The companies that do well, look out five, six, seven years, and some decisions they make may not be the right thing for the next year.”
Peter Lynch
The typical big winner generally takes three to ten years or more to play out.
I was reminded of this quote by Peter Lynch as I was reviewing the results from Hubbell (HUBB)
You can see that the company has basically more than tripled in price over the past decade
However, most of the gains in the share price occured in the past four years.
The first six years were basically a slow grind going nowhere, whipsawing the weak hands as the price went up and down, up and down…
That price action basically wears out many. But it’s a good reminder that share prices do not go up in a linear fashion. You need to have the patience to hold on through the turbulence.
But you can only be patient if you have done the work and you can afford to invest with a long-term mindset. A long-term mindset is anything over 5 to 10 years.
If you were overleveraged, chances are you wouldn’t have stuck to the compay. If you constantly compared the results to other investments, you wouldn’t have stuck with the company. If you invested with money you actually needed in the short run, you wouldn’t have stuck with the company either. If you had a concentrated position in this security, you wouldn’t have stuck to it either.
This is where we also have the Buffett quote that the market is not there to guide you, but to serve you.
In terms of results, the company grew EPS from $5.52 in 2014 to $14.14 in 2023. Hubbell is expected to earn $16.39/share in 2024.
Growth in earnings per share was not linear either, further questioning the patience in investors.
Yet, patience was the required ingredient for investors in Hubbell over the past decade. Those who held on for 6 years, with little to show for it, have been rewarded in the past 4 years. Basically most of the share price gains/returns occured in the past 4 years.
This is where being a dividend growth investor is helpful. When you are paid to hold, you can afford to be patient. It’s even easier to hold if you are paid a rising stream of dividends every single year. You focus on the fundamentals, and see that this rising dividend is fueled by a rising earnings per share (fundamentals).
In 2014, shareholders collected $2.06 for each share they owned. That amount kept climbing every single year and they collected $4.58/share in 2023. They are on track to collect almost $5/share in dividends this year, assuming a dividend increase in October that is in line with prior year’s.
In terms of valuation, the stock sold at roughly 21 times forward earnings in 2014. It sells for roughly 24 times forward earnings today.
So most of the total returns came from fundamentals – rising earnings per share and reinvested dividends.
Total returns were 365% since January 2014.
If you focus only on share price increases that’s only 267%.
As we know, returns are a function of:
1. Dividends
2. EPS Growth
3. Change in valuation
I believe that focus on 1 helps me focus on 2. I also believe that 3 matters the least in the long run, though it produces a lot of noise in the short run. Albeit for an intelligent investor, taking advantage of Mr Market can be beneficial. In the long run, ignoring it may be a good policy overall however.
Now we also learned that returns are not linear, and do not happen on a neat predictable schedule.
It’s important to be patient, if you want to stand a chance of making money as an investor.
This example with Hubbell illustrates that Peter Lynch quote perfectly.
The typical big winner generally takes three to ten years or more to play out.
I will end this post with another Peter Lynch quote on holding on to companeis with stagnant share price, where the fundamentals are improving (and valuation is getting cheaper)
“If a stock has gone sideways for a couple of years, and the fundamentals are decent, and you can find something new that’s positive in the company, then if you’re wrong, the stock will probably continue to go sideways, and you won’t lose a lot of money. But if you’re right, that stock is going north.”
Peter Lynch
These are just some random thoughts I have as I am doing some random reviews and the folgers is about to kick in. They may make it into an article/blog post somewhere down the line….
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