One of the main detractors from long-term outperformance is trading in and out of shares. It means you're definitely going to be paying unnecessary brokerage and likely choosing the wrong time to make the trade.
Invariably, most people buy high and sell low instead of buying low and holding winners.
If you can find a share that you can hold for many years then it can compound by itself. That's why I plan to hold the following two shares in my portfolio for many decades:
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is an investment conglomerate business that has been operating for over a century. That is great staying power!
It takes strategic stakes in businesses it thinks has long-term potential such as TPG Telecom Ltd (ASX: TPM) and Brickworks Limited (ASX: BKW).
Management are very aligned with shareholders as they are some of the biggest shareholders themselves. More than 40 employees have worked for the company for over 50 years. Five generations of the Pattinson family have served the company, as have three generations of the Dixson, Spence, Rowe and Letters families.
The Pattinson family have been managing the business for its entire 110 year listed life.
Over the past 15 years Soul Patts has delivered an average total shareholder return of 13% per annum, beating the S&P/ASX All Ordinaries Accumulation Index by 3.6% per annum. Over the long-term this outperformance can turn into substantially more wealth.
It has also grown its annual ordinary dividend every year going back to 2000, including through the GFC, which is a tremendous streak for an Australian business.
I believe there's every chance that Soul Patts will be operating for another century from now, which is why I'm happy to hold it.
It's currently trading at 20x FY20's estimated earnings with a grossed-up dividend yield of 3.1%.
This business is the largest ASX-listed farmland landlord, it's a real estate investment trust (REIT).
Farmland has been a useful asset for many centuries and I'm quite sure it will keep growing in value for the rest of my lifetime. Particularly because the global human population keeps rising.
Food demand continues to grow each year. The burgeoning Asian middle class is getting an appetite for western food and wine, so Rural Fund's vineyards, cattle properties and almond farms should grow in value.
Rural Funds has rental increases built into all of its contracts relating to either CPI inflation or a 2.5% fixed increase. Rural Funds also maintains a conservative (for a REIT) 80% payout ratio of its net rental income.
It currently offers a distribution yield of 4.8% for FY19.
Foolish takeaway
Whilst these two ideas are unlikely to deliver the biggest returns over the next 12 months, they are two of the most defensive ideas on the ASX in my opinion. The consistently growing income stream for shareholders is attractive and ultra-long-term capital growth looks very likely.
