Samual Curtis Johnson had an idea. This wasn’t new. He had many ideas throughout life. But at age 53, he gave his idea a try. He started a parquet floor business in 1886.
Within two years, he had a small but thriving flooring business. He also had a customer base that wanted a better way to take care of their new floors. Soap and water ruined the floor finish and shellacs chipped and were a pain to deal with. His customers wanted something better.
With a little experimentation and a bathtub, Johnson created a floor wax. He gave it away, as an added service, with every new floor sold. What Johnson had done, though he didn’t know it yet, was diversify his business.
Soon, people he never sold new floors to, wanted to buy his floor wax. A happy accident turned a parquet floor company into a wax company that sold parquet floors. And another idea sprung from that. What if the wax could be used for things other than floors?
In 1898, they created a dance wax, a powder, that made it easier to glide across the floor when dancing.
The rise of the automobile was another opportunity. Car wax was created in 1914, around the time Ford’s Model T became popular. A litany of other products followed. Stop Squeak Oil, Self-Vulcanizer, Radiator Cement, and Hastee Patch were early self-repair products for your new car.
The 1920s brought carbon filters for engines and electric floor polishers. A self-polishing floor wax came out at the start of the Great Depression, proving some products sell in the worst economy. The 1930s introduced furniture polish and expanded into floor wax for gyms, schools, and hospitals.
WWII pushed the company to develop rifle bore cleaner. Drax, a laundry product, and paints (failed due to too much competition) led the company into new markets in the 1940s.
The company expanded further in the 1950s with Raid insecticide and Off! insect repellent. Hair care products and a spree of acquisitions in outdoor recreation came in the 1970s.
A century after the company was founded, the CEO, Samual Johnson (the founders great-grandson) explained:
To sum up, the primary objective for a corporate leader is to ensure institutional survival. Developing a survival strategy is what every company and every CEO is doing. To survive you have to grow. To grow you have to diversify. Therefore, diversification is essential to survival.
When a company is diversified into various fields, it is rarely seriously vulnerable to the ups and downs that ravage individual businesses. And, if you are geographically diversified — that is, spread throughout the nation and the world — then you have some insulation between yourself and localized political and economic trouble.
S.C. Johnson & Sons is a great example of the power of diversification. The original parquet flooring business was a single point of failure. A change in home design trends or a downturn in home construction or the economy meant the business would suffer or be ruined.
Diversifying into the floor wax business introduced a new source of revenue and growth for the company. Every new product that followed meant the company was less reliant on selling parquet floors to grow and survive.
Your portfolio works in a similar way. A diversified portfolio, in its simplest form, creates multiple ways to grow your money while building in survivability from market downturns.
Instead of inventing new products, you invest in numerous companies across different industries, in the U.S. and around the globe. Because not all companies grow at the same rate or the same time, you end up with a smoother path and far higher survival rate than if you relied on one or two companies. And you can expand your portfolio further into real estate, commodities, bonds, and other asset classes that offer a different type of growth that moves less in unison with stocks.
Ben Graham once said, “Investment is most intelligent when it is most businesslike.” S.C. Johnson & Sons fits perfectly with Graham’s quote. Their philosophy around diversification and survivability is how you should think about your portfolio.
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