When I was a junior in high school back in the early 1970s, I took a class called "Business Principles." The class was my introduction to the world of stock picking.
I only remember three things about the class: 1) I sat next to my buddy at the back of the room and we argued about the merits of the television show Kung Fu — he liked it; I did not. 2) There was a beautiful blonde with a stunning figure who sat in the front row; my friend and did not argue but rather concurred about her merits. 3) We were asked to pick three stocks and defend our choices. Of course no real money was invested.
I ended up choosing McDonald's, (MCD, Financial), Anheuser Busch (BUD, Financial), (Warren Buffett was late, but he finally took my lead), and Certain Teed. The first two picks came from my own experience; the latter, Certain Teed, came out of an investment magazine.
The reason I gave for selecting McDonald's was the introduction of the Egg McMuffin, although in reality I just liked the burgers and fries. I cannot recall the story I concocted to support purchasing Anheuser Busch. However, I was developing a long-term relationship with beer and I could not find my favorite brand listed on the ticker. Certain Teed was a slightly different story — I actually did some "research." An investment magazine was recommending the company based upon the belief that Americans were going to buy their insulation in mass, to save on energy costs.
By viewing charts, the best I can figure is that the spilt-adjusted price for MCD in the Spring of1973 was about $1.5 per share. It now trades at just under $80 with a dividend of $2.44 per share. Certain Teed was purchased by Saint-Gobain, a French company back in the 1980s, and Anheuser Busch, a Buffett holding, was assimilated by InBev several years ago.
As far as McDonald's, the capital gains do not tell the whole story. Since the time of my imaginary purchase in the spring of 1973, the stock splits would have increased my share count by approximately 40 times. My capital appreciation from the original purchase would have been about 5,000%, and my current dividend would amount to about $98 dollars for every share I purchased in 1973. Just a second as I calculate my profits ... it comes out to 98 times zero.
The surprising part of this story is the fact that McDonald's stock went no where during the decade of the 1970s, but it started a huge upward ascension beginning in the early 1980s. In fact, holding McDonald's from 1973 to 1980 would have resulted in a capital loss of about 33% on paper. Fortunately, I continued to hold my mythical position in the company, even though I hate sitting on dead mythical money.
Several lessons can be drawn from my top high school pick:
1) Even if one is purchasing a franchise company, the price one pays is still fundamentally important.
2) If you own a great consumer franchise company, patience is extremely important. Even great businesses experience periods of stagnation in stock prices.
3) Dividends form a large part of one's overall profits, although they seem relatively unimportant as they dribble in on a quarterly basis.
4) Even though I picked one the worst possible times to mythically buy McDonald's stock, I would still have generated outstanding returns, when the capital gains and dividends are taken into account.
5) Buy and hold is not dead nor will it ever be when it comes to investing in franchise businesses.
Peter Lynch has frequently commented that ordinary individuals with little or no experience in stock picking can generally outperform the pros and the indexes by merely selecting their favorite companies. It appears that was the case in my high school days before I gained all this "valuable knowledge" which I feel compelled to spread.
I only remember three things about the class: 1) I sat next to my buddy at the back of the room and we argued about the merits of the television show Kung Fu — he liked it; I did not. 2) There was a beautiful blonde with a stunning figure who sat in the front row; my friend and did not argue but rather concurred about her merits. 3) We were asked to pick three stocks and defend our choices. Of course no real money was invested.
I ended up choosing McDonald's, (MCD, Financial), Anheuser Busch (BUD, Financial), (Warren Buffett was late, but he finally took my lead), and Certain Teed. The first two picks came from my own experience; the latter, Certain Teed, came out of an investment magazine.
The reason I gave for selecting McDonald's was the introduction of the Egg McMuffin, although in reality I just liked the burgers and fries. I cannot recall the story I concocted to support purchasing Anheuser Busch. However, I was developing a long-term relationship with beer and I could not find my favorite brand listed on the ticker. Certain Teed was a slightly different story — I actually did some "research." An investment magazine was recommending the company based upon the belief that Americans were going to buy their insulation in mass, to save on energy costs.
By viewing charts, the best I can figure is that the spilt-adjusted price for MCD in the Spring of1973 was about $1.5 per share. It now trades at just under $80 with a dividend of $2.44 per share. Certain Teed was purchased by Saint-Gobain, a French company back in the 1980s, and Anheuser Busch, a Buffett holding, was assimilated by InBev several years ago.
As far as McDonald's, the capital gains do not tell the whole story. Since the time of my imaginary purchase in the spring of 1973, the stock splits would have increased my share count by approximately 40 times. My capital appreciation from the original purchase would have been about 5,000%, and my current dividend would amount to about $98 dollars for every share I purchased in 1973. Just a second as I calculate my profits ... it comes out to 98 times zero.
The surprising part of this story is the fact that McDonald's stock went no where during the decade of the 1970s, but it started a huge upward ascension beginning in the early 1980s. In fact, holding McDonald's from 1973 to 1980 would have resulted in a capital loss of about 33% on paper. Fortunately, I continued to hold my mythical position in the company, even though I hate sitting on dead mythical money.
Several lessons can be drawn from my top high school pick:
1) Even if one is purchasing a franchise company, the price one pays is still fundamentally important.
2) If you own a great consumer franchise company, patience is extremely important. Even great businesses experience periods of stagnation in stock prices.
3) Dividends form a large part of one's overall profits, although they seem relatively unimportant as they dribble in on a quarterly basis.
4) Even though I picked one the worst possible times to mythically buy McDonald's stock, I would still have generated outstanding returns, when the capital gains and dividends are taken into account.
5) Buy and hold is not dead nor will it ever be when it comes to investing in franchise businesses.
Peter Lynch has frequently commented that ordinary individuals with little or no experience in stock picking can generally outperform the pros and the indexes by merely selecting their favorite companies. It appears that was the case in my high school days before I gained all this "valuable knowledge" which I feel compelled to spread.
