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Back when I was an analyst, I had the luxury of time -- time to do lots of research, dig into filings, explore conference calls, and even call C-level executives. That was fun (yeah, I'm wild), but I'm no longer an analyst. The way I invested had to evolve.
What I needed (and what many busy, nonfinancial professionals who frequent this site need as well) were the types of investments that could last a lifetime.
I can't afford to dig into tremendous detail and stay abreast of every little event. I've got bigger fish to fry. It's critical that I find the type of stocks that:
- Don't implode.
- Perform well on an absolute basis.
- Beat inflation.
- God willing, beat the market.
I'm looking to hold these stocks not over a period of a few weeks, or even a few years, but an entire lifetime. I'm still a (relatively) young guy and I intend to pass my portfolio down to what hopefully turns into a house teeming with children and dogs.
To paraphrase the insightful words of Peter Lynch, what I'm really doing is looking for businesses that any idiot can run, because that's probably what's going to happen. Therefore...
Here's what I look for
1. A sustainable competitive advantage. Brand, style, and design are fickle, which is why I can't say I'll own shares of Apple forever. A great business does something special that others cannot easily replicate. If you want to read the bible on this issue: Here you are (link opens pdf file).
2. Businesses that churn cash efficiently and don't put their assets at risk. It's all about that FCF and that ROIC, baby. That second part essentially means I avoid financials like the plague. Dividends are a plus, but not a requisite.
3. Products and services that people adore or must have. Addiction in its various forms is a plus.
4. Management that commands respect. My previous comments aside, this is a very good thing to have. Twenty years from now, who knows who will be running a company, but you can give yourself some protection by aligning yourself with the right team in the present.
Everything else is ancillary when compared to these four, foundational elements.
Five stocks to get you started
I strongly prefer to get my analysis from people who have skin in the game, so I'll readily disclose that I already own all these stocks:
|Berkshire Hathaway||(NYSE: BRK-B )||You can't dispute that this portfolio of businesses has all the attributes necessary to crush the market. Boring, yes. Rewarding, absolutely. Resist the urge to complicate things. Stick your cash with the people and the companies that are legends in their present incarnation.|
|Philip Morris International||(NYSE: PM )||Smoking is a filthy habit. But if you're an adult and you've willingly decided to light up, so be it. And if you've decided you need to so badly that you're willing to pay 10 bucks a pack on the regular for it, even better. As an opportunistic investor, I'm not going to pass that up.|
|Walt Disney||(NYSE: DIS )||It's all about the love. Whether a direct Disney consumer or as the parent of one, it's difficult to argue that the company is a business that doesn't have long-term success ingrained in its DNA. Between ESPN, Marvel, Pixar, and the other properties that Disney controls, this company makes people happy, and that means $$$.|
|Visa||(NYSE: V )||I love the gatekeepers. Visa owns the channels that are being used to facilitate a massive (and growing) number of commercial transactions worldwide. I can't imagine a better competitive position to be in. Success is never guaranteed, but Visa has a head start. MasterCard is just as relevant, by the way.|
|PepsiCo||(NYSE: PEP )||Having traveled across the globe since I was a kid -- into the developed and not-so-developed world -- I feel comfortable saying that the love of crap that makes you fat is not an American phenomenon. Pepsi makes lots of that stuff and people dig it. It has the supply chain, the relationships, and the visibility necessary to get people their salty and sweet fix on a global scale and keep them asking for more.|
I could easily prattle off 20 more companies like the ones above -- ones in which I have a reasonably high degree of confidence.
The Foolish bottom line
This knowledge is neither original nor is it hard to incorporate. If you're like me and you struggle for time to get into the weeds and truly understand shorter-term opportunities, consider simplifying by adapting this approach. I don't make promises, but I'll be shocked if my kids aren't thrilled with the results.