My name is SFI, and I blog at Six Figure Investor. I want to share the best investment advice and other investing tips I received in my youth that was staring at me in plain view. It is my hope that the readers of The College Investor will find it useful and entertaining!
Let's go back to the eighties, during the time before anyone realized how over the top that big hair really was. Or, when key-tar players (keyboard on a guitar chassis) were just as cool as guitar players.
I was a teenager back then, going to High School in New Jersey. I had aspirations for college, though, my parents were not college educated. My mother finished High School, my father did not. My mother had not developed a career path, though, she did previously work for AT&T in a operator job that paid quite well. She gave that job up after having children, but later returned to the workforce taking a string of low paying jobs.
She never did find a job that paid as well as the AT&T position, but one large mass market retailer she worked for had better pay and benefits then the competitors. During this time, the Walmart's and Home Depot's were still small compared to their size today, though their businesses were gaining traction. Mobil Corporation (before it merged with Exxon in 1998 to become ExxonMobil of today) entered into the retailing business with its Jefferson Ward stores. What were they thinking? Actually at the time, Mobil was looking for ways to diversify away from energy because the politics were horrible for energy companies.
The job my mother got was working in their warehouse operations. Though the pay and benefits were decent, they were less than $8/hour (she never earned more than $10/hour during this period – keep in mind at this time the minimum wage was $3.35/hour). This job did not last forever, about 7 years, then the retailer went out of business. Mobil's diversion into retailing ended.
After she left, she had some shares of Mobil that she had accumulated through the company purchase plan. It was not very many. The Mobil stock price traded around $60/share, it took many weeks of payroll deductions to accumulate just one share. My uncle, who had been invested in stocks for over 20 years laughed when she told him that her account had one share (he said something like, “What are you going to do with one share?”).
My mother's co-workers also enrolled in the purchase plan, but she said that many of them cashed them in upon leaving the job. The amount of money she had in the account was less than $500, but in the 1980's that was a lot of money to our family. She decided that oil was good business to be in so she left the money in the account. After over 25 years of reinvestment her account has grown to 400 shares, worth over $30,000!
I tell this story because there is a lot of hidden advice in it. My mother was not a sophisticated investor, she never wrote or formalized this story as advice. But she employed many of the techniques that successful investors use.
Good Investments are Hidden in Plain Sight
In the 1980's Mobil was a large well known company; it did not require much effort to find it. It had a long track record of earnings, decades of paying dividends, and a large group of shareholders. It was an actively traded stock on the “big board” (NYSE) and would have been found in financial section of daily newspapers. It is unlikely my mother would have invested in Mobil if it was not offered where she worked, but if she had tried to find an investment, Mobil likely might have been one she would have picked.
Investing Requires Patience
Over the whole time frame she was invested, never once did she consider selling based upon the news of the day, the state of the economy, or pundit analysis about the company or industry, or even for her personal financial situation.
There were quite a few major events over time, to put it lightly. The worst probably was the 1987 stock market crash, where Mobil lost 30% of its value in one week. What did my mother do? Nothing.
If this happened today, I would ask the following questions:
- Did Mobil change as a business in one week, or was it expected to change in the future?
- Did anything change regarding the existing or future need for Mobil's products?
- Did anything change with the stewardship or management of Mobil to the detriment of shareholders?
If none of these questions were answered with a ‘Yes', why should you sell?
The Importance of Management
Quick, what is the most important criteria for investment selection? Is it: market share, moat, earnings growth, business sector, profit margin, longevity, or something else? While each of these are important, I would give the largest weight to how well the management of company looks out for shareholders. If the company is not advancing the business for your benefit, the other criteria are will not matter.
Mobil could be criticized for venturing off into general retailing, which ultimately did not succeed. However, over the long term Mobil has successfully grown and profited in its industry, under widely varying market conditions for its products. And most importantly, the shareholders have shared these profits.
Start Investing, and Keep Investing
Once my mother started investing she put it on autopilot. Every pay week she added additional money to the account. All the dividends were always reinvested every quarter to buy additional shares.
Investors can start with small amounts of money, you don't need big bucks. As my mother's experience shows, even a small amount of money can snowball over time.
At first it may seem counter-intuitive, but the best long term investments are companies that reliably share their profits with shareholders. There has been research on this topic that has concluded that dividend paying companies provide a higher overall return compared to companies that don't pay a dividend. This allows your earnings to snowball over time.
How To Get Started
As my mother demonstrated it only takes one share to get started. Take the time to put some money away in great companies, read The College Students Guide To Investing that talks about how to invest.
Readers, what is the best investment advice you've ever received?