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Johnson & Johnson
Rewards of LTBNH

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By Luwingo
February 17, 2005

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It's Open Day at www.morningstar.com today. As a bona fide cheapskate, I hold a standard "free subscription" membership, so when Morningstar decided to hold the open day, I thought, "Great! An opportunity to scab research at no cost!!"

Well, maybe that's not quite what I thought, but it sure was close. So anyway, I clicked over to JNJ's report to see what I could see.

And then a funny thought struck me: I've been a Johnson & Johnson shareholder for 1.5 years now; I've seen the stock price go from $48-ish back then to almost $65 today. The next thought that hit was: I spent most of that time doing other stuff, not worrying about the stock price at all.

Let me put this in context: I received all of my current holdings of JNJ as a gift, not too long ago. All I can say is that the very best, most thoughtful and most farsighted material gift that any man can give is shares in a great company like JNJ. The reason? Well, there's the odd chance that if the recipient simply holds on to those shares, they will go up in value many times over. Patience, I was taught, is a virtue; owning a stock like JNJ is a test of that patience.

Note what I wrote there: go up in value, not price. The two are related, but not always the same. Now, when I received my shares as a gift, the stock was trading well south of $50/sh- and probably well short of its fair value. In the short time I've owned it, it's rewarded me very well for, essentially, being extremely lazy: I check on JNJ's price perhaps once or twice a month, if that often. I read the quarterly statements; I buy the products; but I don't care to time its price movements. In the meantime, the dividends from the stock that I own have been reinvested (minus, of course, an obligatory chunk care of the IRS- if anyone wants to know how black holes work, ask a taxman!!), and the rewards continue to compound.

Owning JNJ's stock has taught me some important lessons:
1) Cash counts
2) Dividends matter
3) Never sacrifice one's integrity for profit
4) Timing the market is, at best, a fool's game

But the most important lesson that JNJ's shares have taught me, I think, is that there is only one kind of timing that counts. In other words: don't bother with short-term market timing- you'll lose. Worry instead about what your shares will be doing 5, 10, 20 years from now.

That's the kind of lesson that JNJ teaches: patience. This is not a tech stock that is today's darling and tomorrow's trash. While some of the optimism that is running high in financial markets about JNJ worries me these days, I don't think it's entirely unwarranted. JNJ will probably never be a glamorous company- I mean, they sell baby powder and shampoo, for cryin' out loud! How much more boring can you get! But it will be a company that rewards patience.

In a nutshell, I was reminded today of the pivotal lesson that Benjamin Graham taught so many for so long: the term "long-term investor" is redundant. That's the only kind of investor there really is. That's the kind of investor that needs a company like JNJ in his portfolio. JNJ will stumble someday- it is inevitable. When that day comes, though, I have confidence that this will be the time when the value of the company and its people will really shine forth.


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