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Buy and hold FOREVER! - Concasto - 03-18-2014
Hi guys, new to the site and relatively new to DGI. I am in my late 20s and pretty soon will be wanting to start building my nest egg for retirement. I wanted to get a discussion going around stocks you hold which you believe will be of the same caliber today as they will be 50 years from now. It is a concern of mine, since I won't be retiring for many years, that I get stocks that will continue to grow regardless of how the world changes. For example, I don't want to buy CVX if I feel there will be an energy revolution as someone discovers a cheap way to harness power through hydrogen 30 years from now(I don't necessarily feel this way).
My short list is as follows:
REITs - Can't make more land. Currently they have a favorable tax structure, but I feel it causes them to be over valued compared to traditional corporations. On top of that you have to pay more in taxes on their dividend. When the time is right, I will certainly be a buyer in a tax sheltered account.
MCD - Food will never go out of style. Pair that with food that is fast, tasty(well the chemicals are anyways) and an American(and on the way to being a global) tradition, I think its sure to be around in 50 years. I see no reason why global growth won't continue. I have also heard them referred to as a land company with a fast food element, since they own most of their property, but I will need to do more research on the specifics.
JNJ - Drugs in one more or another will be here 50 years from now. That and their other staple of modern day "necessities" will keep them in business long after I am dead, I'm sure.
UL/PG - Like JNJ, they produce things that won't go out of style ever.
PEP/KO - Snacks and soda are popular all over the world. Sugar and salt are easy sells when put together correctly and that's what PEP/KO does. Growth from all over the world should continue well into my retirement.
INTC - Computers and their microchips will continue to become bigger and bigger parts of our lives. I don't see the use of computers slowing.
BBL/BHP - Minerals will always be needed to make anything.
SO - Power companies, especially those with nuclear plants will continue to be in demand domestically and globally. If we aren't producing electricity, we have much more to worry about than our stock portfolio.
I would love for others to chime in on these and others you may have in mind.
RE: Buy and hold FOREVER! - Kerim - 03-18-2014
Welcome Concasto -- great topic!
I'll let the others really jump on this as I've got to get to bed in a minute, but my quick take is that you are spot on with the consumer staples and utilities. I'm less confident that INTC and REITs go in the "forever" bucket.
RE: Buy and hold FOREVER! - hendi_alex - 03-18-2014
REITs - dependent upon continued governmental policy, have veryi little cash reserves so constantly dependent on accessing capital markets, also low cash reserves means no buffer for unfavorable developments, strongly sensitive to interest rates
MCD - will the current shift toward healthier eating continue to erode sales in developed markets? IMO this could represent a long term trend
PEP/KO - same question as for MCD
INTC - will INTC stay relevant or will they continue to place major bets that miss the current direction of innovation and consumer trends?
BBL/BHP - commodities tend to move through fairly long boom and bust cycles. Is it in an inestor's best interest to hold such stocks through the down side of the cycle?
SO - there are forces that are nudging things away fron huge centralized power generation. No one knows how far this process may move and how damaging it will be to large utilities. How favorable will the climate remain for future rate increases? How will cost over runs related to nuclear construction affect profitability? How much will ever tightening regulation affect coal fired production.
UL PG JNJ probably make the cut.
My main point. Very few stocks, if any, should be viewed as buy and hold forever. IMO they should only be held as long as they continue to execute well enough to satisfy your current investment requirements. No investment is 100% safe and I suspect that very few companies are even 70% safe when looking out 10 years or more.
RE: Buy and hold FOREVER! - Concasto - 03-18-2014
Thanks for the replies guys! My thoughts...
REITs - Good points, in their current form, most REITs are levered to the teeth. Maybe future land/rent investments will tend to be more conservative(assuming the current debt bubble bursts)
MCD/PEP/KO - If a real trend in the foods we consume starts to hurt their bottom line, I see no reason these companies can't adjust. In fact, they already have(grilled, low fat, 0 cal, organic etc). But there has been a "health" trend in America over the last 20-30 years and cars are still wrapped around MCD everyday at lunch time. I don't see the health trend getting much stronger or being too serious of a threat going forward.
INTC - while "one trick ponies" tech companies like facebook/AOL/Worldcom could be gone tomorrow, I see INTC as a company that pumps out a commodity/provides a service that will always be consumed going forward. I don't think they are required to pick consumer trends as much as might believe. They simply supply the material to those who do.
BBL/BHP - no question commodities are cyclical. But since to me DGI is basically anti market timing, I am not too concerned. But the cyclical nature certainly means you need good management to smooth out the ups and down. This could be an issue.
What about BRK.b? Let seasoned value investors pick the companies for you! Could the inevitable new management put this company at greater than average risk? No dividend currently, but constant book value growth leading to compounded gains in a "tax free" vehicle.
Keep the thoughts and ideas coming. Thanks again guys.
RE: Buy and hold FOREVER! - rnsmth - 03-18-2014
Buy and monitor
Sell and replace
That is my mantra.
Changes in dividend growth rates (by company) over time will give you the information you need for the most part.
RE: Buy and hold FOREVER! - Concasto - 03-18-2014
Don't think I mean buy, hold and forget. You should always pay attention to risks as they arise. I just want to focus in on companies where I believe their business model will be relevant 50+ years from now. Also, avoiding selling as much as possible, would be key to avoid the cap gains tax, which in a few years could be higher than it is now.
RE: Buy and hold FOREVER! - Dividend Watcher - 03-19-2014
Welcome, Concasto. Glad you joined us. I hope you mosey on over to the Intro section and tell us a little more about yourself.
Since you asked ...
Although I'm not as pessimistic as Alex at times (but he can build circles around me), I think buying stocks for 50 years of holding may be optimistic. Maybe it would be more realistic to buy for the next 20 years and keep evaluating along the way.
Since it sounds like you don't have any long-term experience in the market, this will be a journey for you. Before you start investing, I'd highly recommend working on a plan -- a business plan for your portfolio. Include in it your goals, how you plan to get there and specific criteria you're interested in having met before you invest. Also include what circumstances would cause you to sell a company. If you need some guidance, go to Seeking Alpha and search on David Van Knapp and Bob Wells. They have articles (I think 2 or 3 years back time frame) about business plans for your portfolio. It doesn't have to be perfect and expect to revise it as you go along. I think it would help ground you in making decisions. You already are starting to plan with your thoughts in the original post.
As to your initial "portfolio" ideas, I'll start with your CVX (or XOM or COP) aversion. Before "someone" finds the Holy Grail of free energy, the world's economy and civilization will still be based on fossil fuels. They've been working on harnessing fusion since they figured out how to unleash it with the hydrogen bomb. Still nothing commercially viable. Solar, geothermal and wind are growing but we still have technical hurdles to cheap and ubiquitous. Lastly, if you think the management of "Big Oil" is going to sit by and let "someone" destroy their companies, I think you're mistaken. All the majors are watching and working on ways to come up with a similar idea. Can you imagine the competitive advantage they'd have if they found a solution? I think you're dismissing the sector too quickly.
REITs do have their good and bad points as Alex pointed out: very little cash laying around, dependent on the financial markets to grow and credit market sensitive. However, with their higher yields, you can get a good compounding stream going if you reinvest the distributions. I wouldn't overweight the sector -- especially at your age. I'd especially look over the medical REITs. All us old farts are going to need some care as we age (and there are a ton of us
).MCD? Yup, as much a real estate company as a food company. Management has had a tough time for the last year or so and probably for a few more years to figure it out. In the meantime, they'll plod along increasing their earnings and dividend. I'd look at GIS, HRL & MKC also. KRFT may be speculative right now since they only have a 1 year track record on their own. I'd suggest you go to their IR site and watch the CAG presentation. I think management has a plan going forward.
PEP/KO? I think both have a diversified product base and will adapt to the market as needed. They both have strong and efficient distribution networks and popular, well-known brands.
INTC? The textbook example of the powerhouse company that got arrogant and complacent. They have incredible engineering and brutal marketers but they need to respond to the market. They'll be around but it will take a little longer to get back on track. They also have enormous capital needs. All that being said, I think the new CEO is bringing them back to reality and you could see things happen over time. You might look at MSFT and AAPL too.
JNJ? Agree, this is one diversified stalwart. In many sectors of healthcare and consumer health & beauty. Good financials and management is back to business after Weldon focused more on his paycheck than running a great business. In the drugs, you might also look at ABBV. Medical devices could include MDT, BAX or BDX also. Although they haven't paid a dividend for long, I'd think seriously about AMGN.
UL/PG? Both good choices although you might want to look at CL, CLX (despite their high debt load) or CHD also. Consumer staples are definitely a core sector.
BBL/BHP? I agree with Alex here. Long cycles and capital intensive. If you really want basic materials, then BBL seems to be a good choice. You might also look at APD although I'd prefer industrials over basic materials. For industrials, I'd take a peek at MMM, UTX or HON. GE looks very interesting but for some reason, I'm not as big a cheer leader.
SO? Utilities will be around for a while yet (see big oil above). SO seems to be a pretty solid company. You might also look at WEC although they aren't as geographically large nor as well diversified in their fuel mix as SO.
All that being said, I probably could have saved a lot of hot air if I just said ditto to Kerim's post and add health care and oil.
Lastly, watch your valuation. Don't overpay and have patience. There's a long period between the acorn and the mighty oak tree.
RE: Buy and hold FOREVER! - Concasto - 03-19-2014
Thanks DW!
I currently do own too much oil in my IRAs. So don't think I am against it.I mostly agree with you, that if there is any energy revolution, the big players will be the ones who take advantage of it. I am thinking about getting out of most of my Canadian oil and getting into PEP or JNJ. I have been a wild stock picker most of my investing career, but as I grow I see it is wasted effort mostly.
About MCD's land holdings. I assume that accounts for much of the debt on the balance sheets(mortgage debt)? Are they planning on leasing out the land to the owners once it is paid off? As I said, I have to do a bit more research here.
RE: Buy and hold FOREVER! - EricL - 03-19-2014
If you don't have a moral aversion to investing in them, also consider a tobacco stock or two for your portfolio. PM, MO, LO, RAI are all cash cows throwing off ~5% yields and grow them like clockwork at 8-12% annually.
RE: Buy and hold FOREVER! - Dividend Watcher - 03-19-2014
(03-19-2014, 01:05 AM)Concasto Wrote: I have been a wild stock picker most of my investing career, but as I grow I see it is wasted effort mostly.
Bingo! I did that for around 30 years. Then you'll wake up and say WTF (and that's not "watch the fences"). My portfolio business plan has gone a long way to discipline my thinking.
I agree with EricL about tobacco companies but was hesitant to mention that.
RE: Buy and hold FOREVER! - hendi_alex - 03-19-2014
To me, the list at the start of the thread represents great ideas for long term investments. But the premise of buy and hold to essential never sell, becomes a lofty standard for picking any company or sector, especially one like REITs or MLPs that are dependent upon continued tax code. My comments just hint at some possible issues that could effect the companies longer term. But none of those issues would at present keep me from going long, mostly because I don't care where the companies will be in 5-10 years. If the positions don't pan out, there will always be suitable replacements.
I own REITs and think that any income portfolio should generally include some property REIT exposure. IMO PEP, KO, INTC, and SO all represent good choices for a DG portfolio. But once again, only if given reasonable expectations which include regular monitoring and review. It is easy to keep a position too long, just because it has been held for a long time and has sort of become a 'friend'. I agree that it may make sense to have long term positions in the context of a 10 year or 20 year plan, but expectations going out much beyond 10 years becomes a pretty meaningless exercise. There are just too many variables that can affect the investing climate, sectors, and individual companies.
My preference is to stay flexible and nimble, making changes when it seems prudent to do so.
RE: Buy and hold FOREVER! - TomK - 03-19-2014
When I hear (read) DG investors talk about holding "forever" I assume that is just shorthand for a core holding that is expected to be held for an extremely long time with a minimum amount of anxiety and review. I never assume that the person means literally "forever" and without any monitoring whatsoever. Any investor of any sophistication understands that conditions can change and that there is no holding that will be immune to all future events.
Interestingly, though, this reminds me of Buffett famously saying (something like) when he buys, he would be indifferent whether the market closed down entirely for the next five or ten years. But I think such a position is far more applicable to the type of value investing he does than to dividend growth investing.