It's the long-term buy-and-hold investor's biggest wish: to find a stock they can buy and forget about as it climbs steadily over the decades. Looking back, it's easy in hindsight to find plenty of good candidates for good stocks to hold for a lifetime. In revealing the secrets of nine-figure fortunes, fellow Fool Todd Wenning points out several of these long-term winners, including Fortune Brands (NYSE:FO) and Kroger (NYSE:KR). Even though there were plenty of opportunities for holders of these stocks to sell out for a nice profit, investors would have had a hard time doing better than just sticking with them for the long haul.
On its surface, this strategy sounds like the best of all worlds. You've got a great stock, so it's easy to conclude that you don't need to do any continuing research; all you have to do is sit back and watch those dividends either come in the mail as checks or buy more shares through dividend reinvestment plans. In fact, even thinking about selling would not only potentially cost you huge amounts of money, but also go against the advice of parents and grandparents who founded the family fortune. Their words may echo across the years: "Never sell that stock...."
Ashes to ashes
Unfortunately, not all stocks prove worthy of this timeless devotion. Companies can make fundamental changes to their business strategies over the years, making stock your parents or grandparents first added to their portfolio generations ago far different from the stock you hold today.
In itself, there isn't anything wrong with that. It's hard to imagine a company lasting for decade after decade without creating new innovations and modernizing its operations to adapt to new business conditions. Yet the course corrections that company executives make throughout the lifetime of their business can have dramatic effects, not only on stock prices, but also on the essential characteristics of the business itself. While some of these changes can bring big profits to shareholders, other can create tragic stories for investors and their families.
Once upon a time, there was a huge business called the Montana Power Company. Ever since the time when waves of homesteaders were still crossing the Great Plains to find open land of their own, this utility company had delivered electricity and natural gas to hundreds of thousands of residents across the Big Sky. It was one of the state's biggest employers, and the impetus for some of Montana's largest construction projects. The business brought some of the lowest utility rates in the country to Montana's residents, despite the challenges of building and maintaining infrastructure to support an area with a population density still considerably less than 10 per square mile.
From a financial perspective, Montana Power was just as successful. Like many utility stocks, Montana Power paid a sizable dividend and had a relatively stable stock price. Many families of employees were heavily invested in Montana Power stock in their retirement plans, and surviving spouses were urged to hold onto the stock no matter what. The stock wasn't exciting and didn't hold much promise for huge appreciation, but as an income generator for shareholders on limited incomes, Montana Power was a useful investment for thousands of Montana residents.
The big change
In the 1990s, many states began to consider deregulating utilities, including Montana. Montana Power saw an opportunity to make a dramatic shift in its corporate strategy. In the new deregulated environment, many utility companies had to choose their focus: generating power, or delivering power to consumers. Montana Power chose an even bigger transformation.
First, in 1997, it sold its electrical generating plants to PPL Resources (NYSE:PPL). Shortly thereafter, it also sold its transmission and distribution facilities to another company, Northwestern Energy (NASDAQ:NWEC), completely divesting itself of all of its utility-related business.
Instead of continuing to operate as a utility, Montana Power sought to become a high-tech telecommunications company. Changing its name to Touch America, the company initially benefited from the run-up in tech stocks in 1998 and 1999. However, when stocks began to fall in 2000, the company suffered, losing 90% of its value by September 2001. Its dividend was quickly eliminated, and in the end, Montana Power shareholders could only get pennies for their shares.
A lesson learned
The rise and fall of Montana Power earned the company some notoriety nationally, including a story on 60 Minutes, although its impact was felt less strongly amid the Enron debacle and the general carnage among the vast majority of technology-related stocks. But it was difficult for many shareholders to understand how a company that had been a stolid, secure investment for 85 years could suddenly reinvent itself in such a self-destructive manner. In addition, the severance packages that some company executives received had shareholders fuming.
As an investor, you can never be absolutely confident that a company whose stock you own will continue to be a profitable investment throughout your lifetime, much less the lifetimes of your children and grandchildren. For every company like IBM (NYSE:IBM) and AT&T (NYSE:T) that survives across the generations, hundreds of companies wink in and out of existence like shooting stars, creating huge gains and losses for investors in a flash of brilliance that quickly wanes to darkness. Sadly, many corporate executives receive greater rewards for short-term gains than for long-term strategic thinking that will ensure the ongoing survival of the company.
Every investor hopes to find a stock they'll never have to sell. However, given the ability of corporate management to make dramatic changes that transform the identity of a company, you must remain vigilant in monitoring their actions and their effects on your investment. When it comes to considering a sale, you can never really say never.
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Fool contributor Dan Caplinger worked with dozens of people who owned Montana Power stock during his stint as a trust officer. He doesn't own any of the companies mentioned in this article. AT&T is a former Motley Fool Stock Advisor pick. The Fool'sdisclosure policywon't ever suffer from deregulation.
