Wednesday, August 28, 2013

Think Sysco Not Cisco

Most investors today are veterans of the dotcom bubble, either they participated in it or stood by jaws gaping. Either way it had a big impact.

Many people do not invest because they (rightly) think that its too hard to figure out who is the next Google, Apple, or other flavor of the month. Any dotcom veteran remembers Cisco's meteoric rise in the late 90s, but who would have predicted it ten years earlier when they IPOed?

That kind of crystal ball prediction really is too hard to get right on any kind of consistent basis. Will the next big winner be Facebook or Twitter or a 3 D printing company like Stratasys or someone we have not heard of yet? Its all very difficult to predict.

Of course, its very tempting to try and find the next high flyer. After all $10,000 invested in Cisco(CSCO) in 1995 would be worth $81,099 today.  That is good for an annualized return of 12.3%.

So why turn your nose up at a total return of 711%? Because its not practical to call winners in that field at that time, the same way its hard to discern who is the winner in 3d printing or nanotechnology today.

Instead of taking fliers on high flying tech stocks, why not keep it simple?

The majority of people cannot decide who will win at networking hardware and advancements in networking protocols, but what about something slightly more basic, like say food.

Sysco Foods(SYY) runs a wide moat network that covers 17% of the restaurants in the US. Its hard to drive around a city in the US without seeing Sysco food trucks pulling in and out of businesses. They are omnipresent.

As an investor, its way easier to find something like Sysco that is hiding in plain sight than guess at the future of high tech. Sure its boring compared to dotcom stocks in the 90s, but that does not mean it cannot be profitable.

Over the long haul, even accounting for the tech bubble, investing in Cisco in 1995 and investing in Sysco in 1995 are a lot closer than you might expect.

A $10,000 investment in Sysco Foods in 1995 with dividends reinvested would be worth $70,227 today. That equates to 602% gain and 11.4% annualized. Not quite at the level of Cisco (one of the all time great tech stocks), but still a very healthy return; and here is the key part - at much lower risk.

Remember the tortoise and the hare? Cisco popped way up and fell back to earth, Sysco just ground it out, year after year. On top of that from an income standpoint, the Sysco dividend in 1995 stood at $0.11/share (split adjusted), today its  $1.08/share and 3.5% yield. With two splits since 1995, the 1995 Sysco investor is recouping ~14% yield on cost annually.

Its a backward looking example of course, but as an illustration it seems to me that the total package of slightly less return and for much less risk weighs heavily in favor of Sysco. As an investor you don't get extra credit for degree of difficulty, often the best ideas are known entities and near at hand.

Note that none of this is to say that either Cisco or Sysco is a buy today. 18 years on, Cisco is not an unknown quantity any more and Sysco's dividend growth has slowed, maybe neither is buy today. But the point, I would like to make is that the 1995 investor would have done quite well by looking for safe, 18 wheeler food networks without needing to worry about ethernet networks. Keep it simple, my friends.

Saturday, August 24, 2013

First Post

With the market routinely making all time highs is this a good time to start an investing blog? After all, 2008-2011 was a bargain bonanza for investors, 2012 even had a few periods where prices got interesting. 2013? Not so much interesting. Of course we can always pay up for quality, but paying 90 cents for a dollar bill is not quite as fun as buying the same dollar for 50 or 60 cents.

So why start an investing blog now? This blog is about total returns which come from 
  1. Safety - ensuring that your capital is not in peril of permanent impairment
  2. Growth - at least as fast as inflation
  3. Dividends - growing safe income streams over time
Those three goals are as relevant today at market highs as they were at 2009 market lows. In fact, at these prices its harder to ensure safety, achieve growth, and uncover quality dividend yields So the mission of this blog makes sense even at market highs. 

The blog will examine topics for idea generation on investing candidates (screens), investment analysis, analytical tools,  and portfolio management.