Today I’m going to share with you one of my success stories. The purpose of my story is to show you that great returns are possible without resorting to expensive mutual funds.
My story begins in 2000 when I decided to buy 185 shares in a company called TransCanada (TRP). After applying the 12 Rules of Simply Investing I decided that TRP would be a great investment. TRP had:
- A strong history of profitability
- A strong history of growing dividends
- A product that would be in need for a very long time
- A stock price that made the shares undervalued
I paid $13.40 for each share for a total investment of $2479 ($13.40 x 185 shares). In 2000 TRP was paying a dividend of $0.80 per share, since then the dividend has increased each year, today the dividend is $1.92 per share.
This year my investment in TRP will produce $355.20 in income:
$1.92 x 185 shares = $355.20
$355.20 of $2479 (my original investment) represents a return of 14.33% annually and possibly more if the dividends continue to increase every year.
$355.20/$2479 = 14.33%
Warren Buffett’s company Berkshire Hathaway recently released their annual report. I highly recommend reading this annual report because it’ll give you insight into the greatest mind in value investing today. I enjoyed reading the report, and would like to share some of the highlights here.
Here are in Warren Buffett’s own words, his thoughts on investing:
- You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
- Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
- If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
- With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.
March 24, 2014 · Investing
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I know investing on your own can be scary. It can be scary to put in your first order to buy investments (stocks, mutual funds, bonds, index funds). What happens if you make the wrong decision and lose all of your hard earned cash? What if you earn dismal returns? These are all valid questions, and something every investor asks him or herself. In today’s article I’ll show you how to take the fear out of investing.
I understand the fear you have about investing. I’ve been there; in early 1996 I had no clue about investing. I spent years buy and selling stocks on “hot tips”. My fear increased when I made mistakes by investing in companies that went bankrupt. For me the most important key to getting rid of fear was: education
March 16, 2014 · Dividends
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Are you worried that your hard-earned cash will be worth less in future years? Inflation is a valid concern for all investors. Over time your purchasing power is reduced because the cost of goods continue to increase. Your best protection against inflation is: dividends.
“While placing money in a savings account may seem like the safest investment, banks don’t pay nearly enough interest these days to compensate investors for inflation. In fact, interest rates are at record low levels, making now one of the worst times in history to let money sit in a savings or money market account (that goes for CDs too). Thus, savings are eroded in terms of future buying power, as product prices creep up over the long-term.”*
March 2, 2014 · Investing
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CBC Marketplace recently conducted a hidden camera investigation, to determine the quality of investment advice dispensed by the five big banks in Canada and five popular investment firms in Ontario. The investigation uncovered ‘atrocious’ investment advice.
You can read more about the investigation on the CBC News website, but here are a few points I’d like to share with my readers:
“The tests revealed a wide range in the quality of advisers. Some performed well, giving clear answers and asking appropriate questions about the tester’s financial situation and risk tolerance. Other interactions, however, [Preet] Banerjee found troubling.
In some cases, information was incorrect or misleading – even in response to direct questions, such as how fees are calculated. Some gave unrealistic promises about returns, including one adviser who said that a $50,000 investment should increase by $10,000, $15,000 or $20,000 in one year.
Others failed to adequately assess the customer’s risk profile, which advisers are supposed to use to ascertain the suitability of investment products they recommend to a person.”*
The good news is that the Ontario Securities Commission will be investigating further:
“Ontario firms could face a test this year, as the Ontario Securities Commission (OSC) conducts a mystery shop to determine the quality of investment advice. While the OSC declined to provide specific details about its test to Marketplace, the results are expected to become public later this year.”*
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