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20 years


bargainman
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Say you were going to retire in 20 years.  What 5-20 stocks/funds would you buy and hold/trade around during that time?  Just curious what people here thing.  A few reasonably obvious choices are:

 

FFH, BRK, LUK, MKL, SNS. I've heard people say Bidvest too.

 

Funds

FAIRX, TAVFX.. any others?

 

20 years is a pretty long time for compounding to work it's magic.

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Agree with initial suggestion for North American ideas.

I would not be comfortable at all with SNS though.  Carlo Cannell had a slide several years back listing sectors destroying investors' capital and that therefore could be fertile stock shorting ideas (restaurants, airlines, seminconductors, and one or two others).  Sardar may be great, though his track record is based on minuscule assets the first years, but the restaurant business is very tough.  Would Warren answer SNS if asked your question.  I very highly doub it.

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Agree with initial suggestion for North American ideas.

I would not be comfortable at all with SNS though.  Carlo Cannell had a slide several years back listing sectors destroying investors' capital and that therefore could be fertile stock shorting ideas (restaurants, airlines, seminconductors, and one or two others).  Sardar may be great, though his track record is based on minuscule assets the first years, but the restaurant business is very tough.  Would Warren answer SNS if asked your question.  I very highly doub it.

 

To refute the above:

 

Semiconductors--Intel

Restaurants--McDonald's

 

Now you could argue that these are special cases.  Well all investing is a special case.  So to get down into the specifics, Sadar's idea (developed in a time of overvaluation) is that take a strong restaurant brand with too many owned and operated stores and get them to start franchising, thus bring capital back to the company, as well as reducing capex.  That is a pretty good idea.  So you are not investing in SNS for a generalized bet on the restaurant business; it's a bet on Sadar pure and simple.  

 

For the ultimate refutation of your argument-- BRK.  

 

Textile manufacturers were the archetype of capital destroying businesses. They produce an undifferentiated commodity with necessary capital expenditures with all the benefits going to the customers, and for virtually every other textile manufacturer you would have been right.  BUT by the logic above you also would not have bought BRK!

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The textile business has been a very insignificant part of BRK except for the very first few years under Buffett

Here with SNS you are betting on a skilled manager in a bad industry.  Remember what Buffett says when things like things happen, the manager is likely to loose his reputation...

 

*****************

For the ultimate refutation of your argument-- BRK. 

 

Textile manufacturers were the archetype of capital destroying businesses. They produce an undifferentiated commodity with necessary capital expenditures with all the benefits going to the customers, and for virtually every other textile manufacturer you would have been right.  BUT by the logic above you also would not have bought BRK!

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Guest kawikaho

Well, I dunno about some of the bigger companies like Berkshire.  Also, due to the high possibility that Munger and Buffett will not be around even in the next 10 years, I would not feel comfortable buying and holding Berkshire for the next 20 years.  It's simply too big.  It's market cap right now is around 150 billion.  Realistically, it could approach mega cap size around 300 billion, and that would be a double from today.  For it to compound at 10% for the next 20 years, it would become a 1 trillion dollar company.  Sounds plausible, but not very likely. 

 

I'd go with FFH.  I think they have a good chance of hitting 20 billion in market cap in the next 10 years.

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Berkshire will be a trillion dollar company one day...for that to happen they'll need to generate about 50-100 billion dollars per year which is astronomical but thats what this machine is set up for.  Thanks to last years investments they'll have no problem averaging greater than 10% growth for the foreseeable future so double earning power by 2016 or 27-37 billion per year.  As long as capital keeps being put to work at 15+% they should have no issue getting 10% long term or better.  I wouldn't be surprised if Berkshire is a trillion dollar company by 2026. 

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Well, I dunno about some of the bigger companies like Berkshire.  Also, due to the high possibility that Munger and Buffett will not be around even in the next 10 years, I would not feel comfortable buying and holding Berkshire for the next 20 years.  It's simply too big.  It's market cap right now is around 150 billion.  Realistically, it could approach mega cap size around 300 billion, and that would be a double from today.  For it to compound at 10% for the next 20 years, it would become a 1 trillion dollar company.  Sounds plausible, but not very likely.

 

You also have the Bill & Melinda Gates Foundation selling shares each year (selling pressure on share price?) and just who is buying those shares? Will it be long-term thinking "partners" or quick-buck hedge funds? Still WEB did build it to last.....

 

cheers

Zorro

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Here's a dumb exercise: just see what the top of the market cap is going to be 20 years from now.  Say we take Exxon, which is about 300 billion in market cap.  Say they grow at a rate of 5% a year. They'll end up being about 800 billion.  If they grow at 10% they'll be 2,018 billion (2 trillion).  So if BRK is about 150 billion today which is about 1/2 of Exxon, it's not unreasonable to think that they'll end up at 1 trillion in 20 years right?  (very broadly speaking with hands waving all over the place :-) )   Still that's between a 5 and 10 bagger from today.  Which isn't bad but won't make you rich.

 

Now FFH has a market cap of 6 billion..   Say they are able to grow at 15% for the next 20 years.  That would make them a 98 billion market cap company.  Seeing that the higher end of the market cap range might be from 800 and up, that's not too unreasonable.  That would be more than a 10 bagger, closer to a 20 bagger.  Not bad again..

 

Now say we take SNS. MCD is about 59 billion, at 5% for 20 years it will be 156 billion.  If SNS at 336 million market cap today grows at 15% for 20 years we're talking 5.4 billion, so again more than a 10 bagger closer to a 20 bagger.  With a lot of room to grow still since that would be no where near the size of MCD even today.  If Sardar pulls a 20% a year for 20 years a la Buffet and Peter Lynch SNS will be a 12.8 billion company.  Again, not out of the realm of possibility even compared to MCD's valuation today...

 

Speaking of FAIRX, he has about 9-10 billion in assets today.  I'm not sure how much more he can take and keep beating the averages.  I think that the largest mutual funds that are actively managed like Fid Magellan and Fid Contrafund are around 50 billion so that's at max a 5 bagger.  Say Contrafund goes from 50 billion and grows say 7% a year, that would put it at a 200 billion fund.  So if FAIRX got up to that it'd be at most a 20 bagger..  Of course at the way FAIRX keeps gathering assets I'm not sure they get to grow that fast from actual appreciation..

 

Anyway, like I said, lots of handwaving, but I like testing the boundaries of possibility..  Like back when we had the tech bubble and we had CSCO and MSFT trading way beyond those boundaries...  

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20 years is too long.  In every case so far we are looking at hindsight.  20 years ago the only common stock Buffett held that he still holds in any amount is WPO.  He had just started buying Coke.

 

Absolutely anything could happen to a single entity within 20 years.  If you "guess" wrong you have alot to lose. 

 

 

The best bet is probably a cross section of utilities, solid banks mixed with Euro, Canada and US long bonds:

Enbridge, TCP, 3 US electric companies, A solid bank from each of England, Eurozone, Canada, and the US.

 

Slow and boring growth but probably consistent. 

 

Brk: Creative destruction could hit the Berskshire companies (e.g. Buffalo News).  Within Berk the only one I would bet on for the long term would be Mid American.  Without Buffett the insurers may go awry after a couple of years.

 

FFH without Watsa and his immediate team would be toast.  A good chunk of FFH wealth is based on a few very carefully placed bets.  Insurers are barely contained and without disciplined underwriting could deteriorate quickly.

MKL - same problem as FFH

LUK - same again - these guys are in their late 60s

 

SNS - unproven - absolutely needs Bigliari to run

 

KO - probably not a bad choice but too much concentration for my taste

 

WFC - a few months ago people were predicting it was going bust.  Within 20 years there will be a run on the banks again for some reason.  Its cyclical - not Wells but a financial meltdown.

 

JNJ - extremley competitive business.

 

At one time the Montreal Canadiens could do no wrong.  They literally won the Stanley cup a few times every decade.  This even occurred after the biggest NHL expansions.  Along the way there were game changers that made the richest teams the most successful rather than les Habitants. 

 

Buffett has stated that he likes businesses that even an idiot can run because eventually that will be the case.  For a 20 year period I can think of no single business that I would want to own with all due credit to their operators.  FFH almost went under a few years ago!

 

As for countries my bet is that the west remains the place to be for now.  Hot growth economies are always frightening.  If things turn sour in China in a big way economically you can bet they revert rapidly toward martial law which will stifle the economy.  The democratic traditions of England, Canada, a few longer term Eurozone partners, and the US will sustain themselves. 

 

 

 

 

 

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20 years is too long.  In every case so far we are looking at hindsight.  20 years ago the only common stock Buffett held that he still holds in any amount is WPO.  He had just started buying Coke.

 

I thought BRK owned 20 yrs ago AXP too..

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20 years is too long.  In every case so far we are looking at hindsight.  20 years ago the only common stock Buffett held that he still holds in any amount is WPO.  He had just started buying Coke.

 

I thought BRK owned 20 yrs ago AXP too..

 

I believe W.E.B. bought AXP during the Salad Oil Scandal (1963)

http://en.wikipedia.org/wiki/Salad_oil_scandal

 

This is during the Buffett partnership era.

 

I don't know how long he held it.

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I would def put RY in there.

If the world continues to grow they will need the resource riches of Canada and funds seem to go through these guys in numerous ways more than most of the Biggies in the Canadian Banking.  I would not hesitate to hold BRK and FFH.

I would prob only need one more more but I would sleep fine otherwise.

Remember, over 20 years you want someone (entity/manager) who knows two things:

1.how to make decent money

2. how to stay away from huge mistakes.

 

The power of compounding will take care of the rest over 20 years.

 

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I would add groups of stocks who have good economic characteristics but have been forgotten by the market (prices have fallen to the point where analysts have stopped coverage and the only buyers are day traders and the firm itself) and have alot of asset conversions opportunties.  Right now this would include radio and some TV stocks, some post-bankruptcy situations in natural resources, land companies, real estate operating firms and firms that utilize real estate in their operations (restaurants, waste management and amusement parks). 

 

In terms of the restaurant business creating vs. destroying value, a better way to look at it is a combination of a real estate business and a franchised branded product business.  Where the operator focuses on this two part model (WEST, SNS, DINE, MCD and Dairy Queen), the business can be very profitable.  Where the operator focuses on just expansion and purchases the underlying real estate, the business becomes capital inensive and the returns on capital decline.

 

Packer

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I dont think people realize how long 20 years is in this game, and the degree to which hindsight is governing our choices of these names.

 

Twenty years ago:

MSFT Windows just launched

no Google, Yahoo, no internet, no e-mail for the masses

no China ( as a business center)

berk was relatively unknown.  WEB was not a household name

Most PCs still used Word perfect with f1..f10 - mouse was just coming into use.

bank cards in use for three years

Secretaries and receptionists were commonplace

Soviet Union was just crumbling

 

Twenty years forward I am fairly sure that gas, oil, electricity, and money will still be in use.  Aside from that I could individually pick apart the companies in Berkshire and show why each may not exist in 20 years, except Mid American Energy as I said above. 

 

Nuff said. 

 

 

 

 

 

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The reality is that 5-7 years is about the best that most people can do, even for a BRK. Environments change, dilutive share issues get done, & investments dont always work out or deliver to the level expected.

 

'Buy & hold' is really about buying into cycles, secular trends, etc. near the start of the trend & selling out somewhere near the top. The bulk of the time investment is in the macro identifying trends, where you currently are within that trend, & the seasonality within the trends. The rest is security/company selection based on various guidelines. Macro for capital allocation, micro for security selection, & extended holding periods for risk mitigation.

 

Once you realize that the extended holding period is really time arbitrage, Mr Market suddenly makes sense, & the power of the approach becomes visible.

 

.... and we have seen many securities on this board where that has been admirably demonstrated.

 

SD

 

 

 

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I agree with many on this string, particularly Al, with regards to the 20 year time frame. Indeed, in 2029, life and business will look entirely different than it does now such that trying to predict which firms will benefit the most is next to impossible. Example, many folks feel that Wells Fargo is a well run financial whose services will still be needed well into the future. But, in 20 years, is it possible that some knucklehead will be running the show? Of course it is. As well, could Wells be bought out thereby changing the "DNA" of the  company? Absolutely. I am a fan of JNJ and have held for years but 20 years forward, who can say that the principles which guide the firm now will be adhered to then?

 

My impression is that the gist of the question really asks for the board's picks for a "set it and forget it" company as opposed to ones where it is manditory that the stock be held for 20 years. In that case, my response simply would read my top 5 holdings...BRK, FFH, JNJ, MKL and WFC. As investors, we do need to be vigalent in making sure that the reasons for holding each of these are still valid. If there is a "change to the story", then we need to make the appropriate changes (i.e. sell) to our portfolios.

 

Misterstockwell is spot on with his assessment of Asia (IMHO, China) as being a vital componant of the world economy in the coming decades, and, as such, it should be a componant to an investor's portfolio. The problem for me is that I have not been able to make a decision on how best to bring Asia into my portfolio. I have been (admitedly, somewhat half-heartedly) been looking for the "best" choice which has resulted in more "thumb sucking" than actual action. Unless I can take a more definitive action, it may be better to simply invest in a fund or two and buy on dips.

 

-Crip

 

 

 

-Crip

 

 

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Guest longinvestor

1)FFH, 2)BRKB, 3) LVLT 4) LLINX, and 5) room for investing in China/India over the next 2-5 years when a sharp market correction occurs. Order is weighted.

 

Enuff said about FFH, BRKB

 

Longleaf international is one of those few concentrated global funds. And their thought process is fairly well aligned with that of many on this forum. There are too many over-diversified funds out there. LLINX is my pick, despite their recent poor performance .

 

LVLT, (equity&debt) especially bought in the last 2 years (Prem did) has a very good risk-reward profile. To me, LVLT is akin to the buildout of the US interstate system which is one of a handful of initiatives that brought the US out of the 30's depression and left an ecosystem for  economic growth in the 50 years hence. Now I expect many to write back about the last 10 years of LVLT (all failure, from a ROI view) but I'm all-in. I have learned the key virtue of value investing, patience. Me thinks this is 2-or-more bagger from here over the next 5. How much more is what I salivate about. Risk of going to zero? Well not for 3 more years. Prem, Scott and Hawkins et al have the keys to the company. I really like that!

 

China, India? Going to wait for a pullback. If history is instructional, a cold in the US market is usually like pneumonia in China/India's markets. Colds are common in the US mkts. Willing to wait. Will be looking for a concentrated fund ala LLINX in India/China.

 

 

 

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Oh, MCD and maybe YUM

That would round it out nicely for me.

 

Asia (IMHO, China) as being a vital componant of the world economy in the coming decades, and, as such, it should be a componant to an investor's portfolio. The problem for me is that I have not been able to make a decision on how best to bring Asia into my portfolio.

 

Thats what the mgt of the companies you purchase will do for you. They (the great ones) are all actively pursuing these situations for us. To go much further may be to micro manage in a way but thats why finding the best manager going forward is so important.

All the managers we have mentioned are actively seeking those opportunities for us. They have the connections, expertise, resourses for research and capital etc.

We just have to sit back and do the easy job of finding our fat pitch price.

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Since I also agree with many about the 20-year time frame, I'll go with some industries/categories that I like for the long run and some companies I like in these industries.

 

Pharma/biotech -- PFE, SNY, JNJ (would go with a basket of stocks for the long run)

 

Energy upstream -- XOM, COP, XTO

 

Electricity -- NRG, BRK (MidAm)

 

Basic materials -- AA, PKX, MT

 

Insurance -- BRK, FFH

 

Banking -- BBV

 

Real estate -- FUR

 

Funds -- FAIRX, LLINX

 

 

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