The Secret All Great Investors Know
Want to know the secret to being a great investor?
The truth is, there are lots of great investors, and they each have their own "secrets." Warren Buffett looks for opportunities to buy great basic businesses at bargain prices. Joel Greenblatt looks for opportunities in special situations like spinoffs and mergers. George Soros found his opportunities in shifting macroeconomic and global trends. Other great investors find investing opportunities in all sorts of places.
Sometimes the techniques they use to find and identify those opportunities are secret, sometimes not. But none of those techniques is the secret.
The real secret is something much simpler: They're all looking for and determined to seize opportunities.
That sounds almost ridiculously simple, doesn't it? But bear with me -- it's a bigger secret than you might think.
A secret that's deceptively simple
Have you ever read Napoleon Hill's classic book Think and Grow Rich? (If you haven't, make the time -- you're in for a treat.) I was rereading the book last night, and I was struck -- as I always am -- by the truth of one of his recurring themes: Opportunities exist for those who are determined to find them.
How many of us have said that finding really great investments is "too hard," or "too time-consuming"? Sure, we'd all love an opportunity to buy Apple (NAS: AAPL) at less than $14 a share, where it traded in April 2003. (That's an even bigger steal than you think -- it has split 2-for-1 since then. At current prices, that's a 53-bagger!)
But here's the thing: Most of us had that opportunity, but we didn't see it as an opportunity -- even though April 2003 is when Steve Jobs first launched the iTunes Music Store, a key milestone in Apple's growth over the past decade. We didn't see it because we weren't looking.
A complete wealth-building formula
That's an extreme example, but it makes the point. If you've read The Millionaire Next Door: The Surprising Secrets of America's Wealthy, the 1996 best-seller by William Danko and Thomas Stanley, you know that one of those "surprising secrets" is that people who have built wealth focus on investing over consumption. Simply put, they're spending less than they earn and actively looking for great opportunities to invest the difference.
That's a complete wealth-building formula -- but even those who make a point of saving often miss the second part. Most people who invest -- which includes anyone who has a 401(k) or IRA -- aren't looking for great opportunities. They aren't even looking for really good ones. They're just looking to get by.
And that's too bad, because investing well is the difference between building wealth and just having savings. Truly great opportunities like Apple at $7 are rare and often hard to recognize, but you don't need to be Warren Buffett to find really good investments. You don't even need to work all that hard to find them. You just need to know that they're there and be determined to get them.
Opportunities hiding in plain sight
Here are some examples, using one of my favorite categories of investments: dividend stocks. Some of the best dividend stocks aren't the least bit obscure, and their value doesn't require a Wharton MBA to recognize. Everybody's heard of McDonald's (NYS: MCD) -- but do just a little digging, and you'll find that the stock has quadrupled over the past decade, if you count reinvested dividends. With significant opportunities still untapped, that growth could continue for many more years.
Or look at pharma giant Johnson & Johnson (NYS: JNJ) , maker of everything from Band-Aids to high-tech medical devices. With a 3.6% dividend yield -- and almost 50 years of continuous annual increases in that dividend -- solid future growth looks like a low-risk bet. The great consumer giantProcter & Gamble (NYS: PG) might seem like the most boring of blue chips, but it has more than doubled in the past 10 years when you include dividends -- and its global growth stands a good chance of increasing as incomes grow in emerging markets.
One of my favorite dividend stocks isn't quite a household name -- booze colossus Diageo (NYS: DEO) -- but you've heard of its brands, which include Guinness, Tanqueray, Jose Cuervo, and other huge names. Those great brands (and great management) should drive strong growth around the world for years to come. If you prefer your drinks nonalcoholic, take a look at PepsiCo (NYS: PEP) , another company using great brands to grab big growth overseas.
A final thought (or two)
These are just examples (though they're all good ones) -- if dividend stocks aren't your thing, there are plenty of other ideas here at the Fool that won't cost you anything but a little time. But here's the takeaway: Finding these opportunities isn't enough -- you have to take advantage of them. Opportunities are all around you, but those who take action are the ones who will reap the rewards.
One final note: If I've whetted your appetite for dividend stocks and you'd like even more (11 more, to be specific) great ideas for new money now, take a moment to grab this special report from The Motley Fool. It's completely free for Fool readers.
- Add Procter & Gamble to My Watchlist.
- Add PepsiCo to My Watchlist.
- Add McDonald's to My Watchlist.
- Add Johnson & Johnson to My Watchlist.
- Add Diageo to My Watchlist.
- Add Apple to My Watchlist.
At the time this article was published Fool contributorJohn Rosevearowns shares of Diageo and Apple, but he holds no other position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Johnson & Johnson, Diageo, Apple, and PepsiCo.Motley Fool newsletter serviceshave recommended buying shares of Procter & Gamble, McDonald's, PepsiCo, Johnson & Johnson, Apple, and Diageo, as well as creating diagonal call positions in Johnson & Johnson and PepsiCo and a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.