“I have taken care of his first child from another marriage for 12 years.”
Source link
It sounds counterintuitive, but the best returns often come from so-called “boring” investments. While many investors chase high-growth stocks in emerging and unproven industries, it is often the well-established companies in mature markets that deliver the best long-term gains. They do so without putting shareholders through excessive volatility, too.
That’s been the case in my own portfolio, which is tilted toward companies with excellent brand strength and a long track record for steady growth. Here’s why I’ve had a few of these “average” stocks in my portfolio for more than a decade.
Watching paint dry
I was early on in my investing career when I bought Sherwin-Williams (SHW 1.71%). I liked the paint giant for superficial factors like its large sales base and its growing dividend payment. I had no idea that Sherwin-Williams would succeed in boosting that revenue base through a mix of organic growth and big acquisitions, or that profitability would rise significantly. These factors helped the stock rise over 400% in the past decade, including dividend payments, to double the wider market’s rally.
Ultimately, I attribute my above-average returns here with patience, luck, and the power of reinvesting dividend payments. My initial investment in the stock in mid-2008 is up 1,600%, but the total returns are closer to 2,000% after including those dividends.
Supersize me
McDonald’s (MCD -0.23%) operates in an industry that’s known for low barriers to entry, tiny profit margins, and a high rate of turnover and bankruptcy. Yet this fast-food giant has been a positive force in my portfolio, delivering about 100 percentage points of excess returns over the S&P 500 in the past decade.
Many of the company’s competitive strengths are well known on Wall Street. It generates most of its earnings through franchise fees, which translates into higher profitability than is customary in the industry. The chain pays a steadily rising dividend as well.
But its the company’s openness to reinventing itself that really matters. The chain’s core menu hasn’t really changed in decades, but the business is always responding to shifting tastes and consumer preferences, most recently by building up a huge mobile ordering and delivery network.
These changes apply to the operations, too. A refranchising program this past decade helped boost profit margin to over 40% of sales. The stock could continue generating solid returns given that management is targeting a near 50% margin in the coming years.
Falling behind in the endurance race
Not every long-term holding will be a winner, and Nike (NKE -0.79%) fits squarely in that “underperformer” category for me. Shares haven’t kept pace with the wider market in the past decade and are underperforming since I first bought the stock in 2011.
Growth has been lackluster in recent years as the footwear and apparel giant struggled with the impact of big swings in demand and raw material prices. Nike hasn’t been as hurt by these moves as retailers such as Foot Locker have, yet most investors wouldn’t be thrilled with its sales and earnings performance in the past several years.
Nike is aiming for a rebound in 2024, supported by factors such as low inventory levels and a flood of innovative product releases. Investors might want to simply watch this stock, though, as Nike still hasn’t demonstrated it can sustainably boost annual earnings in a tough, and price-competitive, industry.
Demitri Kalogeropoulos has positions in McDonald’s, Nike, and Sherwin-Williams. The Motley Fool has positions in and recommends Nike. The Motley Fool recommends Foot Locker and Sherwin-Williams and recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy.
GoFundMe has become a go-to place to raise money for charity, or to give financial aid to a friend, relative or even a complete stranger. A year ago, many people turned to it to help pay for groceries and baby formula because of high inflation. But now, the crowdfunding site is seeing a spike in users trying to collect cash to help pay off their student loans.
In fact, GoFundMe accounts dedicated to fundraising for student-loan debt spiked 40% in October 2023 compared with the previous year, the platform recently revealed. And this jump in student aid-related fundraisers has coincided with the COVID-era federal student-loan payment pause that ended in October.
Interest began accruing on these loans again Sept. 1, after more than three years on pause, and payments resumed in October. So amid the restart, many of the more than 44 million student loan borrowers owing over $1.7 trillion are looking for help in lessening their debt load.
The average U.S. student-loan borrower is carrying about $37,000 in federal loans. Among them is April Faith, a 30 year-old truck driver living in Chicago, who owes nearly four times that amount. So she turned to GoFundMe to help pay off some of her $150,000 in student loan debt from earning an undergraduate degree in fashion, as well as getting a coding boot camp certification.
“My entire career-life, I have been focused on paying off these student loans,” Faith told MarketWatch.
She is one of the hundreds of GoFundMe users who have created accounts dedicated to getting help to pay some of their student debt. Faith launched a GoFundMe page a couple of weeks ago to try chipping away at her debt, asking for $10,000 of her $150,000 total debt burden.
“The $10,000 is just trying to be a bit generous,” she added.
See also: Here’s who struggles the most with student debt: Borrowers over 50 and the poor
And she’s not alone. GoFundMe said hundreds of student loan-related fundraisers have launched on its platform since just this past October. The site facilitates donations for a 2.9% fee per payment, and has facilitated a total of $25 billion in donations since it was founded in 2010.
Crowdfunding sites have already become popular ways for people struggling with medical debt to ask for help. Even Olympic gymnast and gold medal winner Mary Lou Retton turned to the fundraising platform Spotfund in October for help paying her bill after a lengthy hospital stay.
So it makes sense that people with education-related debt would also turn to crowdsourcing platforms for help. Earlier this year, GoFundMe reported that fundraisers for college tuition were up by more than 50% over last year.
“While governmental leaders and local officials are exploring policy solutions to address the student loan crisis, GoFundMe serves as a resource for people to receive the support they need from their friends, families, and communities in real-time,” Margaret Richardson, the chief corporate affairs officer at GoFundMe, told MarketWatch.
So how successful is this approach for crowdsourcing student loan payments? It’s very hit-or-miss. In fact, a 2021 research paper looking at almost 165,000 pandemic-related fundraising campaigns on GoFundMe found that more than four in 10 received no donations at all, and the average fundraiser collected $65.
GoFundMe told MarketWatch that some best practices for meeting a fundraising goal on the platform is to tell a clear story, share links frequently, and post regular updates.
The donations haven’t been pouring in for Faith yet. Just $55 of her $10,000 goal has been raised since she created the fundraiser a couple of weeks ago. But she hasn’t been broadcasting her fundraiser, either.
“I’m not really promoting it too much, because I’d rather take things into my own hands,” Faith said. But she had figured a fundraiser was just worth a shot. “Let me just make it … let me put myself out there, to kind of lessen the amount of student loans I have,” she said.
Among the many GoFundMe fundraisers looking to raise money for their student debt is Elijah Aragonez, who posted that he finished culinary school in March, but has been having a hard time paying his housing bills and student loans. Aragonez has raised $210 of his $15,000 goal so far. “I never thought I’d have to make a GoFundMe, but I’ve run out of options,” he wrote on his page.
Alanna Toland from Clifton Heights, Pa., has raised $340 as part of her $8,000 goal to pay for the cost of college after not getting any of the scholarships she applied for. “Every little bit helps,” she wrote on her GoFundMe.
But there is at least one fundraiser who has met their goal. Deanna Greif, a casting assistant in Hollywood, fell on hard financial times this year when student loan repayments resumed during the actors strike. She has received the full $2,000 she asked for to “stay afloat” thanks to 31 donations, many of which were from anonymous donors.
See also: Investors might panic as inflation falls further — here’s the stock-market call of JPMorgan’s resolute bear
Since the GoFundMe approach hasn’t cleared Faith’s student loan debt, however, she’s also been making financial sacrifices to pay it down herself. She has changed careers multiple times — including working in fashion and as a software engineer — in an attempt to make more money. The truck driver also moved back in with her parents to save money on her biggest expense: rent.
Changing careers and moving in with your parents are just some of the sacrifices that people are making to help ease their student debt burden.
According to the latest MassMutual consumer spending survey, 80% of Americans with student loan debt have had to trim their spending, and the most common area people say they’re cutting back on is going out to eat (51%).
See also: They lost their tax refund over defaulted student debt. Now, they’re getting it back, but the yearslong delay took a toll.
Many student-loan borrowers say they’ve been feeling financially stressed since payments resumed, too. Some 76% of those with student-loan debt say the resumption of payments “has had a negative impact on their day-to-day financial health,” according to the MassMutual survey, which was conducted from Oct. 19 to Nov. 2.
President Biden has been trying to help. The Biden administration has been pursuing a forgiveness plan to cancel up to $20,000 in federal student debt for millions of borrowers, but that was struck down by the Supreme Court in June.
The President has made several debt cancellation announcements since then, including one for 125,000 borrowers who have been working in government, and another for 804,000 borrowers who have been paying their loans for decades.
More recently, Biden canceled $5 billion in student debt on Wednesday for over 80,000 public servants who have been in repayment for at least 10 years.
Zoe Han contributed.
Dear Quentin,
I am in my 60s — a widow with no kids, but a big extended family. I own my own house and car. I have a couple of investment accounts, a savings account and a pension. I have listed one of my brothers as beneficiary for all of my assets.
What can I do to make it easier for my brother to settle my estate…
Master your money.
Subscribe to MarketWatch.
Get this article and all of MarketWatch.
Access from any device. Anywhere. Anytime.
Already a subscriber?
Log In
One of my earliest lessons as an investor is one that has stayed with me and served me well over the past 16 years. It’s adapted from Sir Isaac Newton’s first law of motion, which states in part, “An object in motion tends to stay in motion unless acted upon by an outside force.” In the context of investing, that can be distilled down to this simple idea: Winners keep winning.
While that’s clearly an oversimplification and not a universal truth, the concept is sound. If a company has cracked the code of success, it will likely continue to gain ground for years. That’s why I tend to add to my winners over time and rarely buy on the dip.
One such stock I have added to on multiple occasions is The Trade Desk (TTD 0.26%). I first bought the stock in early 2018 and have subsequently added to my position five more times, making it my seventh-largest holding. It accounts for 5% of my total portfolio. However, last week, in response to tepid guidance, investors punished the stock, sending it down as much as 31% in after-hours trading, and 17% on the day following its Q3 earnings report.
After reviewing the company’s results, I happily — and without hesitation — bought shares of The Trade Desk a seventh time. Here’s why.
Image source: Getty Images.
A history of disruption
To understand the reason for my enthusiasm, it’s worth taking a minute to review just what The Trade Desk does. CEO Jeff Green pioneered the world’s first online ad exchange, in essence a marketplace for the buying and selling of online ads in real time. It was eventually sold to Microsoft.
Green then went on to build The Trade Desk, which offers a self-service platform that simplifies ad buying. This programmatic advertising system uses cutting-edge artificial intelligence (AI) to help marketers create and manage their ad campaigns and target the right customer at the right time.
Over the years, the company has continued to improve its technology, disrupting the digital advertising industry in the process. Furthermore, The Trade Desk uses transparent pricing, bucking the industry trend and winning rave reviews in the process.
Why did the stock fall?
When The Trade Desk reported its third-quarter results, they were what I’ve come to expect from the company. Revenue grew 25% year over year to $493 million, while its adjusted earnings per share (EPS) of $0.33 climbed 27%. The figures were comfortably ahead of analysts’ consensus estimates, which called for revenue of $479 million and EPS of $0.29. Investors tend to like when a company beats expectations. So far, so good.
However, The Trade Desk’s outlook was disappointing. Management forecast revenue of at least $580 million and adjusted EBITDA of about $270 million, representing growth of 18% and 10%, respectively. The guidance caught Wall Street off guard, and some investors tend to sell first and ask questions later.
When an analyst on the conference call asked for an explanation regarding the rapid deceleration, Green provided important context for The Trade Desk’s conservative outlook. After pointing out that the company continued to gain market share at the expense of its rivals, he noted the recent auto and Hollywood strikes caused a temporary industrywide lull in ad spending, which has since stabilized. Indeed, the transitory nature of the strikes — which have now ended — are merely passing hurdles that will have virtually no impact on The Trade Desk’s trajectory over the long term.
An overreaction by investors
Green’s explanation certainly makes sense in terms of a temporary lull in ad spending. Furthermore, two of the biggest names in digital advertising, Alphabet and Meta Platforms, reported third-quarter revenue growth of 11% and 23%, respectively — notably both below The Trade Desk’s result. That supports Green’s conclusion that the company continues to take market share.
Data by YCharts.
Finally, the sell-off represents a compelling opportunity for investors. To be clear, the stock has never been cheap, but its current price-to-sales ratio of 18 is well below its three-year average of 30.
In my experience, every time The Trade Desk stock has experienced a decline of this magnitude, it has gone on to recover and reach new highs.
With all that as a backdrop, I couldn’t resist adding to my position in The Trade Desk for a seventh time.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Meta Platforms, Microsoft, and The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and The Trade Desk. The Motley Fool has a disclosure policy.