We Fools generally subscribe to the Warren Buffett school of investing. You know, the one where the ideal holding period is forever.
But the context of Buffett's famed "forever" quip is often forgotten, so let me remind you what he really said in his 1988 letter to shareholders (emphasis mine):
"When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."
That's a pretty significant caveat -- you can't just build a forever portfolio willy-nilly from mediocre businesses or worse.
I'm here today to show you three companies that I believe fit Buffett's criteria of outstandingosity, ready to form the core of an extremely long-term buy-and-hold portfolio. I own two of them myself and intend to hold both of them for at least the next three decades, which is when I'd be thinking about retirement. Or maybe I'll just pass the shares on to my kids at that point. The third one? I'd take a serious look at it the next time I have investable funds sloshing around my IRA.
Google
Let's start with Google
The thing with Big G is, it won't always be known as "that search giant." That would be a very limited business model in the long run, as the fortunes of online search and advertising will undoubtedly wax and wane over the years and decades. Remember, we're looking at a very long investing horizon here and can't just make decisions based on what's hot or not right now.
Google's management has proved to be adept at changing in step with technology and market trends. This means taking large risks on occasion, as in buying video service YouTube with its unproven business model for a hefty $1.65 billion or marketing service DoubleClick for $3.1 billion. The once-hobbyish Android mobile computing platform may become at least as important to Google's business as the eponymous search engine. The company has a finger in green-energy initiatives and electric cars. Then there's the push into the TV advertising market. And the list goes on and on.
Near-ex-CEO Eric Schmidt might not hang around the Googleplex forever, but co-founders Sergey Brin and Larry Page are in it for the long haul -- and still in their 30s. Before they're done with the company, it will have evolved far beyond the borders of cyberspace and become the kind of multifaceted technology conglomerate that can stick around for a century or more.
The road ahead is not without its risks, starting with spirited challenges from Microsoft and Apple in some of Google's most vital core markets. But "Google is not a conventional company," Page says. "We do not intend to become one." By hook or by crook, Google is nimble enough yet sufficiently packed with large-scale resources to survive any challenge -- and management is up to the task.
Intuitive Surgical
The lines between reality and science fiction are blurring more and more every year. One example is Intuitive Surgical
Robot-assisted surgeons can perform minimally invasive feats of precision that scalpels wielded directly by flesh and bone could never duplicate. The FDA is approving the device for more procedures every year, and the market is nowhere near being fully explored yet.
Alongside better drugs and a fuller understanding of the human body, Intuitive Surgical's products raise our hopes for a longer and fuller life. The da Vinci is not only state-of-the-art but also protected to the hilt by the company's patent portfolio. There simply isn't any competition, and there won't be for years to come.
Even then, Intuitive Surgical won't be sitting still. An ever-expanding research budget keeps producing new, patentable advances, and the company currently claims to have more than 900 patents pending in the U.S. and elsewhere. Given the stranglehold Intuitive has on robotic surgery, competitors have little incentive to spend the time, money, and effort required to break into this field.
This is a monopoly in the making, and its products are poised to change the world. The company is also getting too big to be acquired by even the most deep-pocketed health-care giants. If Intuitive Surgical isn't still around in 2040 and more profitable than ever, I'll eat my ergonomically correct Birkenstocks.
IBM
And then there's the Big Blue granddaddy of them all: IBM
The consummate tech conglomerate was founded in 1911, fully a century ago -- and it looks set to keep on trucking for another hundred years. IBM has adapted to massive business changes and is a far cry from the maker of scales, tabulators, and punchcards that it originally was. (Sound familiar? Take a second look at my vision for Google, above.)
This is a vertically integrated business that sells IT from top to bottom and offers everything from nuts-and-bolts hardware to end-user services. Indeed, the company is a model to be admired and emulated -- the highest form of flattery. Hewlett-Packard
All three of these top-shelf companies are likely to stick around for decades and reward investors along the way. The power of compound returns means that long-term stability will make us rich even without massive jumps along the way -- though I fully expect both large drops and equally impressive rebounds.
Stick Google, Intuitive Surgical, and IBM in your rotisserie of retirement stocks, set it, and forget it. It's that simple when you have Buffett-worthy excellence on your hands.
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