Sunday, 3 July 2016

Forever stocks



Forever stocks.  My take on forever stocks.

I'll start with with a Warren Buffet quote, " Our favourite holding period is forever"

Forever stocks are stocks you can buy and hold forever, that is how strong they are, you do not need to worry about their performance, they will come out in the end forever, they will go down but in the long term (forever perhaps), they will outshine most things in the stock market and even beyond.

Let me introduce my criteria for picking forever stocks.  It's not as hard as you think.  There are a lot of other factors and criteria out there in the selection process but here are 2 very easy initial screeners that anyone can use.

1. Increasing dividend payouts

2. Moats

The first indicator which I have touched on in past blogs is easier than you think.  My go to place to see dividend payouts and to see if they have increased over the years is Yahoo.  That is correct, a simple yahoo search is 1 minute away.  The path is simple, go to yahoo.com, then to yahoo finance, then type in your ticker.  click look up, click historical prices and then finally dividends.  It will show a perfect shap shot of the dividend payouts.  Now increasing dividend payments is not enough to show what a forever stock should be.

Moat is exactly what you may think.  A moat around a castle, making it hard for an enemy to breach the castle wall.  In investing language, it means either an economic, brand, or management moat.  A company needs to protect itself from competition.  A moat makes it harder for another company to steal your earnings that you have worked so hard for. An economic moat means that it would be hard for a company to encroach on your earnings simply because it would be economically hard for them to match or exceed what you have done so far.  A brand moat would be simply the name of the company, that is so recognized that it can succeed simply on brand recognition.  Management moat would indicate that management has been able to succeed no matter what conditions the environment can throw at them.



One example that I can show you how it works is Coca Cola.  Yes that old soft drink that is at war with Pepsi.  Coke Cola has the ability to thrive for 100 years or in our case, forever.  It's a simple business that is big, and I mean big, globally in fact.  This is the economic moat, this business will not excite most people but it's stock price will rise with profits.  If someone was to challenge them, Coke Cola will simply buy them out with their deep pockets.  Economic moat.  The distribution network for Coke Cola is so vast that it encompasses almost the entire world.  Most North Americans will probably never of heard of the 3,500 different drinks under the Coke label but tishe main brand, the iconic red can, Coke Cola is a brand moat all it self.  Management has kept the profits and the business running with dividend increases for 50 years now.  Check it out on yahoo, it's true.

So with the these moats and dividend increases, it's no wonder you can consider Coke Cola a forever stock.

Disclosure: I own Coke Cola shares.