I have been dialoguing with a reader who recently inherited 2,000 shares of Altria and 2,000 shares of Philip Morris International after her dad’s passing. Alongside the inheritance, she received the instruction from her dad, “Don’t sell either stock for the rest of your life.” The legality of the question isn’t worth exploring; courts generally don’t pay mind to the continuance of investments after they are distributed post-death, with the possible exception that some jurisdictions permit restrictions on selling ancestral family homes that have clear sentimental value and are intended for the use of multiple beneficiaries.
Well, Visa’s had a heck of a day. At the time I’m writing this, the price of Visa stock is up $20 per share (almost 9%) to $234. The cause for ebullience? Good earnings, and continued excellent prospects ahead. The company’s profitable margins continued to increase, going from 61% last year to 64% this year. Volumes are up 11%, year over year. The company is repurchasing an additional $5 billion worth of stock. Annual earnings per share growth still hovers around the 15% mark. The China State Council approved plans to open banking clearinghouses, and successful penetration of the Chinese market could prove highly lucrative to Visa shareholders.
Lately, I’ve been studying the companies that don’t have perfectly linear records of dividend growth, but have a strong tendency to give owners lots of cash for decades on end, especially when adjusted for the amount of money you have to invest (e.g. I’ve been looking at the companies that typically offer an initial yield north of 5% or so and offers a dividend that is generally higher every business cycle compared to the last).
My studies keep bringing me back to BP, because the company is beyond huge (it’s going to generate $14.5 billion in net profit this year, about 50% more than Coca-Cola as a frame of reference), has often served as Britain’s proxy equivalent to Exxon Mobil as the stock that you hold forever as you pass it down from generation to generation, and is one of the fair value stocks left in the market because people are hung up on the oil spill in 2010 even though BP is going to be fine in the long run because even after having to sell off a third of its business, the remains still generate almost $15 billion per year in annual profit.
It’s one of the most intriguing questions when contemplating long-term portfolio planning: What role should finance stocks play when you’re planning to buy things that you intend to hold for 10+ years? On one hand, the demand for things like asset collecting (mutual funds, ETFs, etc.), short-term credit (credit cards), and longer-term lending (bank stocks) is an area that will have perpetual demand. There will always be people directing other people’s investments, there will always be people borrowing money on credit, and there will always be people needing long-term loans to start a business, continue funding a business, buy a home, or whatever requires an infusion of meaningful capital.
When investing, it’s important to get the question you’re trying to answer right. When I discuss investment opportunities that look particularly intriguing, I am not making the statement: “This is the cheapest price the stock will ever see.” I don’t attempt to answer that question because it’s something I never could get right—it involves predicting what *other people* will do at a particular point in time, and at best, it’s something that would never amount to more than speculation.