How death can make you a better investor
As morbid as it sounds
Life is full of uncertainties.
But there is one thing that we can be certain of in this life : Death
In the uncertain world that we live in, having certainty over something can be a gamechanger.
Knowing that you’re going to die one day is certain.
In investing, while we can never be 100% certain if a company will cease to exist, we can think about what industries will be around 10, 20, even 50 years down the road.
These are the evergreen industries.
The deathcare industry is an example of an evergreen industry. We can be 100% certain that people will die.
It pays to avoid hot stocks
Investing in hot stocks is like playing with fire. You’re likely to get badly burnt.
In his book, “One Up On Wall Street”, Peter Lynch defines hot stocks in hot industries as those that get a lot of early publicity.
These stocks may see huge growth at the start but burn out quickly as investors realize that they do not have the earnings, profits, or growth potential to back up the buzz.
“If I could avoid a single stock, it would be the hottest stock in the hottest industry.” — Peter Lynch
A business that will never go out-of-favour
Service Corporation International (SCI) is North America’s largest provider of deathcare products and services.
SCI operates 1,471 funeral service locations and 488 cemeteries (including 299 funeral service/cemetery combination locations), which are geographically diversified across 44 states, eight Canadian provinces, the District of Columbia, and Puerto Rico.
The funeral and cemetery market share in North America is approximately 15%-16% based on estimated total industry revenue.
The following strategies remain the core of the foundation of SCI’s business:
Grow revenue
Leverage their unparalleled scale
Deploy capital.
While these strategies remain unchanged, a shift to increased utilization of technology during the COVID-19 pandemic has influenced how we serve our customers and how we invest our capital.
Over the last 5 years, investing in SCI would have returned about 10% more than investing in the S&P 500.
Is this 10% upside over 5 years worth it for you to invest in this stock? That’s a decision only you can make.
What about over the longer term?
SPY has an all-time return of 785%.
In contrast, SCI has an all-time return of 2,301%.
What price are insiders buying at?
Insider buying is a quick hack to identify a good price point to purchase shares.
The average price paid per share by insiders range from as low as $62 to as high as $68.
What about dividends?
Dividends is something that growth investors often scoff at.
Nevertheless, it plays an important role in the total returns you receive from your investments.
SCI have increased their annual dividend payment for 11 consecutive years.
The company’s quarterly dividend rate has steadily grown rom $0.025 per share in 2005 to $0.23 per share at the end of 2021.
That’s a 14.88% CAGR from dividends alone! This does not even take into account the increase in share price.
Conclusion
Avoid hot stocks in hot companies.
Great companies can be found in cold, non-growth industries. These are often the consistent big winners.
You may yawn at the prospect of investing in a company that provides funeral services (and that’s fine).
The bottom line is:
Investing in boring companies often yields less-than-boring results.