Chapter One: Get Rich Slowly
Revised and updated | Build Wealth with Common Stocks: Market-Beating Strategies for the Individual Investor
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PART I: PRINCIPLES
Chapter One
Get Rich Slowly
An informed investor has a much better chance of accumulating wealth gradually than becoming wealthy quickly, and slowly accumulating wealth is preferable to not achieving financial success at all.
Build Wealth with Common Stocks—my fourth book—offers investment principles and portfolio strategies for retail investors seeking to identify high-quality, dividend-paying common stocks to benefit from the compounding growth of those enterprises.
I have done just that across four market cycles and counting.
My objective as an author is to teach what I know and to learn what I don't. Since my crystal ball cracked years ago, I strive to practice honest and prudent investing in an impulsive world, creating value for our family’s investment portfolio.
The do-it-yourself everyday stock investor beats the market over time with thought, discipline, and patience by adhering to a simple menu of time-tested, winning principles, strategies, and practices. This book offers you the opportunity to invest alongside me as a fellow retail-level investor. I have persevered and profited despite some of the rockiest markets in our recent history: the dot-com implosion of the early 2000s, the financial crisis of 2008–09, the epic post-Great Recession bull market era, and the volatility-driven activity from the COVID-19 pandemic of 2020.
Building a Market-Beating Portfolio
This book will teach you how to profit from time-tested market-beating principles, strategies, and practices from a real-time, actively managed model portfolio constructed with a concentrated blend of total-return common stocks.
Members of my investment newsletter enjoy exclusive, ongoing access to the key financial indicators of our family portfolio*, shared in a user-friendly spreadsheet updated in real-time each market day. The newsletter also includes member-exclusive research reports highlighting the performance and developments of both new and existing portfolio holdings.
The model portfolio encompasses common shares of high-conviction, dividend-paying quality enterprises, with some occasionally trading at value prices. My proprietary daily performance tracker—also a member exclusive—provides real-time monitoring of the newsletter’s stock picks and highlights the total return performance of individual common stock holdings compared to the S&P 500 benchmark, an index of the largest publicly traded companies on the major US stock exchanges. A quarterly portfolio update further assesses performance in the year-to-date and since-inception periods.
As an accompaniment to the principles, strategies, and practices discussed throughout the book, you are invited to access the model portfolio as a premium subscriber at my website, davidjwaldron.substack.com.
* References to “our family portfolio” represent my household's combined individual and joint investment accounts.
Track Record
After committing to value-driven common stock investing, the shares of publicly traded companies in our family's portfolio of taxable and tax-deferred accounts have outperformed the S&P 500 Index by a significant margin, based on the average annual return per holding since its inception in July 2008.
During the twelve years leading up to the original publication of this book, the cumulative equal-weighted average total return of each holding in the model portfolio, as of the period ending June 30, 2020, outperformed the S&P 500 by +6,749 basis points (bps), which is equivalent to an average of +67.49 percentage points per holding.
Build Wealth with Common Stocks highlights the market-beating potential of a long-term holding period, rather than focusing on the next week, month, or year. As of the market close on June 30, 2020, following the market freefall and subsequent fluctuations caused by the coronavirus pandemic, the model portfolio's performance confirmed the benefits of a longer-term investment paradigm.
For example, although the six stocks held for fewer than three years in the portfolio were underperforming the S&P 500 by an average of -2,009 bps per holding, or -20.09 percentage points, the six held for between three and five years were outperforming the benchmark by an average of +2,170 bps, or +21.70 percentage points. The five stocks held for five years outperformed the S&P 500 by a resounding 22,752 basis points (bps) average per holding, or 227.52 percentage points each.
Investors who abandon underperforming stocks held for fewer than three or four years miss the opportunity for significant market outperformance after five or more years of compounding. Our family portfolio has proven that the time-tested strategy of buy-and-hold value investing is alive and well.
Methodology
For a more balanced view of the performance of each holding, the model portfolio is equal-weighted against the S&P 500 Index based on the dates of my initial stock purchase or the original publication of the research.
Total return reflects the stock price performance adjusted for splits and dividends. Historical performance does not guarantee future returns.
The public version of our family portfolio showcased throughout the book serves as a metaphor for constructing a low-cost, lower-risk, and potentially market-beating portfolio, despite any limitations of available investment capital. Supported by a daily portfolio tracker and a quarterly report of performance and opportunities, the model portfolio is an actively managed, real-time basket comprising major US exchange-traded common stocks, utilizing a proprietary research system.
The Vision of the Model Portfolio
Every venture, including a self-managed investment portfolio, should have a vision statement. Below is the concept behind our family portfolio.
A long-term investment horizon involves buying shares of quality, dividend-paying companies at reasonable prices and holding the investment for as long as the company remains exceptional, potentially indefinitely.
I advocate investing in exceptional companies that produce in-demand and profitable products or services, helping consumers worldwide solve personal and business problems, desires, or needs.
A profitable common stock portfolio resembles a collection of owned slices of companies that produce high-quality products or services with enduring competitive advantages. When trading stocks, the retail investor inclined to gamble drops by the local casino with discretionary dollars and, whether winning or losing, has a good time. The disciplined investor never bets on investment tips or perceived opportunities for quick, wishful gains.
Value Investing Defined
Defining value investing is a challenging and perpetually debated topic in the financial media.
The do-it-yourself investor favors simplicity over sophistication. Believing that value investing is the purest and most productive form of common stock investing, I give our family portfolio and the concepts supporting each investment a symbolic kiss of approval.
KISS — Keep Investing Super Simple
The definition of value investing is closely related to the concept of value as it applies to every aspect of our daily lives, including investments. Here is how Merriam-Webster.com defines value:
The amount of money that something is worth.
Price or cost of something.
Something that can be bought for a lower or fair price.
Usefulness or importance of something.1
Analyzing common stocks is similar to the purchase considerations in other areas of our lives.
What is the product or service worth to us? What is the quoted price? What is the difference between the two, and will the product or service be available for a lower or fairer price point in the future? In other words, is it cheap based on the inherent value we place on the product or service? Just as importantly, why buy an inexpensive product or service unless we find it useful or necessary to own?
Now, replace a product or service with a company or stock and reread the same paragraph based on the formal definition of value.
What is the company worth to us? What is the quoted stock price? What is the difference between the two, and will it be available at a lower or fairer price point? Put another way, is it cheap based on the inherent value we place on the enterprise? As importantly, why buy a cheap stock unless we see its usefulness or significance in owning a stake in the business?
Value investing is the most straightforward investment strategy in a complex financial services industry.
The Objective of Build Wealth with Common Stocks
Now apply the above formal definition of value to an investment philosophy.
Purchase and hold common shares of US exchange-traded, dividend-paying, well-managed, financially sound businesses that offer easy-to-understand products or services, possess enduring competitive advantages from wide economic moats, generate consistent free cash flow, and are trading at a discount to the investor’s perceived intrinsic value at the time of purchase. Next, of utmost importance and perhaps the biggest challenge, practice patience while waiting for the investment thesis to unfold as projected over a long-term horizon.
My suggested objective or investment philosophy for retail investors is concise, direct, and focused on high-quality products and services, which create barriers to competition for financially sound companies, as represented by the underlying common shares. First, purchase targeted securities at fair, reasonable, or attractive prices. Then, hold them for as long as the company's and its stock's performance supports your conviction.
How do you measure the quality of a business's products or services, competitive advantages, financial strengths, perceived enduring value relative to the stock price, and downside risk?
Keep investing super simple by limiting your measurement and analysis to a few essential metrics in each critical area of the enterprise, such as competitive advantages, management effectiveness, returns to shareholders, the intrinsic value of the stock, and the overall risk profile of the company and its common shares.
Indeed, due diligence in building and maintaining a winning portfolio entails profiling the fundamentals of the chosen company while recognizing and accepting the downside risk, should the thesis or measure of intrinsic value prove to be incorrect. Using proprietary screens encompassing the above metrics, I actively manage individual common stock investments within the model portfolio and share performance trends with members through exclusive daily position trackers, research reports, and narrative commentary. The analysis in each report adheres to the general outline presented in this book, ensuring a concise, easy-to-read, and comprehensible information flow that links together each portfolio holding. Part II: Strategies details the five methodologies in depth.
Being constantly reminded that markets fluctuate unexpectedly, you have to start somewhere. Thus, members of davidjwaldron.substack.com are informed about the targeted common shares of publicly traded companies added, held, or removed from the model portfolio, for better or worse. Template-driven research may annoy some readers, but the value of working from a flexible outline is the consistency and discipline it brings to an investing acumen.
Modest doses of thought, discipline, patience, and a pinch of common sense have produced a market-beating basket of common stocks in our family portfolio for twelve consecutive years as of June 2020.
The Mission of Build Wealth with Common Stocks
The book’s philosophical goal is for the reader to embark on a long and positive empathetic journey through self-paced financial education, mutual respect, and a shared passion for buy-and-hold investment excellence, while avoiding the short-sighted and cynical perspectives of know-it-all gurus, disregard for the counter-opinions of others, and get-rich-quick trading schemes.
My purpose in writing Build Wealth with Common Stocks is to provide an actionable portfolio strategy that outlines a proven set of core methodologies, benefiting wealth-building investors as defined by its mission.
Mission
The mission of Build Wealth with Common Stocks and the model portfolio:
Facilitate a community of thoughtful, disciplined, and patient everyday investors who are passionate about learning, practicing, and sharing the art and science of building wealth through the magic of compounding, protected by a wide margin of safety.
Owning common shares of world-class enterprises builds winning portfolios over time by compounding total capital gains and dividend returns. As illustrated in the model portfolio, Build Wealth with Common Stocks commits to a strict bottom-up, buy-and-hold value investing paradigm. It avoids price targets, price alerts, technical charts, deep-dive analysis paralysis, top-down macro influence, momentum or trend investing, market timing, short selling, options trading, forward high-yield dividends, and trade setups.
The book promotes the long-term, low-fee ownership of dividend-paying common shares from quality companies. I enjoy sharing successes and failures with fellow retail investors, as we are in this together for better or worse, though never on speculation. The loved ones who benefit from our investment activities deserve more than the speculative trends of the month that emerge from the Wall Street fee machine. We deserve better as well.
Mine Relevant Data and Exercise Self-Control
The successful retail-level investor mines relevant data, exercises self-control, and applies tenacity to portfolio construction and maintenance, while avoiding complicated or expensive investment vehicles or trading schemes in the pursuit of quick profits.
The profitable, independent investor is content to leave those speculative ventures to professional traders and market gamblers.
To its credit, the financial services industry has rolled out versions of KISS—keep investing super simple—such as discounted or commission-free online brokerages and low-cost index funds. Nonetheless, investors negate any advantages from discounted or free commissions by trading on margin or too frequently, thereby incurring unnecessary debt, trading fees, and tax burdens on an activity intended to be a low-cost experience.
Active and Passive Investing in One Approach
The active investor takes pleasure in selecting and managing investments through rigorous education and discipline.
An invest-it-and-forget-it approach is an excellent option for the passive S&P 500 Index investor. Build Wealth with Common Stocks is intended for the discerning investor seeking to combine the lower costs and reduced risks of passive investing through hedging with the potential for above-average returns from active buy-and-hold stock investing.
Although hedging is a complex investing paradigm, in the context of this book, it represents a simple long position in a portfolio, such as an S&P 500 benchmark or a similar exchange-traded fund (ETF), to mitigate the risk exposure of common stocks to inevitable market gyrations. Chapter Eight discusses the practical concept of long-only portfolio hedging.
By employing an active approach to investing, complemented by passive indexes, our family portfolio, closely mirrored by the model portfolio, has demonstrated that building wealth gradually by outperforming the market over the long term is achievable on Main Street and can be an enjoyable and fulfilling experience.
Welcome to Build Wealth with Common Stocks. I hope you enjoy and benefit from the book as much as I enjoyed writing it, drawing on my experience of implementing the principles, strategies, and practices in our family portfolio over an extended holding period.
CHAPTER ONE SUMMARY
On Getting Rich Slowly
The do-it-yourself everyday stock investor beats the market over time with thought, discipline, and patience by adhering to a straightforward menu of time-tested, successful principles, strategies, and practices.
Value investing is the most straightforward investment strategy in a complex financial services industry.
Consider giving your portfolio a symbolic kiss and keep investing super simple.
Subscribe to my model portfolio newsletter at davidjwaldron.substack.com.
An informed investor has a significantly higher chance of becoming wealthy gradually than quickly, and accumulating wealth slowly is preferable to not doing so at all.
This chapter is copyrighted 2021 and 2025 by David J. Waldron. All rights are reserved worldwide.
Next in Build Wealth with Common Stocks | Chapter Two: Filter the Noise
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Merriam-Webster, s.v. “value,” accessed July 1, 2020, https://www.merriam-webster.com/dictionary/value.