Many of you are familiar with the story, The Tortoise and the Hare. In the story the fast hare challenges the slow turtle to a race. The hare is certain that he will win because he can run much faster than the slow, crawling turtle. But the turtle, through hard work and perseverance, eventually beats the hare in the race.
This is an important lesson for long term investors. We can learn a thing or two from this slow turtle in the story. The race is analogous to our investing race. In the investing world, we should not focus on the stocks that can jump quickly overnight. Instead, we should focus on stocks that can move slowly and steady toward the finish line. If the hare is the momentum stock trader, then the turtle is the dividend growth investor.
Momentum stocks move very fast, and can return big, but they can also, switch directions on a dime, and just as quickly, erase all your gains and even your principal investment.
Take for example, GoPro Inc (NASDAQ:GPRO). A momentum stock like GOPRO went from around $20 to a peak of $80 and now back to $20, all in 16 months. Unless you have excellent and consistent market timing skills, it would be very difficult to make money from momentum stocks.
Johnson & Johnson (NYSE:JNJ) on the hand, moves like a turtle by comparison, nothing exciting like GoPro Inc (NASDAQ:GPRO). If you look at the 10 year chart of JNJ, you can see that it has a slow and steady climb, from around $60 in 2006 to over $100 now in 2015. Also, remember that JNJ paid a consistent dividend that increases over time. With the stock price increase and dividend reinvestment combined, the overall return for the JNJ investment over the last 10 years is astonishing.
Dividend growth stocks move slowly and doesn’t have the same sexy returns but are more consistent over the long term. Therefore, in the investing world, the slow and steady usually wins the race. Be the turtle that crawls steadily towards the finish line. This investing style will not going to give you a lot of bragging power on the dinner table with your family or friends, but it will help you build wealth and will bring you closer to the finish line, which is your retirement goal.