sure to go about it with the proper perspective, though, so that you can tell the difference between what is investment success and what is underperformance. Let me share a couple of examples.

Patience, Grasshopper
For starters, imagine that you invested in Mesabi Trust (NYSE: MSB  ) about a year ago and you're down some 20% on your investment. Your holding might be looking to you like an answer to the question, "What is investment panic, Alex?" But don't be so hasty. Ask yourself why you bought it. Mesabi Trust is a royalty trust that receives and then pays out to shareholders a portion of the proceeds from iron mined by a Cliffs Natural Resources subsidiary. Some might avoid it because royalty trusts often have expiration dates, but it's worth noting that Mesabi's is rather far away. But slowdown in demand for ore is a concern, one that has been an issue for Cliffs, too.

Mind the dividends
When evaluating what is investment success, be sure to factor in dividends. Mesabi, for example, has been a generous dividend payer, though its payouts are lumpy, tied to the fortunes of mines. Add together the past four quarters' dividends, though, and you're looking at a recent yield topping 10%! 

Focus on the long term
Mesabi stock has gone up and down considerably over relatively short periods. It lost an annual average of roughly 14% over the past two years, and averaged a gain of only about 4.6% over the past five years. But over the past decade? The average is 26%. Over the past 20 years: 24%. That's powerful growth and success.

Compare to benchmarks
It's also smart to compare a stock's performance with relevant benchmarks. Think of glass and fiber giant Corning (NYSE: GLW  ) , for example. Many see it as undervalued and have high hopes for its Gorilla Glass and its flexible Willow Glass, but it's also been whacked by a sluggish LCD market. Thus, it has been struggling some in recent years.

Over the past five years, for example, Corning lost an average of about 9.3%, while the S&P 500 gained 5.7%. That's a big difference. Over the past year, though, as of a few days ago, it was up 24%. That should seem terrific to most folks, and in a sense it is. But consider that over the same period, the S&P 500 gained almost 29%. One year is a rather short period to assess, though, so let's back up. Over the past decade, Corning stock averaged 8.8% growth annually. If that seems modest, compare it to a benchmark such as the S&P 500, which gained 7.7% over that period. If your investments don't beat their benchmarks over significant periods, consider just investing in the benchmarks – or elsewhere.

Stay the course
To distinguish what is investment success from what is investment underperformance, take the above factors into account. Think, too, about inflation. If you're not beating it, then you're losing purchasing power over time. And think about your alternatives, too. If you're all in bonds and they're doing well, you might still want to add stocks to the mix, as they tend to beat bonds.

With the explosive growth of smartphones worldwide, many investors thought they would ride Corning's dominant cover glass to massive investment returns. That hasn't played out yet, as mobile growth has failed to offset declines in the company's core business. In this brand new premium research report on Corning, our analyst walks through the business, as well as the key opportunities and risks facing it today. Click here to claim your copy.

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  • Report this Comment On July 09, 2013, at 10:23 PM, cajun1958 wrote:

    This atricle makes some excellent points about MSB which has had a great comeback and a tremendous yield for anyone who bought it in prior years. However, there is some reason to be concerned about Northshore Mining div of Cliffs (aka Cleveland-Cliffs or CLF which has a new CEO as of today). Assuming some near term to medium term dip in Taconite prices...what if Cliffs determines that Northshore no longer makes sense and its Western Canadian and Australian properties which export to China & Korea are its only profitable segments? Or if demand goes down and Vale & BHP with deeper pockets drive CLF to sell assets? My concern is that Northshore and the Taconite from MSB provide iron most economically to mills in the Great Lakes region of North America...ArcelorMittal, US Steel etc. but it is unclear if CLF's cost of production is cheap enough in Minnesota vs. Michigan & Canada to keep MSB as its best source; also would it be profitable for CLF to redirect MSB output to Asia?

    I have seen very little on this in all the recent write ups of MSB & CLF.

    Might the best play here might be CLF preferred stock (symbol CLV) which is paying a steady 10% until mandatory conversion to CLF common. Or one of the MLPs gas pipeline trusts like EPB, OKS, KMP etc. whiuch all pay a solid 5% and have growth potential and no expiration at all.

    THX again

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9/27/2016 1:37 PM
GLW $23.28 Up +0.28 +1.20%
Corning CAPS Rating: *****
MSB $9.10 Down -0.05 -0.57%
Mesabi Trust CAPS Rating: **