Beating the Street

Historically, stocks return nearly 11 percent, 3 percent of which is dividends, and 8 percent of which is due to stock prices going up. Of course, the big reason that stock prices go up is that companies continue to raise their dividends, which in turn makes stocks more valuable.

Because the famous Crash was followed by the Depression, we’ve learned to associate stock-market collapses with economic collapses, and we continue to believe that the former will lead to the latter. This misguided conviction persists in the public mind, even though we had an underpublicized crash in 1972 that was almost as severe as the one in 1929 (stocks in wonderful companies such as Taco Bell declined from $15 to $1) and it didn’t lead to an economic collapse, nor did the Great Correction of 1987.

In dieting and in stocks, it is the gut and not the head that determines the results.

Never fall in love with a stock; always have an open mind.

At the end of the tape, the entire seventh-grade portfolio department repeated the following maxims in unison. This is a chorus that we should all memorize and repeat in the shower, to save ourselves from making future mistakes:

A good company usually increases its dividend every year.

You can lose money in a very short time but it takes a long time to make money.

before my students can put any stock in the portfolio, they have to explain exactly what the company does. If they can’t tell the class the service it provides or the products it makes, then they aren’t allowed to buy. Buying what you know about is one of our themes

Peter’s Principle #3:

Never invest in any idea you can’t illustrate with a crayon.

Many of these lessons I’ve learned from experience, which is always an expensive teacher, so you’re getting them here at a discount.