Though amusement parks may not be open due to the coronavirus disease 2019 (COVID-19) pandemic, Wall Street has had all the roller-coaster ride it can handle in 2020 -- and there are still 5.5 months left in the year.
When COVID-19 cases initially began to hit the U.S., the benchmark S&P 500 lost a staggering 34% in 33 calendar days. It was the quickest descent into bear market territory from a recent high in history. But during the second quarter, the S&P 500 delivered its best performance since 1998, with the technology-dependent Nasdaq Composite setting more than two dozen all-time record closing highs this year, despite the pandemic turmoil.
If 2020 has taught or reminded investors anything -- aside from the fact that corrections are impossible to predict in advance with any accuracy -- it's that buying and holding great companies is the easiest and most successful path to wealth creation. Best of all, some companies are so outstanding that there's really no need to ever sell.
If you have $5,000 in disposable cash that won't be needed to cover an emergency or pay bills, you should seriously consider buying these three top-tier stocks with the intent of never selling.
Although Visa is susceptible to a reduction in payment volume crossing its network during periods of contraction or recession, these downward trends in the economy have historically been much shorter than periods of expansion. This means buying Visa would tie your investment to the overall growth of the U.S. and global economy. Historically, that's a winning bet.
Another factor working in Visa's favor is its dominant market share in the United States. Visa's share of credit card purchase volume stood at 53% in 2018, which was up 11 percentage points since 2008. It's in an enviable position, as it's the clear No. 1 in an economy that's highly dependent on consumption and also the largest in the world.
Visa also avoids calamity by focusing on the payment-processing side of the equation and not the lending side. Although this means it's not able to double dip and earn interest income during periods of expansion, it also means there's no direct adverse impact when loan delinquencies rise during contractions and recessions. This has been the key to Visa's 50%-plus profit margin.
History has shown that anytime Visa dips, you buy and reap the benefits of being patient.
Another outstanding business with an incredible moat that you'll never need to sell is surgical system developer Intuitive Surgical (ISRG 1.43%).
Intuitive Surgical is a monster in the assisted-robotics space. It's installed 5,669 of its da Vinci surgical systems worldwide, as of the end of March 2020. You could put all of its competitors together, and they still wouldn't come close to matching Intuitive's footprint over the past two decades. This makes it the clear go-to for surgical systems, and essentially locks in its clients (hospitals and surgical centers) for very long periods of time.
Intuitive Surgical is also built on the razor-and-blades business model. It hooks its clients on the razor, which in this case is its da Vinci surgical system. While pricey ($0.5 million to $2.5 million per system), these systems generally carry mediocre margins. That's because they're intricate and can be costly to build.
The "blades" are where Intuitive Surgical generates the bulk of its margins and profit. These are the instruments and accessories sold with each procedure, as well as the servicing done on each installed system. As the number of installed systems grows worldwide, so will Intuitive Surgical's margins.
Ultimately, this is a company that's just scratched the surface of what its robotic systems are capable of in soft-tissue surgeries. Expect its market share to expand and for earnings growth to outpace sales growth for a long time to come.
Even though CEO Warren Buffett has taken a lot of flak for his "underperformance" of the S&P 500 over the past decade, there's little denying how impressive Berkshire Hathaway (BRK.A 1.71%) (BRK.B 1.36%) has been for the past 55 years. According to the company's 2019 annual shareholder letter, Berkshire Hathaway has delivered compound annual average gains of 20.3% since 1965, working out to an aggregate return of 2,744,062%!
One of the reasons Berkshire Hathaway is so successful is that it has Warren Buffett holding the reins. Buffett is a big believer in buying companies with sustainable competitive advantages and strong management teams, and most important, holding them for exceptionally long periods of time. Many of Buffett's top-performing stocks have been held for two or more decades.
The Oracle of Omaha is also a big fan of cyclical companies, such as bank stocks. Similar to Visa (which happens to be a Berkshire holding), Buffett has tied Berkshire Hathaway's health to that of the U.S. and global economy. Though recessions are an inevitable part of the economic cycle, periods of expansion tend to last considerably longer than retracements.
Don't forget that Berkshire Hathaway has acquired more than five dozen businesses during Buffett's tenure. Even if Berkshire's investments aren't up to snuff in the near term, the company has an array of well-known businesses, such as insurer GEICO and railroad operator BNSF, to pick up the slack. There's pretty much no need to ever part ways with an outperformer like Berkshire Hathaway.