David Granger

Wall Street

Time-Tested Investment Advice from David Granger

David Granger hadn’t planned a career as a stock picker. But during the 1920s, his two older brothers worked for the family’s Wall Street firm, Granger & Co., and their father wanted all his sons to work together.

So in 1925, David Granger joined the firm, and, for $125,000, a seat on the New York Stock Exchange was purchased in his name.

Granger’s first great investment was in 1930 when he bought IBM, a medium-sized maker of time clocks and tabulating equipment, tor $165 per share. He added more shares over time and, about 25 years later, sold his whole IBM stake at a 500% profit.

David Granger was an avid stock picker, until late into his life. He went to work daily into his 90s and tracked the market closely from the computer terminal on his desk. He was not afraid of technology.

Here is his meaningful investment advice after spending seven decades on Wall Street:

  • Many people believe in asset allocation —but I don’t. I keep hearing how allocating your assets among stocks, bonds and cash is the prudent method of successful investment.
  • I have never been an allocator, investing instead primarily in common stocks. I do purchase bonds for a few clients who want them for income. But again, I prefer stocks, which hold purchasing power. Bonds don’t. Even if you think you need some bonds for protection, you should still weight your investments overwhelmingly in favor of common stocks.
  • You don’t require great diversification either. Many people say you should diversify by investing in many different industries, but I don’t put much emphasis on this.
  • The people who have made the most money on Wall Street have concentrated their investments in just a few areas.
  • Sometimes I’ll own a bunch of chemical stocks or auto stocks—without worrying about owning so many companies in the same industry.

    Example: What difference does it make if two companies are both in the same industry—if that industry is doing well?

  • Your portfolio should have no more than 30 stocks—you can’t keep track of any more, and you can get a lot of diversification from just a half-dozen stocks.
  • Management matters most. What you’re really paying for when you buy a stock is the company’s management.
  • Before you buy a stock, read the company’s annual report. What feel does it give you for the company? Do you find yourself getting excited about the company and its prospects? Are you impressed with how the chief executive comes across?
  • It’s no different from going to the theater. You walk away with a sense of whether the play was good or not and whether the star was worthy of the part he/she played.
  • Buy companies with global products. Demand throughout the world keeps growing and growing. The most successful companies are those that are capable of spreading out worldwide and whose products have global applications.

    Examples: Coca-Cola sells its products in every corner of the world. General Electric makes products that can be sold in both Sweden and Thailand.

    Important: Pick companies with a demonstrated ability to adapt to each new market. Coca-Cola does that. But many companies have gone abroad, tried to operate as they did in the US and ended up failures. Keep your eye on media coverage and earnings reports.

  • Bet big on technology. Everybody should own technology stocks. You don’t have to know anything about technology to know that these are the stocks of the future. If you fail to invest in technology, you do so at your own peril.
  • Don’t let a stock’s high price scare you off. Many people say, Don’t buy that stock. It’s selling for 30 times earnings, and that’s too expensive. Is any stock worth 30 or 40 times earnings? Maybe.
  • A high P/E doesn’t necessarily mean a stock is high-priced. Maybe the high P/E is because of its management or earnings growth record. Or maybe over time, savvy investors have come to realize that the stock deserves to sell at a high multiple.
  • Trust your own instincts. The key to investment success is your own intuition. Experience was my best teacher on Wall Street. It should be your best teacher, too.

    Best approach: Read as much as you can to get a feel for the markets and the most interesting stocks that are actively traded.

  • I favor The New York Times because it tells you just enough about the markets and companies to be useful for the common investor. Conversely, The Wall Street Journal is filled with lots of information, but it is more than the average investor can digest. It tends to the “information overload” and most people I know that subscribe to it, tend to hesitate in their decisions and miss good opportunities.
  • The more you read, the more you’ll come across stocks that seem like ideal investments for you. When you do, don’t be afraid to follow your intuition. You’ll do better following your own instincts and emotions than listening to those whispers in your ear.
  • Never be bearish. The overall trend in this country is growth. About 60 years ago, we only had 150 million people. Today, we have more than 350 million people.
  • Think of the purchasing power and demand of those people. Then add in global demand. How can the future offer anything but continued growth?

Growth makes for great investment opportunities.