5 Stocks to Buy and Hold Forever: A Strategic Approach for Long-Term Investors

Summery of ‘5 Stocks to Buy and Hold Forever’ by Josef Carlson

In today’s fast-paced investment environment, many investors dream of holding a portfolio of companies that will grow consistently for decades. The goal of “buy and hold forever” is to invest in companies that you can buy once and forget, watching them compound over time. Legendary investors like Warren Buffett and Peter Lynch emphasize this approach, with Buffett famously saying, “Our favorite holding period is forever,” and Lynch advising that “you only need one or two good stocks a decade.”

However, in 2024, this strategy presents unique challenges. Market dynamics are changing, with shorter company lifespans and faster turnover in the S&P 500. Despite these hurdles, there are still companies that can stand the test of time. In this article, we’ll explore five stocks that offer the durability, market leadership, and predictable growth necessary for long-term holding.

Challenges of Long-Term Investing in 2024

Holding stocks forever is getting harder, and part of the reason is that companies themselves aren’t lasting as long as they used to. A recent McKenzie study revealed that the average lifespan of companies listed in the S&P 500 was 61 years in 1958. Today, that number has dropped to less than 18 years. Companies are being acquired, merged, or going bankrupt more quickly, as seen with Enron and Lehman Brothers.

This shorter company lifespan has contributed to a decline in the average holding period of US equities. Back in 1977, investors held stocks for an average of five years. Now, the holding period has shrunk to just 10 months. For long-term investors, the constant turnover of the stock market and the emergence of new trends and technologies can feel overwhelming, leading many to opt for index investing.

But even in this challenging landscape, there are still opportunities to buy and hold companies that will endure for decades. Let’s explore five such companies and why they are built to last.

Stock #1: Microsoft

Microsoft is one of the best examples of a company built for the long haul. It stands out as a better long-term investment than its competitors like Apple and Google due to its diversified revenue streams and global reach.

Microsoft’s business is divided into three major segments: productivity and business processes (which includes Office 365), the intelligent cloud (dominated by Azure), and personal computing (which includes Windows and hardware). What makes Microsoft particularly durable is its heavy reliance on subscription-based revenue, with a significant portion of its income coming from long-term contracts. This predictability makes Microsoft’s revenue streams highly dependable.

Additionally, Microsoft’s global presence is a major strength. Roughly half of the company’s revenue comes from outside the US, highlighting its global market leadership. Unlike companies that rely on one product or service, Microsoft’s diversified model, combined with its competitive advantages in cloud computing and business software, makes it a top choice for long-term investors.

Stock #2: Costco

Costco is another excellent long-term investment, largely due to its unique and defensible business model. Unlike Walmart and Target, Costco operates primarily as a membership-based retailer, focusing on selling bulk items at low margins. What sets Costco apart is its ability to generate significant free cash flow while still offering consumers the lowest possible prices.

Costco’s business model revolves around its membership fees, which provide a steady stream of revenue regardless of fluctuations in retail sales. This membership model smooths out the volatility that typically affects retail businesses like Walmart and Target, which rely on sales margins to drive profits.

Even though Costco’s sales make up a large portion of its revenue, its profits are driven primarily by its memberships. This allows Costco to defend its business model more easily, making it a reliable company to hold for the long term.

Stock #3: Berkshire Hathaway

Berkshire Hathaway, under the leadership of Warren Buffett and Charlie Munger, is in a league of its own. It is a fortress of a company, designed to withstand virtually any economic storm. In the last 12 months, Berkshire generated $370 billion in revenue, with a highly diversified portfolio of businesses that span multiple industries.

Berkshire owns wholly owned subsidiaries in sectors like logistics, materials, food, real estate, and insurance. These subsidiaries, such as GEICO and BNSF Railway, are cash-flow-generating machines. In addition to its subsidiaries, Berkshire also holds significant investments in publicly traded companies like Apple, Bank of America, and Coca-Cola.

What further sets Berkshire apart is its massive cash reserves, which stood at nearly $200 billion before recent gains from selling Apple stock. This financial strength, combined with diversified revenue streams, makes Berkshire virtually indestructible. Even with a change in management, Berkshire’s built-in resilience ensures that it will remain a safe long-term investment.

Stock #4: S&P Global

S&P Global is often compared with other dominant companies like FICO and ASML. While all three have monopolistic qualities, S&P Global stands out for its long-term durability and global reach.

S&P Global’s business revolves around two core segments: credit ratings and financial indices. The credit ratings business is incredibly stable, as it rates corporate and government debt globally. This gives S&P Global a strong, predictable revenue base. Its indices business, including the S&P 500, is equally indispensable, with the company earning licensing revenue from financial products that track its indices.

In addition to these core segments, S&P Global also operates a market intelligence business, which provides unique data and insights to customers. This diversified business model ensures that S&P Global remains highly reliable and difficult to disrupt, making it a great candidate for long-term investors.

Stock #5: Visa

Visa is the largest digital payment network in the world, making it a prime candidate for a buy-and-hold strategy. Along with Mastercard and American Express, Visa dominates the digital payments landscape. However, Visa’s network is the largest, giving it a significant edge over its competitors.

Despite periodic government scrutiny, Visa’s sheer size and the global reliance on its payment network make it incredibly difficult to disrupt. Consumers love the rewards associated with credit cards, and banks are eager to continue issuing them. This combination of factors ensures that Visa’s growth will continue for years to come.

Visa is unlikely to be overtaken by new payment methods anytime soon, and its dominant position in the global payments infrastructure makes it a reliable long-term investment.

Conclusion

Investing for the long term requires finding companies with durable business models, competitive moats, and the ability to grow in a rapidly changing market. The five companies discussed here — Microsoft, Costco, Berkshire Hathaway, S&P Global, and Visa — are all built to last. Their diversified revenue streams, global presence, and market leadership make them ideal candidates for a “buy and hold forever” strategy.

By focusing on these companies, investors can create a portfolio that withstands market volatility and grows steadily over time. These five stocks are worth considering for anyone looking to invest in businesses that will continue to thrive for decades.