This post was originally shared in my DT Email Newsletter here.
About four years ago, I met a consultant friend of a small, mergers & acquisitions firm for coffee.
He’s done well in listing companies — making at least $50 million in revenue — into the stock market.
This is the kind of man who values his time and knows his stuff about start-ups.
We sat in a corner, a bar top overlooking Somerset Road.
He cheekily asked: “Willie, would you invest in Grab?”
So, here’s what I said: People who invest in the stock market cannot think like you — investing in start-ups that have absolutely no profits.
And he said: “Isn’t investing all the same?”
Different.
You invest in private start-ups. You don’t have to worry about stock prices collapsing. In March 2000, the NASDAQ crashed 77% and took the next 15 years to recover.
Companies that never made any profits failed to recover at all.
If you want to invest in the stock market, this is what you should do…
1. Companies must have a long history of paying dividends, about ten years
This is important. Because it immediately “narrows your investment universe”. This way, you prevent yourself from picking stocks that are speculative or overpriced.
You see, management of these companies must think carefully if they want to pay dividends consistently.
When management stops dividend payouts, investors get scared, the market gets scared. Shares will fall.
It’s not good for the company.
If a company commits to pay you dividends year after year, it’s a sign the company is confident to grow profitably in the future.
2. They must have a durable, competitive advantage. And generate predictable profits year after year
I said to my consultant friend: “Grab doesn’t have any durable competitive advantage.
It doesn’t make money from a huge ‘economies of scale’, nor does it have any intellectual property — unlike Microsoft software or patented drugs.”
What’s more, a platform company can be highly capital intensive by “acquiring more users” onto the platform.
The thing is, a durable competitive advantage must exist so that the company’s earnings can grow year after year.
That’s how you grow your wealth — Shares go up in the long run because it’s supported by solid earnings.
Grab has been burning cash year after year.
I’m not talking about trading, but buying into a high-quality stock and holding it for years.
Some of the biggest companies I know obsess over growing earnings.
Johnson & Johnson grew its earnings from US$515 million in 1984 to US$25 billion in 2025 — a 10% annual growth in 41 years.
Its shares? Johnson & Johnson shares rose from US$2 to US$157 over that same period. That’s a 6,742% gain over that same period.
And Johnson & Johnson can do this because they have a durable competitive advantage.
3. Buy dividend stocks when they are at the “right price”
This rule makes it much harder for you to lose money. And you’ll ensure you can enjoy the benefits of compounding.
Because your entry price is smaller versus a company’s future earnings.
Imagine, if I’d bought DBS Bank at S$24 in 2007, I wouldn’t have made any money until at least ten years later.
And if you follow my three golden rules:
- Paying dividends
- Solid businesses with a durable competitive advantage
- Buying at the right price
You will accumulate wealth safely and profitability.
By the way, we wrote a simple guide on How to Find Economic Moat: A Simple Guide to Measuring Competitive Advantage.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
