3 Companies to Hold Forever

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"Our favorite holding period is forever."

                                                             -Warren Buffett

Investing for the ultra-long term can be one of the most powerful strategies for success. When buying the right companies, the longer your holding period, the higher your chances of successful results. Companies with strong and sustainable competitive advantages add value in the long term regardless of external conditions, and this puts time on your side when investing in this kind of business.

Buffett´s empire
Berkshire Hathaway (NYSE: BRK-B  ) (NYSE: BRK-A  ) is probably the ultimate candidate to buy and hold forever. The company is a collection of high quality businesses carefully selected by Warren Buffett himself through the decades, and it offers exposure to a variety of sectors including insurance, railroads, consumer, industrials, financial services and utilities among others.

Quality and diversification make Berkshire Hathaway a top notch core holding of any long-term portfolio, even if investors are understandably concerned about Buffett´s succession. The Oracle of Omaha is already 83 years old, so the transition is a risk to consider in the medium term.

Berkshire´s operating subsidiaries are managed quite independently by their respective management teams, so there won´t be many changes after Buffett is gone. But investment management is a critical area in which Buffett is irreplaceable.

On the other hand, Buffett himself has admitted that he can no longer generate the same kind of returns he produced when he was managing a smaller portfolio. Size is a big limitation to portfolio returns at this stage, so Berkshire won´t necessarily generate much lower returns from investments after Buffett is gone.

Every one of Berkshire´s holdings has been selected based on its sustainable competitive advantages, and the sum of all those companies adds the benefits of diversification to the mix. Unfortunately, Buffett won´t live forever, but Berkshire is built to last.

Always Coca-Cola
Coca-Cola (NYSE: KO  ) is not only one of Berkshire´s biggest holdings, it has traditionally been considered a paradigmatic example of Buffett's investment philosophy, and for good reason.

The most critical aspect to consider when looking for a company to hold forever is competitive advantage: Coke enjoys unparalleled brand recognition and a gigantic global distribution network that sets it apart from the competition and would be almost impossible to replicate by new entrants. Economies of scale and abundant financial resources are extra sources of competitive strength for the company.

Soda consumption in developed countries has been stagnant lately due to market saturation and changing consumer habits toward healthier nutritional standards. But Coke is adapting to these changes with healthier products like its Dasani waters and Powerade sports drinks, consumer tastes may change over time, but Coke has the strength to remain the leading player in its industry for the long term.

A magic company
Disney (NYSE: DIS  ) benefits from its tremendously valuable intellectual property, which sets it apart from the competition. The company owns brands like ABC, ESPN, and Pixar among others, and it has the rights to profit from an amazing portfolio of fictional characters, from Mickey Mouse to Darth Vader, going through many of the most popular and recognizable names in the industry.

Disney has the ability to monetize its characters and franchises across multiple platforms: movies, shows, home videos, theme parks, merchandising etc. This provides a lot of leverage when it comes to making money from its properties, and it´s an unparalleled advantage in the media and entertainment industry.

Even if discretionary spending can be cyclical, Disney is an intergenerational company which has successfully gone through all kind of economic scenarios in the past.  Technological change is always a risk to watch, especially when it comes to the online streaming revolution, but Disney seems to be integrating quite well into the streaming paradigm.

In December of last year Disney and Netflix made an agreement giving Netflix the rights to stream new releases, including those from Pixar and Marvel, starting late 2016. Financial terms of the agreement were not officially disclosed, but analysts estimate that Disney will be receiving something in the area of $300 million per year from this deal.

While companies like Netflix, Amazon and others continue competing against each other for valuable content to add to their streaming libraries, high quality content producers like Disney stand to benefit from higher prices due to this bidding war. The streaming revolution may actually be a positive driver for companies like Disney.

Bottom line
Selecting investments with a long term mentality is not only a time-proven method for success, it can also provide peace of mind in times of economic and political uncertainty. Companies like Berkshire, Coke and Disney can help you beat the market over years to come while at the same time allowing you to sleep smoothly at night knowing that your capital is well protected.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 25, 2013, at 12:59 PM, Gw191 wrote:

    Vices are forever.

    Have a smoke?

  • Report this Comment On September 25, 2013, at 1:37 PM, Seank999999 wrote:

    Here's a thesis that has not yet been considered. Typical during a boom inflation reaches pretty high levels as demand exceeds supply. During our boom till 2008 inflation was kept down by the "made in China factor". This was primarily driven by very low payroll costs there. Such low levels of cost has been pretty much eroded to nothing now taking into account the high shipping costs to the consuming markets. Add to this over a 10 year period pretty huge commodity inflation and huge huge growth in money supply. This all adds upto an inflation bubble on the horizon. Perhaps of the magnitude of what was seen in the 70s and 80s. So from an investors perspective what to do? Well Large Caps like Coca-Cola can and will be able to pass on the full inflation impact to their consumers. Thus resulting in potentially huge earnings growth. Small caps can't do this. End result over a 10 year period will be those invested big in large caps will make a lot of cash and investors in small and medium could lose their shirts.

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Related Tickers

9/27/2016 4:00 PM
BRK-A $217960.00 Up +1800.00 +0.83%
Berkshire Hathaway… CAPS Rating: *****
BRK-B $145.34 Up +1.16 +0.80%
Berkshire Hathaway… CAPS Rating: *****
DIS $91.72 Down -0.24 -0.26%
Walt Disney CAPS Rating: *****
KO $42.59 Up +0.54 +1.28%
Coca-Cola CAPS Rating: ****