Invest Like a Dog

You can teach an old dog new tricks.
Over the weekend, I was dangling a treat in front of my golden retriever, trying to teach him a new trick. If you've ever been through this routine with a -- shall we say "energetic?" -- golden retriever, you know the drill. Before you can even get to the command, the dog's halfway through his existing repertoire: Lie down, roll over, whisper, shake a paw, other paw ...

But do you want to?
Instead of pressing forward with the new trick (play dead), I just tossed him the cookie and thought about what he'd been doing.

Note that my puppy didn't bother with difficult tricks like "homo erectus" (standing up on his hind legs). He also didn't try something he's never even heard of, like "go get me a beer from the fridge."

As all dogs do, he sticks with what he knows. And, more often than not, it pays off.

From the kennel to the portfolio
It made me wonder whether I couldn't learn a thing or two from the hound. Most of us investors do the opposite of what Fido does. When we want a reward, we bypass what we know and spend a lot of time looking for the next good idea.

But I've recently looked back at my own portfolio, along with a few stocks I know so well I feel like they're already in my portfolio. I realized how costly this could be. Sure, some of my more recent buys, new money I've put into companies like Connetics (NASDAQ:CNCT), have worked out pretty well. But it took a lot of work to get up to speed on the investment, and involved taking on some increased risks. And there were other pharmaceuticals out there -- which shall remain nameless for now -- that didn't treat me nearly so well.

In many cases, I see I could have done just as well, or even better, by putting more money into some of my familiar old tricks.

Just to put some numbers to the suspicion, I calculated what my returns might have looked like, had I plowed a little of my money back into the familiar when the market offered opportunities. (I'm defining "opportunity" here to mean a purchase price 10% above the 52-week low.)

Yes, I know virtual buys like these are easy in hindsight, but even if you brush aside the numbers and the specifics, the point still holds. You could do surprisingly well just looking for opportunity where you already know the turf.

What would Fido do?
To me, the results are compelling enough that I'll think twice -- from the dog's point of view -- before adding anything to the portfolio. If I can already expect a good reward on a company I know, there's no reason (outside of diversification concerns) I need to find something new.

Of course, this is a lesson I should probably already have leaned long ago, and from a different, four-legged teacher: Fool co-founders David and Tom Gardner. Over the years they've been making picks in Motley Fool Stock Advisor, they've never been shy about re-recommending a good company, particularly when it gets cheaper and offers a better investing opportunity. Companies like Marvel Entertainment have been recommended multiple times, piling, in Marvel's case, subsequent 50% and 270% returns atop original recommendation returns of more than 500%.

Those kinds of numbers aren't always typical, but they do show the power of sticking with what you know. If you'd like to discover what Tom and David know, both new tricks and old, a free trial of Stock Advisor is just a click away.

At the time of publication, Seth Jayson had shares of Guess?, American Eagle Outfitters, UST, Electronic Arts, Connetics, and Microsoft and was long Microsoft calls. He had no position in any other company mentioned. View his stock holdings and Fool profile here. Microsoft is a Motley Fool Inside Value recommendation. Marvel, American Eagle, and Electronic Arts are Stock Advisor picks. Fool rules are here.