It might sound overly bold. Hold forever? Seriously?
I'll admit no one can predict the future, and there are times when one might be forced to sell. But this is more about mindset: if you make a vow to hold a stock forever, you'll approach the requisite ups and downs of investing with far more equanimity.
By picking "hold forever" stocks you can rest easy. Image source: Getty Images
In my own portfolio, I have three stocks that have "Hold Forever" status. Since 2009, I've only sold shares of any to make a down payment on my house.
This mindset has helped me to achieve market-thrashing results, and these three stocks have grown to be a (perhaps imprudent) 48% chunk of my real-life holdings. Read below to find out why I think you, too, should consider making Amazon (AMZN -3.14%), Facebook (META -5.14%), and Alphabet (GOOG -1.69%) (GOOGL -1.83%) "hold forever" stocks in your own portfolio.
Start with a solid mission
I've long believed that a mission statement is the quickest window into the soul of a company. The best long-term investments tend to have three things in common when it comes to mission statements:
- Simplicity: Any employee could reference the statement to dictate a business decision.
- Inspirational: The company's goals go beyond simply making money.
- Indicate multiple futures: They leave the possibility for multiple ways to accomplish the given mission.
Here's a closer look at the mission of all three investments.
|
Company |
Mission Statement |
|---|---|
|
Amazon |
"To be Earth's most customer-centric company" |
|
|
"To bring the world closer together." |
|
Alphabet |
"To organize the world's information and make it universally accessible and useful." |
Data source: Company websites. Note Alphabet's mission is technically the mission of its major subsidiary, Google.
Add a solid moat
Of course, anyone can write a glowing mission statement. And some companies even experience short-term success without one. But none of it matters if you don't have a sustainable competitive advantage -- otherwise known as a "moat."
If a stock is "hold forever", then you have to be able to foresee a future where the company's success attracts competition, yet the company is still able to thrive. Here's the key moat that each of these three companies has.
|
Company |
Moat |
|---|---|
|
Amazon |
Low-Cost Production: Because of its network of fulfillment centers, no one can offer faster delivery at the prices Amazon does through Prime. Network Effects: As more shoppers flock to Amazon, third-party merchants are more willing to sell on the site and use Fulfillment by Amazon (FBA). |
|
|
Network Effects: With each additional person that joins Facebook, Instagram, or WhatsApp, non-users are further incentivized to join the platform. |
|
Alphabet |
Low-Cost Production: Because it has seven services (search, Gmail, You Tube, Play Store, Chrome, Android, and Maps) with over one billion users, Google can "produce" data for advertisers at far cheaper than anyone else. |
Evolution is about adaptability
Of course, if I really believe that a company is worth holding forever, I also need to accept the fact that it will probably look much different twenty years from now than it does today. That's why the third prong of the mission statement -- multiple futures -- is so important.
While we can never know what the future might look like, all three of these companies have shown a remarkable nimbleness given their size.
- Amazon started out as a book seller, but has moved onto everything retail, cloud hosting, original programming, and even delivery services in the name of customer service.
- Facebook's Messenger is just one example of how the website evolved from connecting friends on desktop computers to becoming a virtual texting service.
- Alphabet has entire divisions -- starting with X, the Moonshot Factory -- devoted to investigating breakthrough technologies.
Strong balance sheets
The most important benefit of the "hold forever" mentality is how it forces an investor to grin and bear it during tough economic times, resisting the urge to sell based on emotions. If anything is really "hold forever", you need to accept that difficult economic times will be coming.
When a company has a strong balance sheet, it can actually emerge from recessions stronger than it was before by buying up stock on the cheap, acquiring distressed rivals, or simply outspending the competition to gain market share.
All three of these companies have outstanding financial fortitude.
Financial Fortitude at "Hold Forever" Companies
Infogram
Founders with skin in the game
Finally, I like investing in companies that are still run by their founders, who usually own a significant portion of the stock and voting rights. Founders often view their companies as extensions of their very selves. When that's the case, they're concerned with creating something that has lasting value -- a key trait of "hold forever" companies.
Amazon, Facebook, and Alphabet are all run by founder/CEOs who match this description.
|
Company |
Founder |
Value of Shares Owned |
Percent of Voting Rights |
|---|---|---|---|
|
Amazon |
Jeff Bezos |
$80 billion |
16.9% |
|
|
Mark Zuckerberg |
$71 billion |
59.7% |
|
Alphabet |
Larry Page |
$20 billion |
25.9% |
Data source: Most recent DEF 14-A filings for each company. Value of shares owned rounded to nearest billion USD.
By investing in these companies, you're investing alongside the people building them; your interests are aligned.
While the term "hold forever" may be hyperbole, the mindset that it induces is more valuable than you may think. Focusing on these factors -- and starting with these stocks -- you should be able to build a very successful portfolio of such holdings.
