If only I was an analyst, to have the luxury of time — time to do lots of research, dig into filings, explore conference calls, company presentations, attend conferences, and even call company executives. That would be fun (yeah, I'm wild), but alas I'm not.
What I need (and what many busy, nonfinancial professionals who frequent this site need as well) are the type of investments that could last a lifetime.
The objective
I can't afford to dig into tremendous detail and stay abreast of every little event. I've got bigger fish to fry. It's critical that I find the type of stocks that:
- Don't implode.
- Perform well on an absolute basis.
- Beat inflation.
- God willing, beat the market.
I'm looking to hold these stocks not over a period of a few weeks, or even a few years, but an entire lifetime. I'm still a (relatively) young guy so my investments need to last long after I retire.
To paraphrase the insightful words of Peter Lynch, what I'm really doing is looking for businesses that any idiot can run, because that's probably what's going to happen. Therefore…
Here's what I look for
- A sustainable competitive advantage. Brand, style, and design are fickle, which is why I can't say I'll own shares of Apple forever. A great business does something special that others cannot easily replicate. If you want to read the bible on this issue: Here you are.
- Businesses that churn cash efficiently and don't put their assets at risk. It's all about that Free Cash Flow (FCF) and that Return On Invested Capital (ROIC), baby. Dividends are a plus, but not a requisite.
- Products and services that people adore or must have. Addiction in its various forms is a plus.
- Management that commands respect. My previous comments aside, this is a very good thing to have. Twenty years from now, who knows who will be running a company, but you can give yourself some protection by aligning yourself with the right team in the present.
Everything else is ancillary when compared to these four, foundational elements.
Five US stocks to get you started
- Berkshire Hathaway (NYSE: BRK-B) – You can't dispute that this portfolio of businesses has all the attributes necessary to crush the market. Boring, yes. Rewarding, absolutely. Resist the urge to complicate things. Stick your cash with the people and the companies that are legends in their present incarnation.
- Philip Morris International (NYSE:PM) – Smoking is a filthy habit. But if you're an adult and you've willingly decided to light up, so be it. And if you've decided you need to so badly that you're willing to pay 20 bucks a pack regularly for it, even better. As an opportunistic investor, I'm not going to pass that up.
- Walt Disney (NYSE: DIS) – It's all about the love. Whether a direct Disney consumer or as the parent of one, it's difficult to argue that the company is a business that doesn't have long-term success ingrained in its DNA. Between ESPN, Marvel, Pixar, and the other properties that Disney controls, this company makes people happy, and that means $$$.
- Visa (NYSE: V) – I love the gatekeepers. Visa owns the channels that are being used to facilitate a massive (and growing) number of commercial transactions worldwide. I can't imagine a better competitive position to be in. Success is never guaranteed, but Visa has a head start. MasterCard is just as relevant, by the way.
- PepsiCo (NYSE: PEP) – People globally love the stuff that makes you fat. Pepsi makes lots of that stuff and we love it. It has the supply chain, the relationships, and the visibility necessary to get people their salty and sweet fix on a global scale and keep them asking for more.
The Foolish bottom line
This knowledge is neither original nor is it hard to incorporate. If you're like me and you struggle for time to get into the weeds and truly understand shorter-term opportunities, consider simplifying by adapting this approach. I don't make promises, but I'll be shocked if my kids aren't thrilled with the results.
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More reading
Motley Fool contributor Mike King doesn't own shares in any of the above stocks – but would dearly love to (as soon as he's set up his online brokerage account). The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool's disclosure policy.
A version of this article, written by Nick Kapur, originally appeared on fool.com. It has been updated by Mike King.
