Chris Mayer runs the Capital and Crisis newsletter, often looking for far-flung stocks or odd special situations, and
he sometimes brings an interesting idea or two to us through his teaser pitches … so I thought we’d take a look at his latest idea today, a spiel about some stocks that you can buy and hold for ten years, watching your wealth gradually compound.
Which is one of my favorite things, not least because it allows me to be patient and indulge my inner lazy man. I talk about compounding earnings and dividend growth with some regularity, but if you’re going to follow this strategy you need to come up with some pretty solid companies to start with — companies that you can easily foresee remaining vital and vibrant and profitable a decade from now.
Mayer’s last teaser pick has done well so far, paying a nice big dividend and beating the broad market so far this yeaer … so maybe we’ll find more to like? We won’t know until we dig into the hints and details, so let’s get started …
Here’s how he got my attention:
“The Hands Down Laziest Way To Grow Rich
“Buy these 5 stocks. Forget about them for the next 10 years. Come back to find they’ve multiplied your money….
“It’s called the ‘Coffee Can Portfolio.’ And if history is any guide, it could turn a small initial stake into a massive fortune.
“That’s a pretty odd sounding name for a portfolio, I know…
“It comes from the Old West, where people would store their valuables in a coffee can and put it under the mattress for safekeeping.
“Now I’m suggesting you do the same thing, but with a very few, select stocks.
“Choose to play the FIVE stocks I’ll introduce you to. Store them away. Go live your life. Go explore the sights and sounds the world has to offer. Go relax….”
That’s nothing shocking, of course — it’s hard to buy and hold in this environment, with everyone telling you that “buy and hold is dead” and urging ever newer trading systems designed to get you to buy and sell things more often. There’s little money to be made from the investor who just buys stuff and sits on it, I’m afraid.
Buffett’s version of this is that you should construct a portfolio that you’d be happy with if the market shut down and you couldn’t check the stock quotes for a few years — which is, if nothing else, a reminder that what we do with stocks is invest our hard-earned money in companies. Not in pieces of paper or securities, but in partial ownership of companies that build stuff or make stuff or trade stuff or provide some kind of service.
If you became a silent partner in the restaurant or the dry cleaner down the street, you wouldn’t expect to be able to pull your money back out in three or four months to try a different restaurant with a better menu or a cuter bartender, or because you find out that the sidewalk in front of your business is going to be torn up for six months, and the guys at the barber shop tell you that this will cut your sales in half — you’re making a commitment to a business that you made sure to understand really well before writing a check.
This kind of strategy will not, of course, work every time if you apply it to buying stocks … and it won’t make stockbrokers happy … but it is a great discipline to use in screening companies: Would you be willing to hold that company through both good and bad news, ignoring the gyrations of the market?
And I don’t mean to endorse everything about Keynesianism with this, but for the extreme version of “buy and hold” you can throw in one of my favorite Keynes quotes, too, from his magnum opus The General Theory of Employment, Interest and Money (1936):
“The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only.”
And that was in the 1930s, when the average holding period for a stock was something like ten years — that dropped to about six months in 2010, which had everyone wringing their hands, and as of last year it was reportedly down to five days (though that’s likely skewed by the large number of high frequency traders).
So there’s your backdrop: there’s a lot to be said for buying stock in companies that should be able to endure, and then just ignoring them (or at least ignoring those 5-10% moves up and down that come with earnings reports or news stories) — hopefully you’ll find after five or ten (or thirty) years that a few of those companies lost more than half of their value and withered, but several provided excellent compound returns that beat the market handily and one of them grew up into a world-dominating company and made you wealthy when you weren’t paying attention.
Which begs the question — which stocks do you buy? And for a fee, Chris Mayer will apparently share some of his favorites with us. Here’s how he introduces them:
“In my search to find the very best stocks for the ‘Coffee Can Portfolio,’ I conducted a little study…
“I surveyed my list of newsletter readers, asking them to submit suggestions for what stocks should be put into the can.Are you getting our free Daily Update
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“The emails poured in.
“In total, I received more than 125 stock ideas. And I’ve spent more than six weeks now researching each and every idea — narrowing down the list to just FIVE stocks I recommend my readers buy and hold forever….
“They’re not speculations o