New investors often go through a three-step "lifecycle" in their stock selection methods. One, buy some fad shoe retailer or the company that makes the next great medical gadget. Two, lose money. Three, eventually come to this line of thinking...
"Forget 'new stuff,' I just want some Warren Buffett investments... boring companies that make soda, disposable razors, and band aids. Let me compound my money safely instead of losing on the next fad."
Last week, Tom Dyson outlined the incredible compounding power of cigarette maker Altria. Rather than try to guess the next consumer fad, Altria just sells millions of cigarettes every single day... just like Coca-Cola sells Coke... and Johnson & Johnson sells Band Aids.
Another example of the boring basics at work: Today's chart of America's largest funeral-home chain, Service Corp (SCI). No "next new thing" here... just a basic service everyone must deal with. SCI just reached a new high and sports one of the smoothest uptrends in the market. We're not saying buy the stock... We're simply pointing out that the "basics" approach works wonders. Everyone learns this principle eventually.
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