Berko: Some advice for my grandson
Friday, June 13, 2014 6:00 AM
This is an email to my 18-year-old grandson’s question about AT&T Inc., four technology stocks and 3-D printers.
In April of last year, I recommended seven 3-D stocks, which began to sizzle and then months later took off like Titan missiles – before returning to earth. Today the major hype has calmed, and beyond modest industrial and commercial expectations, most investors believe that 3-D printers were a fad. I seldom buy stocks without dividends, but I bought those 3-D stocks. And seven months later, I felt like the cat that ate the mouse as I took some enormous profits. I thought I had a keen understanding of the industry, but it’s apparent that even I under-judged the 3-D market and its innumerous future applications.
I remember the 1994 cellphone! It was carried in an attache case; it weighed 4 pounds; and I needed two hands to make a call. They cost a bundle, and so did the airtime. They were fun, but who needed an appliance with only two functions – making and taking calls? Today’s cellphone has a few more uses, and it might take you several days to enumerate them! Twenty years ago, few users could imagine that cellphones would be Internet-compatible, take photos, make bank deposits, provide mapping directions and perform ultrasounds, EKGs, blood tests and a multitude of tasks to fill a gazoo. Well, 20 years hence, cellphones will complete a galaxy of functions you couldn’t possibly dream about, and you’d not be able to list them in 10 lifetimes. As cellphone usage expands by orders of magnitude in the next 20 years – becoming an even more important device in our lives – AT&T (T-$35.30) should benefit more than a wee bit.
Joshua, during the past few years, we’ve met for breakfasts on weekends and devoted a lot of that time to discussing investments. Therefore, you know that one of my investment rules is: “Seek to make a slow $20 rather than a fast $10.” Because you listened, I know you’ll heed this advice when you’re out there in W-2 land. Yes, those fancy tech and biotech stocks making headlines on TV news, tout sheets and financial programs are great companies today, but AT&T has been a great company for over 100 years. It is one of the world’s largest telecom companies and will be a greater company 30 years hence. Its dividend, which increases nearly every year, yields 5.2 percent. That is a darn attractive feature to have while you wait for certain future growth.
The word “if” is so useful. I often say, “If a frog had wings, it wouldn’t bump its butt on the ground.” Imagine for a moment if you bought 100 shares of AT&T in 1984 at $70, reinvested every dividend (another Berko investment rule) and kept the seven Baby Bells plus their spinoffs. Well, that $7,000 would be worth over $163,000 today! Joshua, I’d rather own AT&T than Salesforce.com, Digital River, Twitter or Tesla any day of any year. If I’m right – and I think I am – then the $7,000 you invested in AT&T in 2009 should compound by at least 10 percent during the next 30 years. That’s over $110,000, and that’s something to tell your grandchildren about. AT&T must be in the foundation of your long-term growth portfolio; don’t ever sell it.
And take a $5,000 gamble with 3-D printer stocks. But I must tell you that after taking my 3-D profits and feeling like the cat that ate the mouse, sometimes I feel like the cat that was eaten by the lion. I realize today that I knew less than bupkis about 3-D stocks and don’t care to know more because the science is too complicated, but that’s your field. And just as in 1994, when few folks could imagine the potential uses of a cellphone, few people today can dream of the uncountable future applications of which a 3-D printer will be capable. So post this on the forefront of your mind: Growth in 3-D printer uses and usage in the coming 20 years will exceed the exponential growth the cellphone industry experienced in the past 20 years. That’s a given.
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