Buy and hold

First, I am not an investment adviser, I don’t take fees to be an investment adviser, and this is offered as commentary, not advice.

I received this end-of-the-year question from a colleague and thought I’d share the answer.

The question…

My son is 17, just got a Fidelity account and wants to buy a stock he can hold onto for many years.  He wants something that 30 years from now he’ll look back at after years of appreciation, and/or dividend reinvestment and see that his original investment has grown.  I was looking at utilities such as Duke or NextEra, or BP.  Do any stock ideas come to mind to you? Anything in the tech world that you’d recommend as a buy and hold?

My answer…

If only such things existed…

Current tech super stars like Facebook and Google don’t pay dividends and even if they did who knows if they’ll even be around in 30 years? (Think MySpace and AOL.)

As for utilities and energy stocks, they’ll be around and dividends are a good thing, but everything seems high to me right now. There’s nothing in the market I’d buy and hold and certainly not for 30 years. We just don’t live in an era where that’s rewarded.

I know that at 17 you want more than anything to be doing SOMETHING.

That urge – whether you’re 17 or 77 – is the single most dangerous urge there is in investing.

There’s nothing wrong with being “in cash” right now and learning the mechanics of buying short term treasuries straight from the US Treasury is a good thing. (See They don’t pay much, but it looks like interest rates may start going up again and the multi-decade long drought on returns may be coming to an end.

They’re “boring” but they won’t drop 20% or 80% or more in value in a quarter (think Enron, WorldCom, Lehman Brothers). Also Treasuries are the only investment on earth where the payor has its own US dollar printing press so short of a direct strike by an asteroid (or similar man-made catastrophe), you will get the return of your investment which is always more important than the return ON your investment.

As this chart shows, the world has become preposterously “financialized” in the last 35 years. This trend may well continue for a while, but there has to be a “re-set” eventually and when it comes, people in the market are going to wish they were in cash not only for the wealth they’ll be preserving but also for the GENUINE bargains that will exist then.

The most important thing to remember about the stock market: It is not a guaranteed elevator to success. At least as often (and probably more often) it’s been a graveyard for people’s hard earned savings.

– Ken McCarthy

P.S. For over 25 years I’ve been sharing the simple but powerful things that matter in business with my clients.

If you’d like direction for your business that will work today, tomorrow and twenty years from now, visit us at the System Club.

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