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Investing – It’s Like Planting Trees

David Gardner, co-founder of The Motley Fool, once shared his secret to investing success:

“Find good companies and hold those positions tenaciously over time to yield multiples upon multiples of your original investment.”

It’s a very succinct way of putting it. But if you’re like me, who likes the occasional analogy, I just found an incredibly beautiful one which manages to describe what successful investing is all about in a manner which even a primary school child can foreseeably comprehend.

The analogy comes from financial advisor Nick Murray and I discovered it from investment manager Ben Carlson’s blog. Up next are Murray’s delightfully written words which connect trees to investing:

“You plant it in the earth, and a wonderful force of nature causes it to take root, and to grow. You don’t have to do much with it: the air and the water and the nutrients it needs are all around the tree, and it knows how to use them.

You don’t dig it up every 90 days to check on its progress. (Nothing much will have changed in that brief time, and you might harm the tree). You don’t uproot the tree and store it in your garage over the winter, to protect it from what you regard as bad weather. (Though its leaves fall and it stops growing for a season, the tree itself does not die. And even leafless, the tree is still producing oxygen, without which you and I could not live.)

Give the tree enough room, enough light, and enough time. Then leave it pretty much alone. It will give you back air and shade and beauty as it grows – and will go on doing so for your children, after you’re gone.”

So, the key here – as David and Murray have eloquently described – is time. When great companies – or even slightly above-average ones – are given enough time by patient investors to flourish, that young sapling can grow into a wonderfully tall and sturdy banyan tree.

I’ve a friend whose mother once spent S$3,800 in the late 1970s and early 1980s to purchase some shares in a company called Singapore Bus Services. She held onto each share tenaciously through the decades and after a series of corporate actions, those Singapore Bus Services shares have morphed into roughly 16,000 shares of ComfortDelGro Corporation Limited (SGX: C52) and 1,200 shares of SBS Transit Ltd. (SGX: S61).

At today’s prices for both companies (S$2.51 for ComfortDelGro and S$1.68 for SBS Transit), the S$3,800 investment my friend’s mom had made three-and-a-half decades ago is now worth slightly more than S$42,000.

For anyone who’s counting, that’s a gain of a shade more than 1,000%. We’ve also not touched upon dividends yet, which would have juiced those returns yet further. In their last completed financial years, ComfortDelGro and SBS Transit had paid out S$0.07 and S$0.018 per share in dividends respectively. That works out to be a dividend yield of 30% on the original investment of S$3,800.

To be fair, buying and holding for the long-term works only for the right companies – not every share which existed in the 1980s would have had an ending as happy as that of Singapore Bus Services. Like Warren Buffett once said, “Time is the friend of the wonderful company, the enemy of the mediocre.”

It’s certainly not easy to find great companies to invest in over the long-term. But here’s the thing – it can be done. And once you’ve found them, stick with them through thick and thin, hell and high-water, and till the cows come home. Your future self, and your heirs, would likely be beaming at that majestic tree whose tiny seeds you planted umpteen years ago.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any companies mentioned.