"The Greatest Secret of All
By David Gardner
. I'm glad you found it, because it is your lucky day, dear Fool: The greatest secret to easy riches in the stock market is contained right here, below.
I won't say you can't find it anywhere else. Maybe it's there in books like You Can Be a Stock Market Genius or How to Make $1,000,000 in the Stock Market Automatically. Maybe Robert Kiyosaki writes about it in Rich Dad, Poor Dad. Maybe not. I wouldn't know -- I'm not going to read those books. I don't need to, because I already know the most important secret. And I'm more than happy to give it all away below.
I learned it for good on the very day I turned 25On my 25th birthday, I discovered the truth. The powerful impression it made on me changed my investing forever, and my investment returns went from so-so before that to skyrocketing ever since. Three years later, I bought and held AOL all the way to 200-bagger status. Three years after that, I paid $3.18 per share for Amazon.com (Nasdaq: AMZN), which may not be trading at its 52-week high of $101, but still puts a smile on my face at $77. Both of these positions I still hold -- though, fortunately, I've given away a lot of Time Warner (NYSE: TWX) (AOL) shares to charity, because they haven't been much worth holding these past few years!
More recently, I've now picked 71 stocks as monthly picks for six years at Motley Fool Stock Advisor. Their average return is 70.5% -- more than 50 percentage points ahead of the comparable S&P 500 return of 19.7%. Had I not had the experience I'm about to relate, none of these real-world numbers would be the same.
Here's what happenedWhen I turned 25, I was the fortunate beneficiary of a trust from my grandfather Gardner's estate, divvied up among each of his grandchildren. Having gotten married at age 24 without any official employment at the time -- you can imagine the rehearsal-dinner toasts -- I should probably have been more interested in this inheritance than I was. But if I recall correctly, I didn't show a great deal of interest or attention when my father began presaging this event in occasional phone conversations.
The money had been put in the primary care of my uncle, money manager Gene Gardner of Lancaster, Pa. (His firm, Gardner Investments -- now Gardner, Russo & Gardner -- is a respected and successful value-focused operation.) I had grown up with three primary ideas about my Uncle Gene: First (and most important), he is a very funny uncle; second, he is a champion bridge player; and third, he is an excellent money manager.
On the fateful day of the distribution, I made a trip to Lancaster with my dad to visit my uncle and sign documents transferring the investment portfolio. I cannot now remember the exact setting or particular circumstances. Sixteen years ago already seems like another era -- it was pre-Internet, for one thing. But it was during this trip that I would be greeted with an image that has seared itself into my memory -- and will now sear itself into yours as well, if I convey it to you properly.
I am not here to talk amounts, portfolio theory, or asset-allocation models (although if you're interested, the portfolio was mostly in stocks, probably about 25 different positions).
I am not here to talk individual stocks. I can't tell you definitively what many of the stocks were, but most were well-known or respected firms with strong long-term records.
Here's what I sawExpressed in easy-to-read black and white on a page or two of numbers was an astonishing demonstration of long-term investment success. Almost position by position, stocks that were trading for $30, $40, $50 a share on that day had been held for years and years, invested at cost bases of $1.57, $2.34, $0.88.
What I saw that day is what every young investor should see: Finding good companies and holding those positions tenaciously over time can yield multiples upon multiples of your original investment. That's what great investors do. Warren Buffett has done it with classic American brands Coca-Cola (NYSE: KO) and American Express (NYSE: AXP); Philip Fisher did it with Motorola (NYSE: MOT) and Texas Instruments (NYSE: TXN); Shelby Davis did it with American International Group (NYSE: AIG). The act of doing it is part of what made them great investors. And after finding good companies, boy, do you ever work a lot less than people making dozens of trades a week, following fast-talking TV gurus or somebody's overpriced charting software.
I'm happy to say that when I combined what our dad himself invested (also brilliantly) for us from birth with the estate I came into at 25, there was no immediate pressure for me to seek a job. Instead, my brother Tom and I had the freedom and opportunity to do something really special. Two years later, we started our own company -- The Motley Fool. (Thank you, Dad, and thank you, Uncle Gene.)
The greatest secret?Is the greatest secret of all even a secret? Maybe not, but judging by the short-term mindset of many investors -- individual and institutional alike -- it may as well be.
So scribble this down and put it on your fridge door: Find good companies and hold those positions tenaciously over time to yield multiples upon multiples of your original investment.
That's how to go about finding the real stock-market winners -- the mega-winners that multiply over time -- and it's what I'm doing, teaching, and advising at Motley Fool Stock Advisor every day. Five of my stocks have more than quadrupled, and that's even including their declines in the big sell-off over the past few months. Two of them are seven-baggers. (And that's just my side of the scorecard -- my brother Tom is also whomping the market with the 71 stocks on his side.)
We are focused on the long term. Let the day traders work all day for their 5% blips here and there, and fret when the market sells off for a month. Boo-hoo-hoo. We play an entirely different game -- a game measured by huge percentage points of profit, and counted in years.
Why not become part of the team? I invite you to join me for free at Stock Advisor with a 30-day guest pass. Come and see all of our recommendations, join us on the message boards, and, best of all, start practicing the greatest investing secret of all. David Gardner is co-founder of The Motley Fool and co-advisor of Stock Advisor. David owns shares of Amazon and Time Warner. Amazon and Time Warner are Stock Advisor recommendations. Coca-Cola is an Inside Value recommendation. The Fool is investors writing for investors