Lessons Learned From 40 Years Of Investing: Stick To Your Plan

by: Larry Smith

As a sixteen-year-old junior in High School, I made my first stock investment in a company called Unishops. As I recall, it was a maker of women's clothing and as I distinctly remember, it declared bankruptcy approximately a year later. That inauspicious start did not deter me from continuing my investment career, as through the years I have owned stock in many various companies, including such great businesses as American Motors, Republic Airlines, Playboy, and RJR Nabisco. Through my many years of investing, I have learned that there are some keys attributes to being a good investor. I would like to share some of these attributes in hopes that what I have learned may help someone avoid the mistakes I made. For the experienced investor, perhaps these will serve as reminders.


Former British Prime Minister and author Benjamin Disraeli once said, "The secret of success is constancy of purpose." In investing, that to me is the golden rule. Successful investors have a game plan and they stick to it. They do not change their plan when the market has a bad month or jump into the latest hot sector of the market, just because it has run up lately. There is more than one way to make money in the stock market, but jumping from one investing-style to another is not one of them. Some people can trade options and make money at it, some people successfully buy momentum stocks and ride them up, hoping to get out before the growth slows and some, like me, buy dividend-paying stocks and hold them as long as the fundamental story of the company does not change. One of my rules is any stock I buy must pay a dividend; I will not buy any stock that does not pay one. I may buy Johnson and Johnson (NYSE:JNJ), but I will not buy Apple (NASDAQ:AAPL). Apple is a great company, but it does not comply with the rules I have. My rules work for me, but may not for you. Whatever your forte is, find it, hone it and stick to it.


For me, this is the most difficult part of investing, for I live in fear the stock I want to buy will take off before I have a chance to buy it. I spend a good deal of time researching future investments, when I find a company with a fundamental story I like, I have the bad habit of wanting it right then and there regardless of price. Through the years, I have improved on this skill, but I had to learn the hard way. I have always been a fan of Coca Cola (NYSE:KO), both the product and the business model. In 1998, I paid approximately $75 a share for Coke; because I decided that day, I had to buy Coke. I sold it a couple years later at a loss. Fortunately for me I was able to pick Coke back up in 2010 at the far better price of $55.50. More recently, I was following Philip Morris International (NYSE:PM), growing inpatient as the stock seemed to go up every day; finally, in late September the price dropped to $62.50, and I purchased it. Find a company you like and wait for your price. In most cases Mr. Market will give you a chance to get the company you want at the price you want. A great company at an inflated price is not a great investment.


If you are going to invest in a company, not trade, but buy and hold the stock, then you are an owner, so act like one. Even the soundest of companies can have misfortune, bad management, or societal sea changes that disrupt their business model. As an owner, you need to keep up with the company's business and its outlook going forward. I listen to every quarterly conference call for every stock I own. It's not difficult, just go to the company website, look for investor relations and then look for presentations. There you should find the latest quarterly conference call, along with other items, such as analyst day presentations and industry conference presentations. In 2008 I bought AT&T (NYSE:T) for $39.00, my plan was to hold it and collect the nice dividend. However, after listening to a conference call where they talked about the losses in their land line business and the expense of rolling out improved wireless service I sold it. I took a small loss, selling it for $36.50, but saved myself a far greater loss, as today AT&T sells for about $30.00. Know all there is to know about the companies you own, it is buy and monitor, not buy and forget.


A successful investor must have confidence in their thinking and in their rules. At some point the market will turn against you, at some point a self-described expert will come on television and tell the world that your investment style is wrong, and some morning you will wake up and hear some analyst from some brokerage firm cut the rating on a stock you own. None of this can matter to you, you must stick to your rules and turn off the noise. During the technology boom of the 1990s, Warren Buffett was castigated for not buying technology stocks, articles were written that Buffett had been left behind, it was a new market and Buffett's methods no longer worked. Warren Buffett ignored all this talk and kept doing what he does best, deploying capital into businesses that he understood and that were selling for good prices. When all was said and done, Warren Buffett made money and most technology investors lost money. I invest in dividend growth stocks, they have had a good run and I expect at some point, many may pull back on price. This will not change how I invest and will not force me to sell. In fact, I would be more than happy to add to some of the companies I own on a pullback. If you have confidence in your investment methodology and you have confidence in the soundness of the stocks you own, market turbulence or some talking head won't dissuade you from your plan.

These are just a few of the attributes I think a successful investor needs to have. I didn't write this to portray myself as an expert, because I am not an expert. I am just a long time investor who has learned that if you have no plan, if you don't monitor your stocks, if you lack patience, discipline and/or confidence you will not be a successful investor.

Disclosure: I am long KO.