Please ensure Javascript is enabled for purposes of website accessibility

Companies You Should Buy Right Now

By Brian Richards - Updated Nov 11, 2016 at 3:58PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Don't mess around when it comes to your wealth.

The stock market is fundamentally different than it was a decade ago. The Internet, frankly, changed everything.

While we take it for granted now, the Web democratized the buying and selling of stocks in an unprecedented way.

Party at the moon tower
Equities, for one, have become more accessible in two ways:

  1. Internet-based discount brokerages provide a dirt-cheap alternative to buying stocks through very costly full-service brokerages. Not only are investors saving money on commissions in general, but we're able to buy shares in small lots and still keep commissions to less than 2% of our investment.
  2. The volume of information on stocks and funds is arresting. Anyone with a computer can now access the same information and tools as professional investors.

That's not just theoretical, either. According to a recent study by the Investment Company Institute, of the millions of households that own shares in mutual funds, "the Internet has become central to many shareholders' management of their finances. About eight in 10 shareholders with Internet access go online for financial purposes, such as to check their bank or investment accounts, obtain investment information, or buy or sell investments."

Shameless Spider-Man reference ahead
With great power, though, comes great responsibility. And data shows that such empowerment sometimes backfires.

As Fool co-founder David Gardner has said time and again, "The market is so short-term." The real-time streaming quotes, daily news stories, frequent analyst upgrades and downgrades, and quarterly earnings reports program investors into a certain mind-set, where minute-to-minute information becomes more significant than it needs to be. Investors, in short, outsmart themselves.

That's a conclusion from the work of professors Brad Barber and Terrance Odean, who studied the investing habits of 60,000-plus individual investors in the 1990s. They found that investors moved in and out of stocks far too frequently, thereby suffocating returns and generating excess tax and trading costs to boot. Put more simply, they concluded that "trading is hazardous to your wealth."

Why, then, do investors trade so frequently? In the words of Barber and Odean, "We believe that these high levels of trading can be at least partly explained by a simple behavioral bias: People are overconfident, and overconfidence leads to too much trading."

See, information breeds confidence. Many investors today -- pros and amateurs alike -- believe that they can know more than their fellow investors. But here's something we pretty much take as gospel these days: If you discovered a "trading signal" on the Internet, hundreds of thousands of other people did, too.

Get out of that mind-set
The recent market nosedive, and the subsequent doom-and-gloom news headlines, have been stressful. We've received a ton of email from folks wondering the same thing: What should our next move be? As we see it, the rules of the game haven't changed -- if you're seeking long-term wealth from the market, live by three rules:

  1. Buy great companies ...
  2. at good prices ...
  3. and be patient.

The first point is paramount. "Buying companies" is much, much different from "trading stocks." It's also a lot easier and a lot more reliable. So if you want to make serious money in stocks, start with great companies.

Easier said than done
What makes a great company? That's the rub. There can be a lot of ways to measure greatness. (NASDAQ:AMZN), for example, has a high net promoter score. United Parcel Service (NYSE:UPS), McDonald's (NYSE:MCD), and Kellogg (NYSE:K) have nearly unmatched brand and marketing savvy. Johnson & Johnson (NYSE:JNJ) and Intel (NASDAQ:INTC) have long histories of innovation and devote significant resources to R&D. Intuit (NASDAQ:INTU) has a unique corporate culture and is among Fortune's "100 Best Companies to Work For."

While we're not advocating you go out and buy those specific companies, they're the kinds of companies you should be buying (not trading!) right now -- and holding for the long term. All of the aforementioned businesses have made for fine long-term investments, and one of them -- Amazon -- has been recommended in our Motley Fool Stock Advisor investing service.

And that's not surprising -- Fool co-founders and Stock Advisor analysts David and Tom Gardner have long track records of discovering great businesses. They believe that they have many of the best long-term holdings racking up returns on their scorecard. Since its inception in 2002, their picks are handily outperforming the S&P 500.

Ready to stop trading stocks and start buying great companies? Click here to see the companies that have made the cut in Stock Advisor. A trial is free for 30 days and gives you full privileges to the service. All you have to do then is show a little patience and reap the rewards.

This article was originally published Dec. 8, 2006. It has been updated.

Neither Brian Richards nor Tim Hanson owns shares of any companies mentioned. Johnson & Johnson and UPS are Motley Fool Income Investor selections. Intel is an Inside Value recommendation. Amazon is a Stock Advisor choice. The Fool's disclosure policy built this city on rock 'n' roll.


Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
$266.58 (-0.09%) $0.24, Inc. Stock Quote, Inc.
$142.30 (0.14%) $0.20
Intel Corporation Stock Quote
Intel Corporation
$36.20 (1.17%) $0.42
United Parcel Service, Inc. Stock Quote
United Parcel Service, Inc.
$208.05 (1.50%) $3.07
Johnson & Johnson Stock Quote
Johnson & Johnson
$166.77 (-0.48%) $0.81
Kellogg Company Stock Quote
Kellogg Company
$75.91 (0.24%) $0.18
Intuit Inc. Stock Quote
Intuit Inc.
$477.75 (-0.11%) $0.55

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.