The Key to Investing Is Nothing New

The more things change, the more they remain the same. -- Alphonse Karr

Inspiration stuck me at the American Sanitary Plumbing Museum, in Worcester, Mass. Always curious about how things work and now a homeowner with occasional plumbing needs and questions, I was there to see what I could learn about the history of plumbing. I got more than I bargained for.

Proprietor Russell Manoog (and later his wife, B.J.) spent several hours showing me most of the items in their impressive collection. I learned that there is such a thing as a functional pipe made of wood. (Wooden pipes were in use in America during the 1600s and 1700s.) That chamber pots often sat below platforms with seats. That toilet paper is not a recent invention -- an early form of it, which came in boxes of sheets, was called "boudoir paper." (Historical alternatives to toilet paper include leaves, soaked corn husks, sponges, clamshells, and more.)

The principles remain the same
The most interesting lesson of the day for me was how little has changed in the world of plumbing over many, many years. The shape of a toilet is essentially the same -- a bowl with a seat over it. That's true for a fancy 1891 "Nautilus" toilet I saw at the museum and a less-fancy American Standard (NYSE: ASD  ) toilet I saw at Home Depot (NYSE: HD  ) . The shape of pipes under a sink has also remained fairly constant for a long time -- essentially, all that's needed is a trap, such as the common P-shaped one. (I used to think that a trap under a sink was there merely to facilitate the removal of things that fell down the drain. How wrong I was -- its most important function is to contain some water to block smells and gases from coming back into the house. A vent is also important.)

If you look at wood pipes and think that copper piping is a new and valuable development, you'd be wrong. The ancient Romans were using copper piping several millennia ago.

So what does all this have to do with investing? A lot, if you think about it. I've been a student of investing for nearly a decade now, and I've seen lots of investing strategies pitched. Some seem sensible, and some seem dubious. Most worrisome are those alleged gurus who have new, "amazing" secrets to building wealth that they'll share with you -- if you attend an expensive seminar or give them a lot of money in some other fashion.

My visit to the plumbing museum made me think, again, that perhaps the best ways to invest are not the new ones but the old, tried-and-true ones. After all, at the heart of successful investing, aren't we most likely to find an attempt to buy something for less than it's worth? This seems to me to be an inescapable truth, kind of like how water always seeks the lowest level.

Old investing wisdom
So what exactly are the old investing truths that we should pay attention to? Well, one source of venerable advice is Berkshire Hathaway's (NYSE: BRKa, BRKb  ) chairman and superinvestor Warren Buffett, who freely shares his thoughts through his very accessible annual letters to shareholders. His impressive decades-long track record makes him someone worth listening to. (Whitney Tilson has regularly summed up the master's musings at the company's annual meetings.) Buffett is himself a student of an earlier superinvestor, Ben Graham.

Another giant of investing, though less well known, is Phil Carret. Carret started Pioneer, one of the first mutual funds, in 1928. His average annual return, calculated from 1928 to 1974, is estimated to be a solid, market-beating 14%. (That's enough to increase an investment's value 50-fold over 30 years.) Carret died in 1998 at the age of 101, but he left behind many thoughts on how to invest successfully:

  • "Never borrow money for speculation in stocks. When you do borrow, do so sparingly, and only when rates are low or falling and business is depressed."

  • "Never hold fewer than 10 stocks covering five different fields of business."

  • "More fortunes are made by sitting on securities for years at a time than by active trading."

  • "Reappraise every holding at least every six months."

  • "Be quick to take losses, reluctant to take profits."

  • "Avoid inside information as you would the plague."

  • "Diligently seek facts; advice, never."

  • "Keep at least half [your investment portfolio] in income-producing securities." (This would include not only bonds but also dividend-paying stocks. If you're looking for hefty dividend-payers, grab a free sample of our Income Investor newsletter.)

  • "Never put more than 25% of (your investment portfolio) into securities about which detailed information is not readily and regularly available." (I actually think that you might be best off avoiding such securities entirely.)

Other lessons can be gleaned from Carret's life. It wasn't one spent with eyes glued to the stock ticker. He made time for things he enjoyed, such as solar eclipses, which he would travel virtually anywhere to observe. He was generous with and loyal to friends. When he prepared his housekeeper's tax return for her, he quietly paid the taxes due, as well. Buffett is also known for enjoying his life and doing all the fun things he wants to do.

You can learn more about a bunch of other great investing minds in this special collection of profiles we ran some years ago.

Lost and found
Interestingly, many important inventions in the world of plumbing were lost for many years, only to be rediscovered or reinvented much later. Some 3,700 years ago, for example, the Minoan Palace of Knossos on Crete featured terra cotta pipes, hot and cold running water, drainage systems, and a flushing toilet. It's sad to think of the millions of people who lived without such amenities for most of the years since then.

Similarly, in investing, big truths and principles often need to be rediscovered by each of us budding superinvestors. Fortunately, the toilet has indeed been reinvented, and effective investing strategies such as value investing are still being studied and advocated -- perhaps a little more so, after the market's recent speculative bubble popped. (For examples of promising value investments, grab a free sample of our Inside Value newsletter.)

Durability
One highlight of my visit to the plumbing museum was seeing a beautiful water heater from 1929 that was used for some 70 years. (Are you recalling a water heater you recently saw at Lowe's (NYSE: LOW  ) that came with a 70- or even 50-year guarantee? I thought not.) In fact, this water heater might well have continued to be in use today had it not ended up donated to the museum. The latest design isn't always the best design.

Now that I've seen what's possible in the realm of water heaters, I find myself regarding some investment-strategy hype-ists as purveyors of flimsy water heaters with five-year warranties. Why would I be interested, when I should be demanding more robust machines?

Keep learning
This is an age of information overload. You'll see investment advice coming at you from myriad sources. You may find yourself confused and frustrated. If so, look for long-lasting truths. Seek wisdom that has been around for a long time. Go visit a plumbing museum.

You can read more about investing's best brains in these articles:

SelenaMaranjian's favorite discussion boards include Book Club, The Eclectic Library, and Card & Board Games. She owns shares ofBerkshireHathaway and Home Depot. For more about Selena, viewher bio and her profile. You might also be interested in these books she has written or co-written:The Motley Fool Money GuideandThe Motley Fool Investment Guide for Teens. The Motley Fool is Fools writing for Fools.


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