Let's get this out of the way right up front: Forever is a very long time and it almost seems disingenuous to suggest it. In all honesty, nobody knows what will happen tomorrow or a year from now, let alone in five or ten years' time -- or forever.
That said, Berkshire Hathaway (BRK.A 1.18%) (BRK.B 1.30%) CEO Warren Buffett has said, "Our favorite holding period is forever." And given his enviable track record, investors could do far worse than following his example. Since Buffett took the helm of Berkshire Hathaway in 1965, the company has had a compound annual growth rate of more than 20%, and by the end of 2019, its total returns have grown to a whopping 2,744,062%.
There are a number of criteria investors can use to increase the likelihood that a stock will still be successful decades from now. Buying a firmly entrenched industry leader, a company with a track record of innovation, or one with the ability to adapt to changing conditions can all improve your chances of success. Let's look at why Visa (V -0.59%), Amazon (AMZN -2.56%), and Apple (AAPL -1.22%) represent great "forever" stocks.
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1. Payments titan Visa
When it comes to dominating the payments industry, Visa (V -0.59%) simply has no equal, accounting for more than 53% of U.S. credit card network purchase volume, totaling nearly $2 trillion in payments processed -- more than all three of its biggest competitors combined.
The company has another huge advantage over its chief rivals, particularly in times of economic uncertainty: While it processes payments, it's not a lender. Unemployment rates, while showing marked improvement in recent months, are still near record highs, raising the risk of credit delinquency and default.
Not content to rest on its laurels, Visa recently made a big bet on fintech, spending more than $5 billion to acquire financial technology provider Plaid. While the company wasn't a household name, many have used it without knowing it, as its technology secures users' financial information while connecting their bank accounts to a growing number of financial apps.
There's a whole big world out there and Visa still has international markets to conquer. The company estimates that cash is still used in annual purchases of more than $21 trillion and there are nearly 2 billion adults who don't yet have a payment account, showing the enormity of the opportunity that remains.
Buffett's still a believer, holding nearly 10 million Visa shares, worth almost $2 billion.
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2. It's still Day One at Amazon
Amazon (AMZN -2.56%) dominates not one, but two industries: e-commerce and cloud computing.
While estimates vary, eMarketer contends that Amazon will account for 38% of online sales in the U.S. this year, while its nearest competitor Walmart will top out as less than 6%. Those estimates could prove conservative, as more consumers made the move to e-commerce in the midst of the pandemic. Amazon has also been working to increase its international penetration in recent years, so it too has worlds yet to conquer.
When it comes to cloud computing, Amazon popularized the notion and was among the first to recognize the massive opportunity. Being one of the first out of the blocks gave Amazon an advantage it still enjoys today. Amazon Web Services is still the undisputed leader in cloud computing, with a 33% share of the market -- more than its next three competitors combined, according to estimates by Synergy Research Group. It's also extremely lucrative, accounting for 25% of Amazon's sales and 65% of its operating income for the first half of 2020.
It may be the company's culture of innovation and expansion that makes it a forever stock, however. While Amazon began as an online bookseller, it has evolved into the "everything store." In addition to its e-commerce empire, the company has a sprawling logistics and delivery operation, a growing footprint in physical retail, leading streaming video and music offerings, and a massive artificial intelligence operation, including a growing ecosystem of Alexa-powered devices. Not to mention that Amazon has quickly become the third-largest digital advertiser in the country. And its Amazon Go stores -- which eliminate the need for cashiers -- are just getting started.
Buffett famously said that he regretted not investing in Amazon earlier. "I'm a fan [of Amazon], and I've been an idiot for not buying," Buffett said in an interview. It was one of Buffett's trusted money managers Todd Combs or Ted Weschler who eventually pulled the trigger.
That position has grown to more than half a million shares, valued at $1.66 billion.
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3. Apple's prescient pivot
Apple is another company that has given new meaning to "industry-leading." While most companies would be happy with just one groundbreaking product, Apple has had several over the years. No competitor came close to the dominance of the iPod, a product Apple famously cannibalized with the introduction of the iPhone.
While the company has never been the global market share leader, iPhone has the distinction of gobbling up the majority of the profits. Apple captured about two-thirds of all profits in the global handset market last year, more than its next three competitors combined.
The company has other industry-leading products as well. The Apple Watch began as a sideline when it was introduced back in late 2014, but in just five short years, the device outsold the entire Swiss watch industry. Apple's wireless AirPods are another product line that dominates the market, accounting for nearly half of all sales in the category in 2019.
Apple is no longer counting on its fan-favorite products to fill its coffers. The company has worked to rapidly expand its services offerings over the past several years, with streaming music and video, mobile gaming, and digital payments, to name just a few. That strategy is bearing fruit, as services has grown to nearly 19% of Apple's trailing-12-month revenue, up from less than 12% just four years ago.
It's also worth noting that Apple is Buffett's largest holding, representing nearly half of Berkshire Hathaway's invested assets. "We bought about 5% of the company. I'd love to own 100% of it," Buffett said in a 2018 interview. "We like very much the economics of their activities. We like very much the management and the way they think." That's high praise indeed coming from one of the world's most successful investors.
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But seriously, forever?
When it comes to investing, there are simply no guarantees, but choosing industry leaders with ongoing opportunities will certainly increase the likelihood of success. While Buffett's favorite holding period is forever, even the storied investor has sold distressed companies in beaten-down industries, with 2020 seeing his biggest turnover in years.
That said, it takes a certain caliber of company to become an industry leader, and it's even rarer to find those that simply dominate the competition. Each of these top-notch companies has what it takes to succeed for years and perhaps even decades to come.
