My grandparents are among the top stock pickers I know. Their the sort of people that bought into Woolworth Limited (ASX: WOW) and Commonwealth Bank of Australia (ASX: CBA) at listing and purchased each of the other banks over the years at phenomenally good prices.
For them, selling these companies makes little sense as the capital gains implications are horrible and they provide a great income stream, but I wonder if we're seeing the end of the 'hold forever' company, the stock that you can hold for your whole life and be confident that it'll still be around.
Words from Experts
Warren Buffett commonly says that you should only invest in companies that you would be confident holding if the sharemarket closed for 10 years starting tomorrow. Claude Walker once wrote a great article saying that there are companies that you should hold for the next 15 years. I'm sure there are others out there with 20 or 30-year horizons, but technology is changing the way companies operate and increases the risk of the rapid erosion of competitive advantages.
Loss of the 'hold forever' company
I like to look at the Woolworth situation as the most recent example of a company losing its way. Only two years ago Woolworths was considered almost universally unstoppable as the highest margin grocery company in the developed world. Now Coles is making headway into Woolworths' margins, and Aldi and Costco are doing the same. Buying shares is no longer common sense. Which other companies might suffer the same fate?
Brambles Limited (ASX: BXB) is among the world's top supply-chain logistics companies, however its expertise is focussed mainly on rail and sea freight. What happens if drones or teleportation methods develop faster than we expect?
Transurban Group (ASX: TCL) operates a series of extremely important toll roads around Australia and the US. What happens if companies start to realise that employees actually work better when they work from home? Demand for Transurban's roads will fall, threatening its currently reliable annual distribution.
CSL Limited (ASX: CSL) has an incredible track record for developing and distributing blood-based medical products. Perhaps a new treatment method is down the track that threatens many of CSL's main product lines.
What can we do?
I'm not saying that these companies aren't investment-worthy, in fact many of them are among the next companies that I want to own, however investors need to take a step back and assess the threats, regardless of how unlikely it is that teleportation will overtake shipping any time soon. Investors need to review the companies they own and the threats in the near and distant future.
