The U.S. stock markets rank among the greatest creators of wealth that humankind has ever known.
That's why individuals such as Warren Buffett, Peter Lynch, and Philip Fisher have built fortunes for themselves, and for investors, by carefully researching stocks and buying great companies.
They inspire hope that we can do the same.
Replicate their riches
But what separates Buffett, Lynch, and Fisher from most investors is their disciplined and decades-long commitment to learning. That's what made them masters. To build our own fortunes in the stock market, then, we must learn about the past with as much zeal as we predict the future.
With that as an introduction, I'd like to examine one key trait of the stock market's biggest long-term winners. Over the years, winning stocks have increased hundreds of times in value, thanks to one simple key: The organizations were built to last 100 years or more.
A profit panacea
What does such an organization look like? The writings of Buffett, Lynch, and Fisher provide some hints:
- Management of unquestionable commitment and integrity.
- A long-term view toward value creation.
- Relentless focus on dominating and growing its economic niche.
While this short checklist is by no means exhaustive, it's worth assessing all of your holdings against it. Companies such as Red Robin Gourmet Burgers (NASDAQ:RRGB) and Tempur Pedic (NYSE:TPX), for example, are piling up obligations. Are they considering the consequences for the next decade, let alone the next century?
Contrast that with Nike (NYSE:NKE) or JM Smucker (NYSE:SJM). The two companies are models for employee relations and have built extremely strong corporate cultures. Among smaller companies, the good employee relations and positive customer reviews of Bright Horizons (NASDAQ:BFAM) indicate a brand and a concept that is being built to last.
Why this? Why now?
This lesson is in my head because of a challenge issued seven years ago on our discussion boards by a Buffett critic. He wrote, "I invite any of you to compare the returns of CMGI or Internet Capital Group to the returns of Berkshire Hathaway over the next 20 to 50 years and see which does better."
We're just seven years out, but the "challenge" is long over. Since the date of that post, CMGI and Internet Capital Group are each down more than 90%. Berkshire has nearly doubled and remains, by my calculations, undervalued.
After all, with Warren Buffett at the helm, Berkshire has a model CEO. His judicious use of the company's cash hoard and refusal to split the stock despite widespread criticism are evidence of his long view. And the current marketing innovations by GEICO, as well as recent complementary acquisitions, indicate that this $170 billion organization isn't yet resting on its laurels.
Put theory into practice
At Motley Fool Stock Advisor, Fool co-founders David and Tom Gardner focus on finding precisely these types of organizations. Often, the recommendations look very different. The companies may be small or large, a video game maker or a reinsurer, dividend-paying or not. But what they share is the potential to achieve greatness over the next 100 years or more and to make a fortune in your portfolio along the way.
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This article was first published on Feb. 8, 2007. It has been lovingly updated.
Tim Hanson owns shares of Berkshire Hathaway. Berkshire Hathaway is a Motley Fool Inside Value and Stock Advisor pick. No Fool is too cool for disclosure, not even Tim.
