Okay kids...it is game time! We were goofing around at lunch and I asked everyone, "If you could go back in time and buy 100,000 of any stock and still own that stock today, which would it be?"
Several people talked about what it would have been like to buy 100,000 shares of BRK-A on March 17, 1980 and still own them today.
Everyone agreed that would have been incredible, but then I asked, "What do you think will happen when Warren Buffett is no longer running the company? Do you think it will continue its success?" There was a lot of discussion about whether the success was only about Warren in these later years and how his involvement alone could make a bad deal end up good.
So I added a little twist: You are allowed to go back in time and buy 100,000 shares of 1 stock, but you can't trade it EVER. No matter how bad things get. What successful stock do you think will stand the test of time long after the current leadership is gone?
What say you?
Addendum: This was just a little exercise to see what people thought about stocks that have proven to be very successful and if they would continue this success into the future.
During lunch it was interesting to hear how some people felt that stocks like Google and Berkshire would both end up faltering after their "celebrity" founders either passed away or retired, while others felt like they might actually perform better once some new ideas were instilled.
Some at lunch felt like the best stock to own forever hasn't even hit the stock market yet because the company hasn't been created.
In the end we spent the most time talking about how much influence non-financial data played into the discussion and what that says about the future of trading. As barriers to trading by average Joes continue to fall and more and more people are attempting to pick their own stocks will stock valuations be influenced less by those of us with all the financial data and fancy algorithms and more by people who think that Mark Zuckerberg is cool?
All in all it was an interesting hypothetical debate. Wish I had time to do more of that kind of thing.
dumb question to base it on a number of shares. in terms of $ value....MSFT all day!
So if I can't trade it ever...does that mean I'm stuck with paper gains until I die?
cash from dividends would pay out.... people w/ berkshire would be effed w/ paper gains
BRK doesn't pay dividends and does not intend to do so in the near future.
Margin loan against the value of the underlying securities - dividend stream not needed to get liquidity
ADP
In a world......where investors can hold only one stock...WHO WILL PREVAIL??
V
I like the V/MA idea as well. Great businesses which you can't really be long enough on.
I think the key here is you need a business with a lot of staying power [read:moat], and demand for its product(s) to be inelastic (i.e. pricing power). Charismatic CEO's are nice, but unnecessary. Eventually, an idiot is going to be running the company, so the business really should be idiot-proof.
Having said that, if I could only own one company forever, it'd have to be KO. It's become the most well known brand in the world, and has an addictive* product which can't be replicated (the other colas just aren't up to par), giving it a great deal of pricing power.
*: Never realized this until I read about it recently, KO has designed their cola in such a way that the taste leaves your mouth after 2-3 seconds, making you want to drink more.
Maybe on a relative basis to other colas... but it's a business (soda, that is) in secular decline from a volume standpoint. At some point you just can't push price anymore, which is why I don't like KO as my lifetime holding. Completely legit pick, but I'd argue better served holding NSRGY or UL.
Buy a REIT?
In all seriousness, a one-stock portfolio flies in the face of basically all of finance theory... for instance, in creating an intrinsic valuation, how would one discount back FCFE in this scenario? Using CAPM would be ludicrous.. you could add a risk premium to subordinated debt, but IMO that's just an extrinsic (market-based) figure masquerading as intrinsic.
How am I supposed to price this thing with any rigor?
Using CAPM is ridiculous to begin with. The required return on equity is your own risk adjusted hurdle rate. Buffet uses a flat 10%. Klarman uses 10% for short term CFs, 15% for longer term ones etc. Using Beta and therefore CAPM is faux 'rigor'.
Where have you heard that Klarman uses 15% for LT cash flows? I've heard he uses a straight 10% too.
FAST
This was just a little exercise to see what people thought about stocks that have proven to be very successful and if they would continue this success into the future.
During lunch it was interesting to hear how some people felt that stocks like Google and Berkshire would both end up faltering after their "celebrity" founders either passed away or retired, while others felt like they might actually perform better once some new ideas were instilled.
Some at lunch felt like the best stock to own forever hasn't even hit the stock market yet because the company hasn't been created.
In the end we spent the most time talking about how much influence non-financial data played into the discussion and what that says about the future of trading. As barriers to trading by average Joes continue to fall and more and more people are attempting to pick their own stocks will stock valuations be influenced less by those of us with all the financial data and fancy algorithms and more by people who think that Mark Zuckerberg is cool?
All in all it was an interesting hypothetical debate. Wish I had time to do more of that kind of thing.
Standard Oil
Ditto Standard Oil.
FNM obviously
GE or XOM
Visa
Yep Standard Oil
What about trust busting and subsequent recreations and break ups? Because I can think of quite a few companies that you could own and end up owning shares of 8 or so different companies because of this.
Good point. That was raised by someone at our lunch as well. They decided to target companies that would most likely have splinters therefore diversifying without selling.
Health Care REIT, Inc. - HCN all day every day
If I can't sell it, I am going to get paid while I hold it at least.
100k of whatever thing gives me exposure to the Rothschild's family banking businesses in 1760's. ( I doubt it was 'stock' per se but I feel that an equitable stake is in the spirit of the question)
I like that pick.
JNJ or GE. I'm looking for a place that is big and tends to get good quality management.
Either CROX or NFLX
Nailed it
GOOG
GE
MCD is YUM
If you have to hold it forever and can't ever trade it, there's only a few good options. You need something that's unlikely to ever go out of business (bye bye tech stocks) and you need something that pays a dividend. I'd go with Lockheed Corporation (from 1934 after they were spun out of then bankrupt Detroit Aircraft Corp.) They have guaranteed revenue thanks to DoD decisions made in the 50s regarding defense spending so they're unlikely to ever go out of business. Plus, I'm pretty sure "war" isn't going anywhere anytime soon and, even if it does, "defense spending" will probably never stop even if "war" does. Plus, they pay a cash dividend.
A company like Lockheed Corporation (or, hell, LMT) seems like the obvious choice to me.
Nice call on the defense related companies.
Change mine to WDFC.
I think it's gotta be the Dutch East India Company... paying dividends since the 1660s! Today, you'd own a bunch of random shit all over the place.
" It remained an important trading concern and paid an 18% annual dividend for almost 200 years.8
[[[Weighed down by corruption in the late 18th century, the Company went bankrupt and was formally dissolved in 1800]]],8 its possessions and the debt being taken over by the government of the Dutch Batavian Republic. The VOC's territories became the Dutch East Indies and were expanded over the course of the 19th century to include the whole of the Indonesian archipelago, and in the 20th century would form the Republic of Indonesia.
Merck and Lloyd's have been around since like the 1600s. Maybe one of those.
WMT way back and into the future. The battle between capital and labor is going to get more intense, and will force the growing underclass to shop there. /dystopian rant
Since index funds don't count, some sort of electric utility company, always going to need electricity..
Always need power, yes. Always need centralized, no.
is there any way you could come up with a reasonable estimate on what your paper gains would be for 100k shares of standard oil at inception? you'd have to own a sizable stake in exxon mobile
i'd need to re-watch 'There Will Be Blood' to answer this question..
MON
K - Coke. My reasoning is because their distribution of dividends isn't related to their earnings. Makes a DDM unrealistic, but would all but guarantee growth in the investor's income stream. That is, of course, if you can't ever sell, like others have pointed out. If that is the case, Berkshire would simply be paper gains, no income...
And I should've put KO. Can't believe that I messed up that ticker.
Honda
Clarcor
$MSFT or $IBM
Coca-Cola. Diversified soft drink/snack offering, and no one will ever replace the classic formula.
KO has always fascinated me. Especially in modern times. It should be THE case study for marketing. Their flagship product is (or was) carbonated sugar water that slowly kills you.
They also bottle/sell plain water (through many brands) that doesn't necessarily kill you, so plenty of diversification on the health-to-fatality spectrum
I think some are missing the point of this question. It's interesting because this is how you should be thinking if you're a long-term investor. Usually 80%+ of a business's value is the cash it generates after five years. Terminal values are really misunderstood on Wall Street.
DDD (j/k).
So you're saying we cannot trade that stock ever and have to keep it forever, right?
Long term, we are all dead and I'm not a sovereign wealth fund either. The marginal utility of owning 100k shares of a company forever without the ability to trade or liquidate the investment is pretty negative to me given the opportunity cost, it's the equivalent of locking some of your money somewhere without having the opportunity to use it ever even if you are starving. It's the equivalent of taking some of your money and burn it.
I'm indifferent.
Brown-Forman Corporation
They'll get bought within 3 years
If the deals we had at the beginning of the year are any indication, I wouldn't be surprised to see them bought within the next 12 months.
Agree 100%, but depending on who the suitor is, it could end up taking much longer (but I bet we hear an announcement for a bid or at least talks about making a bid sometime in the next year) coming from Diageo but maybe not as bad if coming from Bacardi. It'll be interesting, the entire space is almost by definition forced to consolidate over time, and I always ask myself if it's going to be possible at some point for regulators to cry antitrust or something on certain mega-deals in the space (like some of the older and bigger DEO buyouts)
I can definitely see a case for holding a conglomerate-like sin stock like a DEO or PM as something that sounds good on a high level. I'd never touch PM just because of regulation and eventually all your customers will have died, which doesn't make for great economics.
If I had to think of 5 names I'd answer this question with (and in no particular order, other than ADP being top choice) these companies. I'm completely ignoring the "can never sell it so it's worthless" and "has to have dividends for me to ever get any return" premises and just go by the spirit of the question:
1) ADP 2) V or MA 3) MON 4) NSRGY 5) BLK or BEN
Exxon. For as long as any of us live it'll be a top 5 largest company in the world...
If I had to pick today, I'd take SU over XOM.
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