When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.
-- Warren Buffett's 1988 Berkshire Hathaway shareholder letter
When you invest with the mindset of holding for a lifetime, you think differently about the types of companies you want to invest in. While finding companies with a durable competitive advantage is important, identifying skilled CEOs can significantly increase your odds of success.
The following three companies have delivered terrific returns to shareholders and are run by talented leaders who deeply understand their respective markets. Investing alongside these CEOs could increase your net worth substantially if you can patiently hold shares for many years.
1. Nvidia
Nvidia (NVDA -1.99%) stock has been one of the standout performers in recent years. The company pioneered the graphics processing unit (GPU) over 20 years ago for artists and PC gamers. Until a few years ago, selling GPUs to the gaming market was Nvidia's largest business, but the history of the company shows that it has been very successful in adapting its core GPU technology to non-gaming markets.
Credit goes to the leadership of founder and CEO Jensen Huang, who has guided the company since 1993. On the company's fiscal third-quarter 2016 earnings call, Huang told analysts about the need for data centers to invest in GPUs to handle the massive data throughput of user-generated video content and the move to artificial intelligence (AI) to make smarter services.
Huang deeply understands the industry. Nvidia's earnings calls usually include insightful comments about technological trends and opportunities emerging on the horizon. An investor who was listening to that earnings call and put $1,000 in Nvidia stock would currently have $62,000.
What is CEO Jensen Huang talking about now? He made this statement on the company's recent call in November. "Generative AI is the largest [market] expansion of software and hardware that we've seen in several decades," he said. Nvidia's data center business is reaping the returns of this booming demand, driving the company's revenue up 206% over the year-ago quarter. The data center segment now makes up 80% of Nvidia's business, and it is doing everything it can to meet the demand for advanced GPUs needed for AI.
Nvidia has always been on the cutting edge -- first with gaming graphics cards and now with AI chips and systems. It is arguably the most important tech company in the world. It provides the essential hardware cloud computing companies need so they can provide AI services to clients all over the world. If you have some extra cash, this stock is worth at least a small allocation in a well-rounded portfolio.
2. Constellation Software
Shares of Constellation Software (CNSWF 0.57%) have rocketed over 1,200% over the last 10 years. It's one of the highest-performing software businesses that no one talks about on Wall Street. A handful of analysts cover the stock, yet this software conglomerate has grown revenue and free cash flow at 22% and 25%, respectively, over the last 10 years.
Constellation delivered these impressive returns by operating as a value investor in the vertical software market. It acquires small software companies at attractive valuations and never sells. These companies span just about every industry, from energy to healthcare to financial services.
The company was founded by Mark Leonard in 1995. Before that, Leonard spent more than a decade working in venture capital, which is known for making lots of bets on high-risk start-ups, but that's not how Leonard runs Constellation Software. He has established an incredible record of making value-based acquisitions that create lasting wealth for shareholders.
Despite acquiring dozens of software companies, Constellation still has some growth left in the tank. Revenue grew nearly 30% in 2022 after management spent $1.6 billion on acquisitions. The stock isn't cheap, trading at a high multiple of 31 times trailing free cash flow, but investors who patiently hold shares should see returns that roughly follow the growth of the business.
3. Tesla
Investing in companies that provide essential services is a great strategy to find long-term winners. We've seen how it worked out for Nvidia and Constellation Software, but the growth trajectory that Tesla (TSLA 1.50%) has been on puts those companies to shame.
Tesla's revenue has increased at a 69% annualized rate since 2013, and it continues to put up impressive numbers, with 70% growth in 2021, followed by 51% last year. The macroeconomic headwinds pushed growth down to single digits in the third quarter, but Tesla isn't done growing by a long shot.
Tesla has tangible advantages with its vast footprint of charging stations around the U.S. It is a testament to CEO Elon Musk's skills as a manager that the company has successfully competed against the leaders of the auto industry that have been around for more than a century and is achieving industry-leading profitability in the process.
It is not too late to buy Tesla stock. While the company currently sports a market cap (share price times total shares outstanding) of $800 billion, Tesla's growing capabilities in AI software and small market share in car sales across the entire auto industry suggest more growth ahead.
While electric cars are still a big opportunity, Tesla's work on humanoid robots and robotaxis also suggests a company that is potentially serving a market much broader than electric cars. Musk is positioning Tesla to offer a range of products over time that increase productivity and grow the global economy. If Musk's vision comes to reality, you may regret not buying the stock.
