Prem Jain, author of Buffett Beyond Value, found that Berkshire Hathaway typically holds stocks between 10 and 20 years (including Warren Buffett's short-term arbitrage). That's an eternity compared to the average investor's holding time. Making an investment with this time horizon would inevitably shift an investor's focus from maximizing profits to minimizing risks. A potential investment would require excellent economies, a durable competitive advantage, and good-looking prospects. Here are two stocks to buy now that could potentially fit this mold.
Though high-tech stocks are not typically considered risk-averse, Google could be the one stock in the market that goes against this conventional wisdom. As if its dominant position in online search and advertising isn't enough to fortify its already strong competitive position, the company has a whole spectrum of frequently used products -- like YouTube, Gmail, and Google Maps -- to deepen its relationship with users and expand the distribution of its ads.
Even Buffett's partner, Charlie Munger, hints that Google could be an exception to the high-tech rule: "Google has a huge new moat. In fact I've probably never seen such a wide moat ... I don't know how to take it away from them," said Munger in 2009. "Their moat is filled with sharks." Munger thinks that Google's business model of charging companies when people click on their ads after an Internet search is "incredible."
With over 11,100 locations in the U.S., Starbucks has significant scale advantages. Next in line is Dunkin Donuts, with 7,200 points of distribution in the U.S. -- considerably less. Internationally, there's 7,000 Starbucks locations in 60 countries. But Starbucks' scale doesn't end with its physical locations; the company has significant distribution power with developed channels in consumer-packaged foods, too.
If you're worried about brand saturation, just take a look at Starbucks' prospects in emerging markets. The company has 500 units in China and is on pace to hit 1,500 by 2015 and as many as 4,000 to 5,000 over the longer term. Don't forget about Brazil and India, two other markets with significant opportunities for Starbucks to grow further.
Core stocks to buy now
Google and Starbucks both look like great stocks to buy now. The catch-22, however, is that an investor who plans to buy these stocks now should also have a very long time horizon. Neither of these stocks looks cheap at today's prices, both near their 52-week highs. For long-term investors, however, this doesn't mean the stocks wouldn't make excellent additions to your portfolio. Over the long haul, quibbling over a couple dollars in the price could mean missing some top-notch investment opportunities, or core stocks -- opportunities like Google and Starbucks.
Patience isn't always rewarded, but it's surprising how often it is.