Boring is best
I'm afraid that this week I have continued my general theme of low-risk investing. I think something snaps in the brain of investors when they switch to stock picking. For some reason or other the act of picking individual stocks rather than passively investing in an index (which is probably what 99% of them should do) triggers all sorts of psychological drivers which turn them into wild casino merchants.
It is just so pervasive. It seems like everywhere I turn there are stock pickers digging around in the most obscure companies trying to find the next 10-bagger (a stock that will go up 10-fold).
I've been there and I can understand it, but the evidence is it's a massive money loser for most people who do it. The expectation of 50% returns in a year (or whatever) are just so much more enticing than 10% or 15% (if you can even manage that much!).
The funny thing is, it seems that it's the boring stuff that is much more likely to make money in the long-term. Of course Buffett has been banging this drum forever, but very few listen. When he bought Coke everybody thought: why is he buying this big old boring company? It's not going to do anything. And generally it doesn't, it just keeps compounding shareholder wealth by 10% to 15% over time.
I don't think companies come much more boring than Centrica (which owns British Gas). Obviously they're involved in all sorts of exciting and fascinating projects, but British Gas? How is that going to give you the returns you need to bother with all the analysis?
In many ways it's that attitude that makes it possible to earn such great returns from these big, steadily growing, dividend paying, boring companies. Nobody wants to bid the price up to the moon so shareholders rarely see spectacular gains… in the short term. But if you buy in at the right price then something like Centrica, which is currently yielding over 5% and has grown in the past at a very boring 8%, you might just get that 13% a year return going forward too.
Blog posts
Centaur Media review (no, not a boring stock, but a tiny part of my hugely diversified small-cap value portfolio for those who can't resist the high risk stuff)
Investing & gambling – can you tell the difference?
Boring investing is happy investing
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Have a good weekend
John
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