In February 2005, a close friend of mine over the years, my high school teacher in 1971-1973, passed away from cancer at the age of 69. He was a millionaire. Become a Complete Fool
On a teacher's salary? Yes and no. Sheriffe was cheap as dirt in his frugality, and haggled over every last penny (even when I was paying! He was no fun to buy a coffee for, I'll tell you). He paid for everything he could in cash and cleared his credit card statements every month. He refused to go into debt to anybody, and ... he made a million dollars in the stock market.
Omar Sheriffe Vernon el-Halawani, bless his soul, had a tremendous grasp of economics, and intuitively knew what made sense and what didn't. (He laughingly once told me the story how he was rapidly ushered out of a resort timeshare sales session when he bellowed out to the cringing salesman, in earshot of everyone, "But young man, this doesn't make any economic sense!") So I listened to him - though not well enough.
He started in stocks in the early 1970's, and like everyone else, took his rookie lumps - but the difference was he very quickly learned from them. Ultimately, near the end, he was simply just buying and holding everything. He traded a little, but in small amounts and just for sideline amusement. He was a great stock-picker, and his biggest regret was never his losses ("tuition"), but rather it was selling things that ultimately went massively higher. He would tell me over and over again, "George, why bother to sell? Remember Livermore (Livermore's book Reminiscences of a Stock Operator) - the big money is made by sitting."
He narrowed down his style to looking at stocks that were in industries fundamentally important to the economy, and which had reason to grow with it. He particularly liked stocks that grew their dividends, because the stock price itself would follow. The capital gains were nice, but over time a 3% yield on an original investment might become 20% or more. Now that's income. Over 20 years ago he had bought Bank of Montreal (BMO "Canadian banks are a license to mint money"), and still had it - split after split after split, generating serious annual dividend income.
Here are examples of other great calls. I steered him toward TransCanada Pipeline (TRP), which had dropped from $30 to $10 and cut its dividend. He scooped it up. (I didn't - pardon me while I hit myself in the head with a book), and subsequently it went back to $30 and re-instated and increased its dividend. In 2002, he bought Corning Inc. (GLW) at around $2, and Williams Companies (WMB) at about the same price - both up more than 10 times since. Talk about tremendous courage of conviction - and the patience of Job. He still held all these at his death, and would have kept holding had he lived longer.
The moral? When you are smart enough to buy a good company at a great discount (a fairly rare occurrence) - never sell it. The internal growth - especially dividend growth - will make you wealthy, even if that growth isn't particularly exciting. And stay in stocks and don't try to time the market. Sheriffe never owned any bonds. Good companies can overcome things like inflation; bonds can't. (I know, I know - you "prudent man" types are all gasping in horror; but solid, dividend paying stocks are good for widows and orphans and really old people. There. That's my heresy and I'm sticking to it.)
Why am I not rich then, when I had access to such a great mentor? Because I am, like Sheriffe was, fiercely independent with my decisions, and fully responsible for them. Ironically I also am a pretty good stock picker, but my problem always has been, except for the past couple of years, that I have great ideas but never see them through to fruition. Why? - because there's always a newer, better idea. Someone once put it well; it's like trying to grow a garden by plucking up the shoots to see how they are doing.
This is one of the biggest traps in the stock market. It's so interesting. It engages the mind, and stirs all those problem-solving juices. There is always almost unlimited new opportunity - but the catch is, your capital is not unlimited. You get a new idea; you're excited about it; you want to act on it. And then the problems start - you sell this at a loss, that at a small gain, and pretty soon you're going nowhere and your broker is sending you free hockey tickets.
The best use to me of CAPs right now is that it diverts my attention away from my portfolio, which is doing fine thank you, without my day-to-day help. CAPS is my Nicorette to the market's cigarettes.
So am I doing what Sheriffe wisely counseled me to do? Partly. My approach now is to try to buy the same kinds of stocks, and I do hold them now - but I also re-allocate between them. After a lot of number-crunching, I've found out that you can "manufacture" a significant annualized compounding increment. You do it by holding a fixed portfolio of stocks, but periodically re-allocating between them - a supercharged "Dogs of the Dow", as it were. You get the benefit of holding a good company through its growth, while at the same time boosting the performance of the overall portfolio with a built-in automatic buy-low/sell-high engine.
The great part about having a fixed portfolio of names is that you don't have to constantly be on the hunt for the next great thing (even though that's fun).
So far I'm up about 25% each of the past two years - roughly what my model suggests. 25% doesn't sound like much, but just go back and check those cute glossy compounding tables that financial advisors like to stick in front of you when they're trying to sell you that great 8%/year mutual fund. Hmmm indeed ....
So, for $100 a year (plus travel expenses), I will be happy to offer you my get-rich-slow service and come over to your house and smack your hand with a cane every time you go to sell a good stock. That will be the best investment you ever make.
The author currently owns BMO. The author also mutters and hits himself in the head with a book at any mention of TRP, GLW, or WMB, which regrettably, he does not own.
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In February 2005, a close friend of mine over the years, my high school teacher in 1971-1973, passed away from cancer at the age of 69. He was a millionaire.