When you think of investing with an eye toward never selling, it makes you think differently. There are two things this approach changes. First, you consider buying only shares of companies that have impenetrable competitive moats. Second, because you're investing in companies with durable competitive advantages, you don't worry about market volatility. Wide-moat companies get stronger during tough economic times and keep growing over the long term.
Diversify with hard assets
Brookfield Asset Management is one of the world's largest owners of infrastructure and real estate properties. The company has $331 billion of assets under management, which it invests in businesses that form the backbone of the global economy. It owns 138 million square feet of total office space, spanning some of the largest cities, and owns businesses operating in every major industry, including utilities, logistics, transportation, financial services, and energy. A few of its prestigious real estate properties include Canary Wharf in London and the Atlantis hotel in the Bahamas. Its impressive portfolio of assets churns out steady cash flow for the company to reinvest or return to shareholders in the form of dividends and share repurchases.
Brookfield's modus operandi is simple: Attract capital from institutional investors, and invest that capital in high-quality assets when they're on sale.
Here are a few examples of the kinds of deals Brookfield is known for. In 2009, Brookfield bought General Growth Properties, one of the largest mall operators in the U.S., which was going through bankruptcy because of previous management mistakes. More recently, in the third quarter of 2018, Brookfield acquired Westinghouse, one of the oldest electric utility companies in the U.S., for $4 billion, and again out of bankruptcy. Generally, Brookfield buys businesses where management sees an opportunity to improve operations and squeeze more profit out of the business over the long term. This value-based approach has delivered handsome gains for shareholders of 663% over the past 15 years, significantly outperforming the S&P 500 return of 144%.
Brookfield is one of the few alternative asset managers in the world capable of making multibillion-dollar deals, which means it runs into less competition when an opportunity presents itself. This advantage, coupled with management's value-based approach, should deliver good returns for shareholders for many years to come.
A royalty on every card swipe
Mastercard has been very consistent in its operating performance, and that consistency has translated to impressive gains of more than 4,000% for shareholders since the stock's IPO more than 10 years ago. The company has 2.47 billion cards active around the world and an irreplaceable transaction network that allows the company to serve as a tollbooth operator in the global economy. Every time someone uses one of its cards at the checkout, Mastercard earns a fee.
Mastercard is benefiting from a secular trend of the shifting of global payments from cash to electronic forms. Revenue has grown by 68% over the past five years. In the third quarter of 2018, revenue and operating income increased 15% and 19%, respectively. Analysts expect the company to grow earnings 22% annually over the next five years.
The company should be able to maintain this level of growth for a long time, given that cash and checks still make up 80% of all transactions. Obviously, management's primary focus is to convert those cash payments into electronic ones. Given the consistency and enormous long-term growth runway in front of the company, Mastercard is a stock I don't want to sell.
A growing legion of Amazonians
Amazon is a personal pick. I started placing a few orders per year on Amazon around 2002, and I kept buying more until I got to the point of becoming a Prime member. Now I get regular monthly shipments for all kinds of household essentials. My relationship with Amazon has influenced my shopping behavior in just about everything else, in that I try to buy everything online as much as I can.
It's estimated that Amazon had 100 million Prime members as of last year, which is more than double the 40 million it had achieved in early 2015. That's a growing list of 100 million shoppers who are likely to be loyal Amazonians for life. Clearly, millions of people are satisfied with Prime, even as Amazon has increased the annual cost of being a Prime member from $79 to $119.
I also like how Amazon is leveraging the benefits of Prime by offering special discounts in Whole Foods stores. I can see Amazon eventually expanding other stores, including Amazon Go and Amazon bookstores around the country, offering special discounts for Prime members who visit a store.
Amazon generated $220 billion in revenue over the past year, and those sales grew 37% year over year. And it's not done. There are still so many ways I can see Amazon continuing to dominate, from gaming to the cloud to healthcare and more -- and that's why I don't plan on ever selling my shares.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. John Ballard owns shares of Amazon, Brookfield Asset Management, and Mastercard. The Motley Fool owns shares of and recommends Amazon and Mastercard. The Motley Fool owns shares of Brookfield Asset Management. The Motley Fool has a disclosure policy.