I read something in Barron's this weekend that reminded me of an important building block about long term investing.The chart compares Johnson & Johnson (JNJ) to the S&P 500 for the last 15 years which I view as long term.
The first thing you probably see is the extent to which JNJ has beaten the S&P 500 over that time. But if you look a little closer you will also see plenty of short term periods where the stock endured nasty declines resulting in lagging performance for short periods of time.
Anyone buying in October 1999 at about $52 was sitting at $35 per share five months later, about a 33% hit as the S&P went up about 8%. Yet if anyone unlucky enough to have bought then, but held on, would be up 30% since then, plus dividends, compared to flat for SPX. There have been other big puke downs for the stock yet over most long periods of time JNJ, which is a client holding, has outperformed the broader market.
There are plenty of other stocks that have delivered the same effect over long periods of time. I might offer than with all that we read about the next few months or, what to buy now, what to sell now and so on there are companies that you can buy that will rarely be what's hot but will deliver to your ultimate goal; having enough money when you need it.
In looking at the chart, how much does it matter whether JNJ beat or lagged small cap, foreign or anything else? If you manage money professionally it might matter but if you are a do-it-yourselfer I'd say probably not.
Including a few great companies that you can likely hold forever makes sense for a lot of people. Certainly there is no guarantee that Johnson & Johnson will triple up (plus dividends) the returns of the market in the future but there are companies that will double or triple the market and many of them will not be obscure.
9 comments:
Roger, did you also recommend google at $700?
The Google comment is about as useless as a third nut.
I could have made excellent comments about US Steel, Rail Roads, or GM stock in years gone by. Maybe true about the railroads again for all I know :)
You can always cherry pick a stock. But you can never predict the future. Laws change and no health care stock could be worth holding or they could become must have holdings.
I get your point, but there is no such thing as obvious, safe, outperform stocks for the long term. There is very little obvious at all outside of holding spy or efa for the long term.
Of course there obvious long term stock picks.
There are 4 US companies that have no debt and are true AAA credit ratings (not matter how you define credit ratings)
JNJ, GE, BRK.
These three stocks will beat the market over 50 years even if there is a nuclear war.
If you do not understand that, then you do not understand investing and/or are a simplton speculator.
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Nice, defensive, play.
It's sector could outperform the index for the next couple of years. I don't know if this is right (I'm usually wrong when I'm not sure) but Mr Buffet bought GSK recently which is in the same sector. He also bought Kraft too. They're both classic defensive plays, right?
unless the world is done with chips ahoy and cheese whiz (well maybe we are done with cheese whiz?).
healthcare has had an odd run for the last six months as measured by IYH, down about the same as SPX. that is odd but classic defensive, yes.
Roger which companys do you think fall into the catagory of those few great companys you can hold forever?
well Infospace would be one of course.
JOKE JOKE JOKE
if you have read this site for a while you probably have some idea, but saying so here and now might be a compliance issue.
more interesting might be that these types of companies might be easier to fund over seas. the big oil company, the big bank and the big phone company for a lot of places could fit the bill. not that there won't be lags but a good place to look.
vaguely speaking here at home some food, vice, health and financials would seem to be potential candidates.
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