Boring Is Good

In 1989, famed investor and "One Up On Wall Street" author Peter Lynch wrote, "Always invest in a company any idiot can run, because eventually an idiot will run it." The news headlines attract us to high tech and exciting new developments like artificial intelligence, cryptocurrencies, cloud computing, and medical breakthroughs, or similar. These headlines attract lots of attention and money. But most of the time, the best investments are in stocks of dull boring companies that can be run by an idiot!

Just a couple years ago, I was asked by an organization's board member what stocks would be good for them to invest in. My biggest holding had just become AT&T (and still is!). AT&T is a massive stable company everyone knows. They paid a solid higher dividend, and had jettisoned some bad businesses that strangled them. There was nothing standing in their way as they refocused on their core business of connecting people.

The reaction I got from the guy was typical, as he replied, "AT&T? They're a utility! We need something that is going to grow, not something boring like a utility!".

The gentleman then said, "Thanks, but no thanks.", and invested all his cash in Apple, the popular stock of the day.

At the time, AT&T was trading at $14/sh with a solid dividend yielding 7%. Even if the stock went nowhere, this conservative organization would have still made a 7% return on their money.

Today, AT&T is trading over $28/sh, providing a 100% return in just 2 years, along with the 7% dividend cash flow. Over the past 12 months, the shares gained 47%!

Apple's shares have gained 20% over the same 2-year timeframe, while paying a paltry dividend of less than 1%.

This "utility" doesn't seem so boring now! And I also disagreed with his characterization of AT&T's business as a utility these days. Before the 1984 Bell System breakup? Maybe. But today it is a different business.

Warren Buffett became the most famed investor of all time by investing in boring companies that are run extraordinarily well. This includes companies like Geico, Gillette, and Coca-Cola. In fact, until recent years, he avoided tech companies because tech is volatile, popular one year, and out-of-favor the next. His analysis always looked at a 10-year history, and many tech companies hadn't even existed 10 years!

In his books, Peter Lynch talks about a fireman who became a millionaire buying shares of Hanes, the underwear company. Now THAT's an exciting business, right?

I suppose Fredericks maybe, but Hanes? Seriously?

Yes! At the time, Hanes was doing well and made a fireman a multi-millionaire, when a million dollars bought a lot more than it does today.

The fireman would sit in his station, and Hanes built a factory across the street. Initially, there were a few cars in the parking lot. Weeks later, there were more cars. And weeks after that, there were even more. The factory was increasing employment. Based on this "stock analysis", he loaded up on the shares and continued to buy more with each paycheck.

The lesson here is that boring is good! A boring 30% annual return for years is much preferred over a 100% return one year and a loss of 50% the next.

As for AT&T, their boring story just keeps getting better and better, as they crank out record profits while restoring themselves to their former greatness.

Which reminds me of another famous quote from Peter Lynch, "Sometimes the best stock to own is the one you already own."