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3 Stocks for a Buffett Ten Year Market Shut Down

By Matthew Luke - Sep 9, 2013 at 2:12PM

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Is your portfolio built to survive a ten year market shut down? Warren Buffett's portfolio is.

"Only buy something that you'd be perfectly happy to hold if the market shut down for ten years." – Warren Buffett

Warren Buffett must have been quietly laughing to himself on the afternoon of Aug. 22. As some people were freaking out because they were unable to trade in and out of Nasdaq-listed stocks for three whole hours, the Oracle of Omaha was perfectly happy in the knowledge that his portfolio was built for the long term. If you were among those who were worried about their investments between 12:14 PM and 3:25 PM that fateful day, maybe one of these three longer-term investments are worth your consideration.

Energized company transformation
Over the past ten years, the management team at Energizer Holdings (ENR 1.54%) has had to prove to the market that they are more than just their namesake. And with the July 31 announcement that the company is purchasing Johnson & Johnson's feminine hygiene business, Energizer has once again showed that there is so much more to this company than disposable batteries.

Often described today as a mini-Procter & Gamble, this battery-powered company began its transformation back in 2003 with the first of many diversifying acquisitions. Buying the Schick-Wilkinson Sword business from Pfizer for $930 million, this wet shave division is now the company's largest, contributing $1.68 billion in net sales last fiscal year. As for Energizer Holdings' alkaline battery business, which was the company's bread and butter in 2002, it was just 27% of the company's net sales in 2012.

With the acquisition of Johnson & Johnson's Stayfree, Carefree and ob feminine hygiene brands thrown into its ever growing portfolio of shaving, feminine care, baby care and skincare products, Energizer Holdings will become that much less reliant on its declining, yet still profitable, battery business during the next ten years.

Top shelf investment
If there is one thing that I am 99.999% certain of, it is that people will still be drinking whiskey, vodka, rum and beer during a ten year market shut down. Not even a constitutional amendment could stop that fact of human life. That alone is reason enough to own shares of the world's largest liquor company, Diageo (DEO 0.58%) (DGE 0.03%). But if you are looking for more reason than that, please continue reading.

Owning some of the world's most popular brands (Johnnie Walker, Smirnoff, Captain Morgan, Guinness), there is little not to like about this London liquor giant. Diageo has incredible pricing power and a worldwide distribution system that is second to none in the industry. And thanks to investing early and heavily in countries like Brazil, Russia, India and China, Diageo has the highest emerging market exposure of any of the major liquor companies.

Although emerging market countries have recently fallen out of favor with investors, it is still possible to navigate through these troubled waters with smart company leadership, which Diageo has in abundance. Today Diageo receives a whopping 42% of its net sales from the emerging markets. As a point of comparison, the world's 4th largest liquor company, Beam, currently receives only 15% of its net sales from emerging market countries.

There is no doubt that the BRICs and other developing countries have been a particularly sore spot for investors this year. And for Diageo specifically, the company did report in July that its sales growth was below expectations due to a slowdown in Asia and Brazil. But all of that is just a short-term concern for the company; an assessment that investors appear to agree with, as shares of Diageo are just 6.5% away from making a new all-time high.

Conservative Canadian banking
Unfortunately for much of the financial world, conservative banking practices seemed to be a uniquely Canadian trait going into the global financial meltdown. As many of the largest American and European banks were busy finding new and exciting ways to damage the world economy, the Bank of Montreal (BMO 1.86%) was busy lending money to credit-worthy individuals and businesses and charging a reasonable interest rate for that service. What a novel and innovative concept!

But the financial world's pain (especially that of the U.S.) is BMO's gain. Thanks to the quick recovery to Canadian banks and the sorry state of U.S. financial companies during the immediate aftermath of the global crisis (30 U.S. bank failures in 2008, 148 in 2009, 157 in 2010), the Bank of Montreal was able to spread its brand of conservative banking to the United States. Beginning in 2007 with a series of cheap and opportunistic acquisitions, the Bank of Montreal is now the owner of several U.S. regional banks, AIG's Canadian life insurance division, Citigroup's North American Diners Club credit card franchise and other assets from desperate-to-sell U.S. financial institutions.

With its many recent American acquisitions, the Bank of Montreal is well positioned to profit as the American financial sector continue its recovery. Trading at 1.39 times book value however, the Bank of Montreal might appear a bit pricy compared to some large U.S. banks, many of which are currently trading below book. But considering this Canadian bank's history of reliability and consistence (184 years and counting of dividends), it is the financial company I would trust most during a ten year market shut down.

Foolish bottom line
Overreacting to short term events is rarely a successful strategy for making money. While many of us on Aug. 22 were worried about something so incredibly short term as 191 minutes out of a single Thursday afternoon, the Oracle of Omaha was likely relaxing during his lunch break, perfectly content knowing that his stock portfolio was made to survive a ten year market shut down. How did you spend your Thursday afternoon?

Matthew Luke owns shares of Beam. The Motley Fool recommends American International Group, Beam, Diageo plc (ADR), Energizer Holdings, Johnson & Johnson, and Procter & Gamble. The Motley Fool owns shares of American International Group and Johnson & Johnson and has the following options: long January 2014 $25 calls on American International Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Diageo plc Stock Quote
Diageo plc
DEO
$188.96 (0.58%) $1.09
Energizer Holdings, Inc. Stock Quote
Energizer Holdings, Inc.
ENR
$32.32 (1.54%) $0.49
Bank of Montreal Stock Quote
Bank of Montreal
BMO
$103.91 (1.86%) $1.90
Diageo plc Stock Quote
Diageo plc
DGE
$3,833.50 (0.03%) $1.00

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

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