No Investment Is Forever?

If you pay attention to John Templeton’s “Sixteen Rules For Investing Success”, you have likely encountered the wisdom of Rule Number 9, which tells investors that they should “aggressively monitor their investments”. Here is the Templetonian rationale:

“Expect and react to change. No bull market is permanent. No bear market is permanent. And there are no stocks that you can buy and forget. The pace of change is too great. Being relaxed, as Hooper advised, doesn’t mean being complacent.

Consider, for example, just the 30 issues that comprise the Dow Jones Industrials. From 1978 through 1990, one of every three issues changed—because the company was in decline, or was acquired, or went private, or went bankrupt. Look at the 100 largest industrials on Fortune magazine’s list. In just seven years, 1983 through 1990, 30 dropped off the list. They merged with another giant company, or became too small for the top 100, or were acquired by a foreign company, or went private, or went out of business. Remember, no investment is forever.”

Considering that I am interested in buying things that I can hold without thinking about much over the course of the super long-term (20+ years), I like to think about ways to circumvent the “no investment is forever” mentality.

When you think about it, there are two characteristics that are likely indicative of a stock that you can hold for the rest of your life:

(1)    Brand equity

(2)   Diversified Revenue Streams

Ideally, you will own assets that combine the two (i.e. Coca-Cola has a stable of 500+ brands ranging from Coca-Cola to Sprite to Powerade to Dasani water, and son) and have a dynamic collection of cash cows that each have their own brand equity.

Absent severe mismanagement, it is very unlikely that people are going to stop having Quaker Oats, Frito-Lay chips, or Pepsi soft drinks within the next 20 years. That’s fertile ground for a forever investment.

With companies like Johnson & Johnson and Procter & Gamble, you are looking at two companies that each have over two dozen brands that generate $1+ billion in sales. When you have dozens of different products generating hefty profits, it’s going to take severe mismanagement to screw up the demand for Listerine mouthwash (J&J), Iams pet food (P&G), Bounty paper towels (P&G), Tylenol medicine (J&J), and so on. Those businesses are going to be around in 2030. Crumbs Bake Shop (CRMB), which is a $15 million company that sells gourmet cupcakes, is not something you want to bet on being around two decades from now.

Hershey has been selling chocolate bars for a century. They do it in a way that makes shareholders extremely wealthy, because the company generally achieves 16% return on assets, barring years like 1973, 1974, and 2009 when you have to cut prices to hold volume steady. It’s very unlikely that people won’t be eating chocolate twenty years from now, and it’s very unlikely that the Hershey brand will be destroyed by managerial competence because all they have to do is convert chocolate into a square and stamp the Hershey name on it. Nothing’s guaranteed in life, but I like betting on things like that to succeed. Plus, a big chunk of stock is controlled by the Hershey Trust that uses the dividend income to fund orphanages, so you are literally helping children without available parents every time you eat a chocolate bar.

The slogan “no investment is forever” is generally a good investment guideline. But there is a subsection of stocks—many of which are the cornerstone of conservative portfolios across the country—that are built to be around thirty, forty, fifty years from now. Look for indispensable products (think Gilllette razors, brought to you by Procter & Gamble). Look for products with great brand equity (Clorox bleach is the bleach for most Americans). And look for companies with ridiculously diversified streams of revenue (do a Google search for the brands under the Nestle umbrella. It will stagger your mind). When you start combining those three factors, you have found a business that—if not forever—is built to last the rest of your lifetime.


Originally posted 2013-11-09 08:20:17.

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6 thoughts on “No Investment Is Forever?

  1. Nothing like a really large economic moat to provide some peace of mind. All of the companies you have mentioned fall into that category. That being said, even large, seemingly solid companies can struggle and lose their way. One should always keep an eye out for signs of economic weakness, management issues, and changes in the corporate direction.

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  3. FrancisH says:

    Well, when a stock has a P/E higher than 20, you can always keep you shares, especially if you have coca-cola or visa. However, in most cases, you'll be making more money by selling them and investing the money in undervalued shares.

  4. Waterbuffalo says:

    Nestle, PG, JNJ, KO, V, and XOM are companies built to withstand everything but the fall of Western society. Buy and hold "forever"

  5. Steven C Chan says:

    A reason to hold as long as long as one can is to reduce trading cost. Even a well-run profitable business may hit a somewhat high P/E, the moment you sell and buy something else – multiple trading cost will be inflicted. If there is still reasonable confidence that the business will remain good in medium-long term, there is no real reason to trade.

    I try not to monitor my investment in day-by-day basis, but it is really tempting to do so. Bloomberg, Financial Times, Morningstar, Google all let you track your portfolio online! Too easy not to check, I guess.

  6. Michael Smith says:

    Serious?? I’ve never heard such information before. It’s not the first time i review this product and I’m rather experienced user. I compared to the article from COMPACOM and no doubt they provide much more relevant information.

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