Why the French Might Be Superior Investors
Investors should behave more like French parents. That remark may throw you off, but after reading the recent Wall Street Journalarticle, "Why French Parents Are Superior," I discovered French parenting could help teach American shareholders (just as it could American parents). Let's go over the parallels.
Lesson one: Patience
From the article:
One of the keys ... is the simple act of learning how to wait. It is why the French babies I meet mostly sleep through the night from two or three months old. Their parents don't pick them up the second they start crying ...
And just as if that baby were a stock, investors pay too much attention to immediate changes. As the stock cries while its price dips a few percentage points, investors immediately think of selling. Conversely, if the stock roars and spiffy-pops, investors immediately look to bag gains. Both actions focus on the short term, whereas investors really should learn how to wait.
As told in "13 Steps to Investing Foolishly": "Over five- and 10-year periods, that squiggly line on the chart that resembles a ride on the Great American Scream Machine morphs into a gently rising upward slope. The key is time -- giving your money time to ride through the stock market's bumps and tumbles and reap the rewards of long-term investing."
Lesson two: Behavior
The article praises French parents for being laid-back, as the author writes: "Many French parents I meet have an easy, calm authority with their children that I can only envy." Maintain that same calm behavior with your stocks.
Again, found in step five of "Investing Foolishly," "If you can keep your emotions in check and ignore the noise, you'll be able to hang on (even back up the truck and load up) rather than selling out at the worst times."
Lesson three: Distract yourself
This last lesson is from children themselves. The article describes the "marshmallow test," wherein kids were placed alone in a room with a marshmallow. If they could wait to eat the treat until the researcher returned, they received another. Otherwise, the children who ate the first marshmallow did not receive another. Researchers found that the one in three kids who could wait the full 15 minutes to receive an extra reward "were able to distract themselves."
Marshmallows are to kids what stocks are to investors. It's just as tempting to fret over closing positions to grab gains or cut losses -- but this behavior is counter to the first two lessons! Why not take a page from the kids, and distract yourself? As said in step five, "If you're going to obsess about your investments, use your time productively and review your investment philosophy and process."
Back to America
With those lessons in place, I'd recommend looking to some solid American companies as great investments. I'd like to add my thoughts to five that Fool colleague Sean Williams recently highlighted:
|Coca-Cola (NYS: KO)||$67.70||$61.29 to $71.77||2.8%|
|Johnson & Johnson (NYS: JNJ)||$64.48||$57.50 to $68.05||3.5%|
|Annaly Capital (NYS: NLY)||$16.52||$14.05 to $18.79||13.8%|
|Duke Energy||$21.42||$16.87 to $22.12||4.7%|
|Microsoft (NAS: MSFT)||$30.47||$23.65 to $30.80||2.6%|
Source: Yahoo! Finance.
These companies' sizes and relatively stable ranges should help you learn patience and calm behavior, and all are backed by solid core businesses.
Even at its size, Coke continues to grow, with earnings increasing at an average of 11% per year over the past five years -- powered in part by increased volume of 10% in China, 20% in India, and 25% in South Korea.
Duke Energy's merger with Progress Energy will make it the largest electric utility in the U.S. It also has the second-highest dividend of these companies.
A stock where worry isn't too necessary is Johnson & Johnson -- 70% of revenue comes from markets where it is No. 1 or No. 2. Microsoft, no stranger to being top dog, further solidified that characteristic as LG Electronics now pays Microsoft a licensing fee for every Android it sells. This means Microsoft now has a piece of 70% of Android phones sold in the U.S.
And as a sign of a company knowing when to say when, the recent earnings report from mortgage REIT Annaly Capital points to the company using less leverage, as its leverage ratio has declined from 6.7 to 5.4 over the past year. Of course, interest rate risks always hover over Annaly's potential profits.
Finally, if you're looking for other solid domestic stocks, check out our free report: "3 American Companies Set to Dominate the World." These three companies are taking their proven domestic operations abroad, and they're reaping benefits for their stockholders. To learn which three companies, just click here -- it's free!
At the time this article was published Fool contributor Dan Newman will now gorge on some crepes and beignets. He also holds no shares of the companies mentioned above. Follow him @TMFHelloNewman. The Motley Fool owns shares of Annaly Capital Management, Microsoft, Johnson & Johnson, and Coca-Cola. Motley Fool newsletter services have recommended buying shares of Microsoft, Coca-Cola, Annaly Capital, and Johnson & Johnson, as well as creating a bull call spread position in Microsoft and a diagonal call position in Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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