Investment Club Makes Its First Trade In Years

When I owned individual stocks in my personal account, I never got into the habit of trading. 

Studies show that generally, the more you trade, the less you make.

In a recent post, titled “Why I Would Not Buy A Popular Dividend Paying Stock” I suggested that many dividend paying stocks are becoming popular.

For Canadians, their bank stocks, for example have turned into investment Messiahs for the masses.

I wrote the post to play with controversy.

And my friend, Passive Income Earner, caught me out—noticing that I deprecated Johnson & Johnson’s popularity, when not long previously, I had added a few JNJ shares to my investment club at the same price that the shares closed at yesterday. 

I’m going to be totally frank.  Johnson & Johnson is an amazing business. 

And I don’t think it’s overpriced. 

But with the sinking value of the S&P 500, it doesn’t present itself as such a clear-cut comparative deal today, compared to some of the cheaper alternatives.

Would you do well to hold JNJ?  I think so.

Will it beat the market at the current price?  I don’t think so. 

This brings me back to my investment club. 

As improbable as it sounds, our goal is to continue extending our lead over the S&P 500 index.  We’ve done it for nine years in a row.

Will we maintain our streak? 

Probably not.  But I certainly want to try.

For that reason, I placed our first investment club trade in many years.

I can’t even recall the last time I sold one stock to replace it with another.  It may have been Pier 1 Imports in 2005 or 2006, when I realized what a silly mistake it was to buy the stock.

No, buying JNJ certainly wasn’t a “silly mistake” but I’m going to lighten our load, selling 300 shares of JNJ, and picking up 400 shares of John Wiley & Sons stock. 

This still leaves our club with roughly $23,000 invested in Johnson & Johnson—proving that I still think it’s a great business, and reasonably priced.

But I’m rolling the dice, betting that we’ll do better with Wiley.

If we’re going to beat the market, we may have to step from the batting cage, and take a swing at a pitch.

What are your thoughts?

 





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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7 Responses

  1. The Dividend Ninja says:

    Hey Andrew, a few thoughts from the Ninja's perspective 😉

    I'm more wary of Canadian Banks than I used to be, sure they have been stellar performers. But during the financial crisis, they just came out too squeaky-clean to be true. I don't think they are as immune from global credit-issues as we would like to believe, and I see more downward potential in them than upside.

    Yes Johnson and Johnson is rock bottom solid, and you will do well with it over the long term, but I agree, you won't beat any records with it.

    The one stock I would consider if I was in your position is McDonalds (MCD). When markets were tanking this August, MCD just kept going up and up – it's really immune from any kind of credit crisis, recesssion, or economy fears. And it's a global giant, go anywhere in the world and you will find one. Who doesn't go to McDonalds? It's always trading at 52 week highs, but makes a good investment on the dips. I don't think you can go wrong with it.

    Cheers

    • Hey Ninja,

      I have certainly predicted some stinker stocks in my lifetime, but when McDonalds had its first losing quarter, in 2003, its stock price dropped to about $13. I recommended McDonalds in a MoneySense article in late December, 2003. There was no way (in my mind) that it should have dropped as far as it did.

      I'm hoping that someone read that article, took my advice, and named their dog after me or something!

      You can see by this chart, that it was the only significant hammering the stock ever took! http://finance.yahoo.com/q/bc?s=MCD+Basic+Chart&a

      Sheesh! It's at $90 today. Do you think there are any Andrew Hallam Toy Poodles out there?

      • Minor correction. The article where I recommended McDonalds was in the December 2002/January 2003 edition of MoneySense. I searched for it online, and I had a working link to the article at one time from my blog. The article was titled "Invest Like Warren Buffett" but the article doesn't appear to be available now.

        The follow-up 2005 article ( "World's Greatest Investor Tells All") is one that I can still access online. But if anyone is naming me after anything, after following that advice, it might be their toilet.

  2. "I wrote the post to play with controversy." Good to know! 😉

    At the current price, I think you're right, JNJ won't beat the market but it will provide some tidy income and security in a market than probably won't go very far over the next 10 years.

    I'd be curious if you, for fun, track Wiley's ROI vs. JNJ. In the long-run, I think both companies will come out fairly even.

    • Hey Mark,

      Looking at future ROI, you might be right.

      One incredible thing about JNJ is its lack of volatility. I'm not afraid of volatility, but few stocks have historical track records as steady as JNJ.

  3. One of the incredible things about Wiley (to me) is this:

    It has been around since 1806.

    And since 1972, according to Morningstar, an investment in Wiley would have grown by 7,100%

    JNJ has grown by roughly 2,500% during the same time period.
    http://quote.morningstar.com/stock/chart.aspx?t=J

    Great growth for a couple of really really old businesses eh?

  4. The Dividend Ninja says:

    Sorry, there are no Andrew Hallam Toy Poodles out there.. But you can be the first and sell it on your website – along with your book of course 🙂

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