Simple but not easy. Those four words are an accurate way to describe investing. Investing is simple because to successfully invest you don't need a genius-level IQ or highly advanced math skills. But investing is not easy because investors behave and operate in ways that make investing more difficult than it needs to be.
So let's take investing back to a very basic building block: boring yet necessary industries. Boring essential businesses have one key aspect that many investors overlook or fail to appreciate: immunity to innovation.
When you study corporate history, you find it is filled with once-great corporate titans that are now relics because of the mighty sword of innovation. Former industry leaders like Eastman Kodak no longer exist. Past giants like Sears Roebuck (SHLD) and Xerox (XRX) don't dominate like they once did. Traditional advertising in the style of Mad Men takes a back seat to digital advertising via Google (GOOGL) and social media. Innovation has destroyed and will continue to disturb today's seemingly invincible corporations. How we eat, drive, watch television and shop has been re-created by the power of innovation.
But there are businesses that innovation simply cannot touch or are very, very slow to change. These are typically your plain-vanilla boring businesses. Technology is not likely to eliminate the paint business, which explains why Sherwin Williams (SHW) has been a high-quality stock to own for years. Technology is not going to eliminate the fact that agriculture needs basic nutrients to grow, so fertilizer stocks look like boring but high-quality stocks to consider.
Some of you may be surprised to learn that some of the best-performing stocks over the past decade or two have not been names like Apple (AAPL), Amazon (AMZN) or Google. Rather they are companies like Fastenal (FAST) and Balchem (BCPC). Who would have thought that a retailer that sells nuts and bolts or a company that sells nutrients for horses and cows would produce market-crushing returns? They have, and similar companies likely will do so in the future. (Google and Apple are part of TheStreet's Action Alerts PLUS portfolio. Amazon is part of the Growth Seeker portfolio.)