If I could send a message back in time to my younger self, I would only need to use four words, “Keep it simple, Stupid!” This is great advice for life in general, but especially good advice when investing one’s own money. How much better would my stock portfolio would look today if I had realized this when I first began investing!
Sometimes we as investors can fall into the trap of associating complexity with a good investment. The more complicated an investment however, the more things can go wrong. Often it is simplicity that can be most consistently associated with good long-term investing. If I could have taught my younger self this lesson, I may have looked for investments that resembled these four:
Before October 2011, the simple company now known as BEAM Inc (NYSE:BEAM) was part of the overly-complex golf equipment, home products, security products and liquor conglomerate, Fortune Brands. Fortune Brands was a company with such a diversity of product-types that it actually hurt the company as a possible investment. Current and potential investors were unable to properly value a company that sold everything from golf shoes and sink faucets to pad locks and bottles of bourbon. Fortune Brands was a great example of needless complexity getting in the way of investors making a lot of money.
Since selling and spinning-off its various unrelated divisions, the renamed BEAM Inc (NYSE:BEAM) has become a much simpler company and a much better investment opportunity. Previously a very bourbon-centric company, Beam has made many small accretive acquisitions in the past few years to give it greater exposure to the fast-growing liquor categories such as flavored vodka and Irish whiskey, as well its Skinnygirl brand, which has become one of the fastest-growing liquor brands in the United States. Times have been so good for BEAM Inc (NYSE:BEAM) lately that they are currently facing supply problems with their Maker’s Mark brand due to a surge in overseas demand. While supply problems are never good, being supply constrained because your product is so incredibly popular is high-quality problem to have. If only more complicated companies saw the benefits that simplicity brings to a business.
Simple Consumer Goods
Consumer goods have always been a pillar of safe long-term investing. Toothpaste, deodorant, soap, laundry detergent; these are the types of relatively simple products that are some of life’s necessities, bought in good economic conditions and bad. And Church & Dwight Co., Inc. (NYSE:CHD) has been one of the consumer goods industry’s best preforms over the past 10 years.
The management team has done an excellent job over the past decade of transforming Church & Dwight Co., Inc. (NYSE:CHD) from a mostly single-brand company (Arm & Hammer) into a company with 7 ‘Power Brands’ that now occupy the No. 1 position in their respective product categories (and an 8th Power Brand that is also doing very well for itself). Current and a century of past management teams also have an impressive record of returning money to shareholders. This month, company management declared their 449th regular quarterly dividend, or just over 112 years of uninterrupted dividend payments.
Abbott Laboratories (NYSE:ABT) is another good example of a company that simplified its complicated investment thesis by breaking itself up into two separate companies. In January, Abbott Laboratories completed the separation of AbbVie Inc (NYSE:ABBV), which comprises Abbott’s old drug discovery pharmaceuticals division. Abbott Laboratories (NYSE:ABT) itself was left with the company’s medical device, diagnostics and nutritionals divisions.