Here's a statistic for you. In the 1940s, the average holding period for stocks was a little over seven years. Today, that figure is no longer measured in years, months, or even weeks... but merely DAYS.
It's true. A study conducted in 2012 found that the average holding period for a share of a company is a measly five days!
Think about that for a minute. The produce you buy from the grocery store has a longer shelf life than the average stock in today's market!
And, let's be clear, that produce will probably result in a much healthier lifestyle as well. The constant trading in and out of the market leads to greater volatility, which only makes it harder for investors like us to ignore the noise and keep our cool.
And that matters -- a lot. Over two decades of picking market-beating stocks here at The Motley Fool, we've found that there is nothing more critical to successful investing than keeping our cool.
Consider two of the smartest investors of all time, Warren Buffett and Charlie Munger, who built incredible wealth by simply buying and holding shares in great companies. As a result, the stock price of their holding company, Berkshire Hathaway, delivered an eye-popping 11-bagger for investors who've held for 20 years.
Berkshire grew from a $20 billion company to a $287 billion conglomerate in that time frame. Not coincidentally, Buffett and Munger became two of the richest men in the world.
They built their empire through hard work and dedication to the craft of investing. But, according to the Oracle of Omaha, their secret is not superior intelligence. And it's definitely not market timing or day-trading. In fact, it's quite the opposite, as captured in this classic Buffett quote:
"Success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."
Temperament, or an ability to stick to your guns when others are losing their heads, is more important than superior intelligence by a long shot!
So what does that mean for individual investors like us? After years of studying the market and handpicking stocks, our top analysts have developed a straightforward, proven strategy: Buy great businesses at reasonable prices and hold them... FOREVER.
This approach has made many patient investors rich and has led to superior stock returns for The Motley Fool's top-ranked investing services. Year after year, these services have recommended buying companies that have become five-, 10-, or even 20-baggers.
But our analysts refuse to sell and lock in their gains.
Instead, our expert stock pickers, including our chief investment officer, top dividend expert, and CEO, often decide to hold on to their winners for the long, long term. They believe their winners will continue to trounce the market.
And they've agreed to share their highest-conviction stocks in this special report:
With more than 50 years of combined experience in "Foolish" stock picking, these three experts have left no stone unturned in their quest for everlasting stock picks. But their techniques to uncovering "forever stocks" are quite diverse:
Andy Cross, chief investment officer
Newsletters: Stock Advisor, Hidden Gems
"Don't let a year's outperformance scare you away from well-run, financially stout companies. These are the stocks that over time, for patient investors willing to roll with the ups and downs, can deliver market-smashing returns."
James Early, top dividend investor
Newsletter: Income Investor
"Over time, dividend payers have historically outperformed other investments, with quite a bit less volatility -- and that's a win-win for investors."
Tom Gardner, chief executive officer
Newsletters: Stock Advisor, Motley Fool One
"It's no coincidence that the biggest stock winners in Motley Fool history are the companies we've owned for the longest periods of time. Time gives the organizations we invest in a chance to prove themselves."
Andy, James, and Tom employ different methods, but they all agree on one thing: In the long run, stocks look like the best asset to hold -- by a long shot.
To help you select the finest stocks in the market, they've picked three phenomenal businesses they aim to hold for decades. All three companies have already carved out significant market share in their respective industries and have PLENTY of runway ahead. To see the names of these companies, their ticker symbols, and why we strongly believe in these lifetime investments, simply keep reading.
ANDY CROSS' TOP STOCK: MASTERCARD
Chief Investment Officer
Invest in great companies. That's what Warren Buffett's philosophy has evolved into over the past two decades. It also provides a solid foundation for The Motley Fool's investing philosophy, which has paid off handsomely for Buffett and Fools alike over the years. So allow me to alter a Buffett quote uttered after he invested in Gillette in order to give you an idea about why MasterCard (NYSE: MA) is a great company worth owning:
I go to bed happy at night knowing that millions of people are swiping their MasterCards millions of times around the world while I sleep. It's more fun than counting sheep.
And for the record, Buffett's company, Berkshire Hathaway, does own shares of MasterCard. That's a great endorsement, but that alone is not a reason to buy shares of MasterCard today. So let's dig a little deeper to see why this timeless company should be in your portfolio.
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MasterCard processed 34.2 billion transactions in 2012, or 93.7 million each day. Although that looks like a staggering number, we haven't seen anything yet. That's because about 85% of global financial transactions still involve cash or a check. So as the world continues to move from analog (cash and checks) to digital (credit and debit cards), MasterCard will be there for customers, one swipe at a time.
MasterCard owns and operates one of the transactional networks that allow customers to pay with plastic. Competitors include Visa, American Express, and Discover. MasterCard brands its cards for shoppers while the merchant's bank and cardholder's bank carry the credit risk. It's a beautiful and very profitable business model. There aren't many companies that can consistently earn returns on invested capital greater than 35% for many, many years like MasterCard can. And the company looks poised to sustain its advantage for many more.
MasterCard's "Priceless" ad campaign turned a strong brand into a powerful one by associating great experiences with the use of its cards. No wonder more and more consumers and merchants trust MasterCard every day. But the best part is that as each additional cardholder produces more and more incremental swipes, MasterCard's network becomes stronger and more valuable, too.
The combination of a great brand and a strong network gives the company a sustainable competitive advantage. Visa may have the largest network, but MasterCard has the best combination of size and profitability. What's more, MasterCard isn't resting on its laurels. Its mission, according to CEO Ajay Banga, is to win "the war on cash." The company continues to develop new ways to make electronic payments easier, faster, and more secure. At some point, plastic cards will be a thing of the past and people will use their smartphones or biometric data to make transactions. And through it all, MasterCard will continue to be there, processing the transactions in whatever form they take.
This bodes well for shareholders going forward. Analysts expect the company to turn its advantage and its investments in future products into 11.8% annual sales growth and 17.7% earnings growth over the next three years. Let's not forget about the truckloads of cash the company will generate, making MasterCard a timeless stock for long-term investors.
There aren't many companies that can truly stand the test of time and present enticing investment opportunities for shareholders today. MasterCard is one of those rare companies. It is a driving force in the digital payment trend, working to serve all of the constituents: customers, merchants, and banks. And with visionary leader Banga at the helm, MasterCard will continue to get bigger and stronger. Regardless of the medium, payment transactions have to occur. And investors can sleep well knowing MasterCard will be there. Now THAT is priceless.
JAMES EARLY'S TOP STOCK: GENTEX
Top dividend investor
Would you be interested in a founder-led small cap with a focused, easy-to-understand business model, cash-packed balance sheet, dominant market share in a fast-growing industry, and the potential for both a growing dividend yield and sizable long-term capital gains? We thought you might be (and really, who wouldn't?), so today we'd like to introduce you to Gentex (Nasdaq: GNTX).
I’m not talking about Twitter. I’m talking about the one company that’s been steadily growing faster than Google, Amazon.com, and Apple COMBINED... and is now worth a king’s ransom to the handful of early investors who saw it coming. Luckily, there’s still time for YOU to profit. Just click below to reveal this explosive stock uncovered by a team of expert analysts at The Motley Fool!
Gentex is the clear market leader in auto-dimming rearview mirrors, with a commanding 88% share of this high-growth segment. Gentex basically created the market in 1982 when it used its sensor technology to invent the first commercial auto-dimming mirror. CEO and Chairman Fred Bauer remains a driving force behind Gentex's innovation efforts since founding the company in 1974, and his 3.3% ownership stake further aligns his interests with those of shareholders.
Auto-dimming mirrors now account for nearly all of Gentex's revenue, making an investment in the company a pure play on the growth of this impressive technology. And while mirrors may not sound all that exciting, investors will appreciate the 19.7% compound annual revenue growth rate they've helped Gentex produce over the past 25 years. Looking ahead, after having forged strong relationships with nearly all of the major auto companies -- customers include Volkswagen, General Motors, Ford, Mercedes, Toyota, and Honda -- and with a strong reputation for excellent service (the company consistently wins all sorts of supplier-of-the-year-type awards), Gentex's grip on the industry will be difficult for competitors to break.
We see tremendous opportunity in Gentex's shares, based on four key drivers:
With Gentex, the long-term trends are on our side. Like seat belts, radios, and roll-up windows, auto-dimming mirrors will gradually become the norm. That leaves a lot of growth ahead for Gentex -- and a lot of dividend raises and capital gains for investors who buy today.
TOM GARDNER'S TOP STOCK: LINKEDIN
Chief Executive Officer
Thanks to the Internet, we're more connected than ever, and as a result the world is smaller than it ever was before. And while it's still but a pup in the public market, no company connects people via the Web quite like LinkedIn (NYSE: LNKD).
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For the past 10 years, LinkedIn has steadily built the world's most dynamic and largest professional network. Today the company boasts more than 225 million registered users and has the singular vision "to create economic opportunity for every professional in the world." We love companies that reach for the stars.
By management's estimate there are more than 640 million professionals in the world, with more than 3.3 billion people in the global workforce. This of course shows us the tremendous market opportunity in front of the company, yet it doesn't speak to the full advantages of its business model, which offers a healthy diversity of revenue streams. Let's take a look at each of these.
At LinkedIn, we look for leadership to grow value over time and make the decisions that ensure long-term success. Management that treats the business as its most important asset is a key ingredient to a winning investment.
LinkedIn co-founder Reid Hoffman served as CEO before stepping down in 2009 and assuming the role of executive chairman, a position he still holds today. Current CEO Jeff Weiner has held the position since Hoffman stepped down, and helped take LinkedIn public in 2011. Both leaders own shares in the business (a quality we always look for), and while much of this is held by Hoffman himself, it's still encouraging to know that management has skin in the game, aligning their interests with those of shareholders.
Greenfield opportunities exist when companies have the potential for massive growth within their given market. One of the most exciting qualities about LinkedIn is its growth potential. When we find a company that's not only relatively new to its space but also shaping that very market, we take note.
LinkedIn today is an $18.5 billion company; not small by any measure. However, when we consider the market opportunity in front of it, the possibilities are astounding. LinkedIn's trailing-12-month revenue stands at just over $1 billion. Yet its current addressable market is close to $30 billion. Even better, management has grander aspirations of tapping into a worldwide market worth more than $80 billion. Translation: We're still getting in early.
The market is a forward-looking mechanism, and by most conventional metrics, LinkedIn's shares look "expensive." Heck, when the stock IPO'd at $45, it promptly more than doubled on its very first day of trading. The stock closed that day at just over $94, and it's been on fire ever since.
When a company is growing revenue at an annual rate of 15% or better, we like to call it "in demand." Since its IPO in May 2011, LinkedIn has grown its revenue at a phenomenal pace. In fact, 2012 revenues were up 86% from the previous year, and given the market opportunity ahead along with management's continued investment in the business (they intend to invest 25% of annual sales back into R&D), we're confident that LinkedIn is still very much a growth story.
Our estimates are that LinkedIn will be valued at more than $30 billion within five years and more than $60 billion within a decade. The stock rising to that valuation would bring 10-year annualized returns of close to 13% from today.
The elephant in the room is of course Facebook and its recruiting effort in BranchOut. While it seems as if it would make sense to have all of your information, professional and otherwise, under one "roof," according to LinkedIn's research, more than 80% of its registered users prefer to have their social profiles and professional profiles separate. And that actually makes a lot of sense. Recruiters and companies are looking for the right employees with the right skills for the job. Social networking amounts to just a bunch of noise that they may have to sift through. It's inefficient and immaterial.
That leads us to another risk to consider beyond competition, and that is whether LinkedIn's customers are in fact getting value out of the company's offerings. Given LinkedIn's most recent quarter and its recent price increase, it seems safe to say that they are. But if this ever were to change and customers fled elsewhere, we would have to question LinkedIn's future.
In the summer of 2012, Fool CEO Tom Gardner and the recent graduates of our leadership program at The Motley Fool spent an hour face-to-face with LinkedIn CEO Jeff Weiner. He won unanimous support from our group, demonstrating relentless passion and laser-like focus on helping his company transform the world of recruiting. LinkedIn is poised to become the world's dominant professional network, and we have a front-row seat as investors to watch this story play out.
Two of these companies share a unique link. Keep reading to find out exactly what ties them together -- and discover how to get 10 more stock picks -- completely FREE.
My name is Jordan DiPietro. I'm the executive publisher of The Motley Fool's investment newsletters.
As we hinted at earlier, two of the three companies our analysts just wrote about share a common thread. Namely, LinkedIn and MasterCard are both companies hand-selected by Motley Fool Co-founder Tom Gardner as official recommendations in Motley Fool Stock Advisor, the investment newsletter he runs with his brother David.
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All official Stock Advisor returns as of August 13, 2013. Unless otherwise noted, all other numbers as of September 20, 2013. Andy Cross owns shares of Berkshire Hathaway, LinkedIn, and MasterCard. James Early has no position in any stocks mentioned. Tom Gardner owns shares of LinkedIn, Facebook, and MasterCard. The Motley Fool recommends American Express, Berkshire Hathaway, Facebook, Ford, General Motors, Gentex, LinkedIn, MasterCard, and Visa. The Motley Fool owns shares of Berkshire Hathaway, Facebook, Ford, Gentex, LinkedIn, MasterCard, and Visa.