Very long term holding periods

[Cod Liver Oil]

This is from Lindsell Train who has an average holding period of 25 years:

https://www.lindselltrain.com/application/files/3516/6981/1044/The_Triumph_of_Experience_Over_Hope_-_November_2022.pdf 

@Gregmaland I sometimes discuss the lure of a permanent portfolio.  @dealrakerand Buffett seem to be practitioners of that dark art.

Thinking very long term probably makes you a better trader in the part of the portfolio that isn't.  Yes, survivorship bias, but companies like

Nintendo, Diageo, Texas Pacific and Bollore are already over 100 years old and may have solid futures. JOE could be fantastic over the next 20 years or climate tail events

could kill it.  What names can you even dare to think about for the next generation?

 

Edited December 6, 2022 by Cod Liver Oil

[ourkid8]

CN Rail or pretty much any N.A. class I rail.  I bought CN Rail at the bottom of the GFC in 2009 and plan to hold this company for the next 50 years.  

Edited December 6, 2022 by ourkid8

[Dinar]

Spirax Sarco Engineering, Ashtead, Canadian Pacific (agree on Canadian National with @ourkid8), Heineken Holdings, L'Oreal, Dior (LVMH), Hermes (don't own it), Microsoft, Philip Morris International, MSGS (Madison Square Garden Sports), Campari, 

[Spekulatius]

I think banks will be around 50 years from now. I don't think banking as a business will change fundamentally all that much.

 

Lending has been around almost as long as money. Of course surviving as a bank through the cycles is not easy.

Edited December 6, 2022 by Spekulatius

[John Hjorth]

1 hour ago, Cod Liver Oil said:

...  @dealrakerand Buffett seem to be practitioners of that dark art. ...

 

@Cod Liver Oil,

 

Why do you consider it a dark art? It reads entertaining to me. [I may be over-interpreting your choise of words.] Likely, it's about  which tax systems we on a indiviual basis are subject to, based on where we are subject to taxation.

Edited December 6, 2022 by John Hjorth

[LearningMachine]

1 hour ago, Cod Liver Oil said:

This is from Lindsell Train who has an average holding period of 25 years:

https://www.lindselltrain.com/application/files/3516/6981/1044/The_Triumph_of_Experience_Over_Hope_-_November_2022.pdf 

@Gregmaland I sometimes discuss the lure of a permanent portfolio.  @dealrakerand Buffett seem to be practitioners of that dark art.

Thinking very long term probably makes you a better trader in the part of the portfolio that isn't.  Yes, survivorship bias, but companies like

Nintendo, Diageo and Bollore are already over 100 years old and may have solid futures. JOE could be fantastic over the next 20 years or climate tail events

could kill it.  What names can you even dare to think about for the next generation?

 

 

 

Thanks @Cod Liver Oil for sharing.  I really like the principles that the article identifies from LSE on what creates a long-lasting marketplace with high return-on-equity, that doesn't require constant re-investment: 

• Principle 1. Need for liquidity: "Customers come because it alone offers them the liquidity, they both require and create, and the resultant network effects buttress the moat."
• Principle 2. Self-sustaining moat that improves with age: "Importantly, the dynamics that support this, strengthen with time. Liquidity leads to engagement and hence more liquidity. The moat deepens with age and with use and becomes self-reinforcing. This is a core principle, that in our experience, the deepest moats, the most durable over long time spans, are those with self-sustaining qualities that improve with age. Those without form unstable equilibria, are fragile to permutation and ultimately succumb to entropy."

 

What are some marketplaces around us that could satisfy both principles above, especially improving with age? 

• Facebook/AOL/Friendster/MySpace: Not improving with age because a segment of customer base (new generation) that develops over time and that mostly needs to exchange with itself can easily start to develop on another marketplace, e.g. discord, snap, etc.  Existing customer base can age off or might want to join the younger generation? 
• Uber/Lyft/Didi: Not a super-strong moat because low barrier to entry to attract some drivers & some customers on another platform that can build over time. Also, exposed to disruption from autonomous cars. 
• iOS/Android app stores: High barrier to get developers of existing apps to invest in getting their apps on another store.  Could self-sustain until customers move to another computing platform.  Regulatory risks. 
• Airbnb:
  • Liquidity: How important is liquidity to customer base and hosts? 
  • Self-sustaining moat:
    • Can some hosts be easily convinced to also list on another platform and attract some customers there?
      • Probably much easier to convince a host to list on another platform than to convince a company to invest in building an app for another mobile platform? 
    • How much could Chesky's customer experience focus keep hosts and users on platform instead of also listing on another platform, and for how long? 

 

Thoughts?  Any other marketplaces that satisfy both principles above? 

Edited December 6, 2022 by LearningMachine

[LC]

Every time I contemplate this I think the more important question is, "What business will still be around in 50 years"

 

I think once you can shortlist that group, you can make some educated guesses of which ones will over/under perform.

 

I mean, Dinar mentioned L'oreal, for example.

I have a lot more confidence that MSG or Wells Fargo will be around in 50 years vs. L'Oreal. 

[LearningMachine]

 

@LC, having a business be around in 50 years is a great bar. 

 

Is that good enough though?  If a business is there in 50 years, but had to consume all the FCF it was generating in replacing its PP&E to be able to have high NPS and survive, or refinance debt at a high interest rate, is that ok for you as an owner? 

 

At the end of the day, don't you want the business to also give you cash day-in-day-out and increasing amounts of it? 

Edited December 6, 2022 by LearningMachine

[LC]

For sure, but 50 years is a long time. Microsoft and Apple haven't even been around 50 years.

 

Do we expect businesses which are currently printing money to continue earning outsized returns through 5 decades of competition, changing technologies and demographics, etc.?

And do you expect businesses with such poor economics as you describe to remain solvent for 50+ years? 

 

It's possible (and has occured!) but those are rare cases. Competition is a real thing and over 50 years it's super difficult to beat.

 

A lot of the surviving companies have a real benefit that others can't replicate. And in many times it's as simply as government protecting their national industries. 

 

Just points to consider!

[Gregmal]

Theres not competition or replacement, whether its 20-50 years out, for one of a kind assets or for well located, physical places. So yea the MSG stuff and JOE are weighted the way they are for me for a reason. If the non physical places become a thing then Nintendo will work for me too!

[zzzyx]

I put U-Haul in this group....no doubt.  And it is not expensive either.

[dealraker]

2 hours ago, Cod Liver Oil said:

This is from Lindsell Train who has an average holding period of 25 years:

https://www.lindselltrain.com/application/files/3516/6981/1044/The_Triumph_of_Experience_Over_Hope_-_November_2022.pdf 

@Gregmaland I sometimes discuss the lure of a permanent portfolio.  @dealrakerand Buffett seem to be practitioners of that dark art.

Thinking very long term probably makes you a better trader in the part of the portfolio that isn't.  Yes, survivorship bias, but companies like

Nintendo, Diageo and Bollore are already over 100 years old and may have solid futures. JOE could be fantastic over the next 20 years or climate tail events

could kill it.  What names can you even dare to think about for the next generation?

 

It probably would be close to accurate to say that I'm the least confident of anyone posting here as to which businesses are best for the long term.  I've held the stocks I inherited in 1975 but never added a dime to any of them - I've bought other stocks and a bunch of them.  Some have been of course great long term investments but I have no credit as to knowing with the exception of knowing enough to know not to sell- to diverify.  Although I'm far more experienced and knowledgable than most I chose the model that fails to fail rather than one of outperforming the market as most try to do.

 

I got lucky with AJ Gallagher, choosing the merge was my wifes suggestion.  The rest is just passive observation.  I am however overall a very disciplined value buyer, a successful one.  

 

I often mention Greg and Parsad here and that's because they have strong opinons as to what they do and the eventual outcome.  I sort of live vicariously through these posts which I enjoy reading.   

 

I've tried to write this correctly.  Often after re-reading a post I've made it comes out saying something I didn't intend.

 

 

 

[Gregmal]

Probably a useful tangential exercise is to identify features of successful public and private investments over the long haul. Many times, a common trait is a niche or specialty sector, limited coverage or investor awareness, and polarizing dynamic/angle. Been hearing my whole life how overvalued/expensive sports teams are. Each sale sets a new record. Or Hamptons homes. Ferraris. Some of the insurance brokers IMO fit this well. Very limited coverage, hardly a robust or enthusiastic widespread investor base. Sometimes optics issues. Something like RICK too a good example. 

[Sweet]

I’ve come to a similar conclusion about buying and holding companies.  My biggest mistakes, by far, were selling good companies.

 

An obvious problem with this approach is that you largely select out technology companies.  Companies that tend to stick around for the long haul tend to be those that provide something fundamental that’s hard to replace.

 

An alternative and boring approach to this problem is to index into technology.  That way you don’t ever have to pick a winner and you largely remove survivorship bias.  Despite the massive drawdowns the Nasdaq has comfortably outperformed the SP-500 since inception.  
 

I think we need to be long human ingenuity in some way.  And I think an argument can be made that is value investing of a kind.

[Cod Liver Oil]

22 minutes ago, Sweet said:

 

I think we need to be long human ingenuity in some way.

Very well said.

[Viking]

Does this not kind of suggest an index fund / ETF (i.e. S&P500) approach is indeed a solid strategy for most people. They will be invested in most of the right (surviving) companies looking out 25 or even 50 years. And over time the companies that disappear (bought out, merged, broken up or gone bankrupt) from the index/ETF are replaced by the best of the rest. Over time you end up with the best companies and you pay virtually no fees for that expertise.

Edited December 7, 2022 by Viking

[LearningMachine]

3 hours ago, zzzyx said:

I put U-Haul in this group....no doubt.  And it is not expensive either.

 

U-Haul is an example of a business that Munger and Buffett would say is one of the worst in inflation.

 

Reminds me of following quote from Munger:

Quote

We tend to prefer the business which drowns in cash - it just makes so much money that one of the main characteristics of it is the amount of cash coming in. There are other businesses, like the construction equipment business that my old friend John Anderson ran. He used to say: 'you work hard all year, and at the end of the year there's your profit - sitting in the yard.' There was never any cash, just more used construction equipment. We tend to hate businesses like that.

 

Another one from Buffett: 

Quote

The best business to have during inflation is one that retains its earning power in real dollars without commensurate investment to, in effect, fund the inflation-produced nominal growth. The worst kind of business is where you have to keep putting more and more money into a lousy business. In effect, the airlines have been hurt by inflation over the last 40 years, because now they have to put a whole lot of money in a lousy investment, which is a plane, compared to 30 or 40 years ago. And they have to stay in the game. They have to keep buying new planes. And the new planes cost far more now, and the returns continue to be inadequate. So the best protection is a very good business that does not require big capital investment.

 

The reason is again their PP&E to FCF ratio would be too high, which means they would need to use cash to replace U-Haul trucks just to stay in business instead of being able to give that cash to shareholders. 

[LearningMachine]

1 hour ago, Sweet said:

I’ve come to a similar conclusion about buying and holding companies.  My biggest mistakes, by far, were selling good companies.

 

An obvious problem with this approach is that you largely select out technology companies.  Companies that tend to stick around for the long haul tend to be those that provide something fundamental that’s hard to replace.

 

An alternative and boring approach to this problem is to index into technology.  That way you don’t ever have to pick a winner and you largely remove survivorship bias.  Despite the massive drawdowns the Nasdaq has comfortably outperformed the SP-500 since inception.  
 

I think we need to be long human ingenuity in some way.  And I think an argument can be made that is value investing of a kind.

 

15 minutes ago, Viking said:

Does this not kind of suggest an index fund / ETF (i.e. S&P500) approach is indeed a solid strategy for most people. They will be invested in most of the right (surviving) companies looking out 25 or even 50 years. And over time the companies that disappear (bought out, merged, broken up or gone bankrupt) from the index/ETF are replaced by the best of the rest. Over time you end up with the best companies and you pay virtually no fees for that expertise.

 

 

The next question is which ETF would do the best over decades?  Why not consider VGT over QQQ so that you are not artificially deciding by which exchange they list in, and both VGT and QQQ are tracking each other. 

 

Next questions is why not consider FDN or PNQI, but meticulously walking through that list, you realize, there are so many crappy companies in there who are still taking cash from owners instead of giving cash to owners that you wouldn't buy yourself. 

 

We discussed some of this at 

 

 

[Ross812]

WMT, many utilities, and Michelin. I'm surprised those taking about irreplaceable assets don't include telecommunications, there is only so much airspace. I would dare to say UPS, Brown Forman, Disney, and LMT. 

[CorpRaider]

It seems like you gotta' have some systematic guardrails that give you a chance to catch those right tails and try to get some positive skew don't you?  Max 100% down (if you don't average down) and infinity up.  The distribution is not normal or random.

Edited December 7, 2022 by CorpRaider

[Viking]

At the end of the day what we learn is an investor has to find a strategy that works (beats the averages) and fits with how they are wired: intellectually and emotionally. There is no one right way. Very interesting to think about all the different intellectual models that work. 

 

When looking at an investment I never think 20-25 years into the future. I usually focus my efforts on understanding 1-3 years out and that is pretty much it. Good short term decisions = good long term outcome. That has been my experience. (By short term I mean 1 to 3 years.)

 

In my personal life I KNOW what I am doing the next 12 months. I have a pretty good idea looking out 12-24 months. 36 months out the view is starting to get a little blurry. That's as far as I get (right now). But I love change. Our youngest will be done university in 3 years. After that no need for a 4 bedroom house. Also no need to live full time in Vancouver. Lots of great options. (I should note that when my 3 kids were in elementary & especially high school we were locked and loaded in our house and neighbourhood - not going anywhere.)

Edited December 7, 2022 by Viking

[Blugolds]

Like Charlie says...Invert! 

 

50 in "business years"...

 

What businesses' around 50 years ago, are still with us. 

 

1970 Full list

Rank	Company	Revenues                                           ($ millions)	Profits ($ millions)

 

General Motors	24,295.1	1,710.7
2	Exxon Mobil	14,929.8	1,047.6
3	Ford Motor	14,755.6	546.5
4	General Electric	8,448.0	278.0
5	Intl. Business Machines	7,197.3	933.9
6	Chrysler	7,052.2	88.8
7	Mobil	6,621.4	434.5
8	Texaco	5,867.9	769.8
9	ITT Industries	5,474.7	234.0
10	Gulf Oil	4,953.3	610.6
11	AT&T Technologies	4,883.2	227.0
12	U.S. Steel	4,754.1	217.2
13	ChevronTexaco	3,825.0	453.8
14	LTV	3,750.3	-38.3
15	DuPont	3,655.3	356.2
16	Shell Oil	3,537.1	291.2
17	CBS	3,509.2	149.9
18	Amoco	3,469.1	321.0
19	General Telephone & Electronics	3,262.0	237.4
20	Goodyear Tire & Rubber	3,215.3	158.2
21	RCA	3,187.9	151.3
22	Esmark	3,107.6	21.9
23	McDonnell Douglas	3,023.8	117.6
24	Union Carbide	2,933.0	186.2
25	Bethlehem Steel	2,927.7	156.5
26	Boeing	2,834.6	10.2
27	Eastman Kodak	2,747.2	401.1
28	Procter & Gamble	2,707.6	187.4
29	Atlantic Richfield	2,691.2	227.2
30	Rockwell Automation	2,667.3	64.9
31	Navistar International	2,652.8	63.8
32	Kraft	2,580.9	75.6
33	General Dynamics	2,508.8	2.5
34	Tenneco Automotive	2,450.6	165.5
35	Conoco	2,395.6	157.1
36	United Technologies	2,350.4	50.9
37	Firestone Tire & Rubber	2,278.9	116.7
38	ConocoPhillips	2,202.0	134.3
39	Litton Industries	2,176.6	82.3
40	Armour	2,153.4	18.1
41	Lockheed Martin	2,074.6	-32.6
42	Caterpillar	2,001.6	142.5
43	Monsanto	1,938.8	116.1
44	Occidental Petroleum	1,937.6	174.8
45	Singer	1,902.1	77.7
46	General Foods	1,893.8	132.9
47	Sunoco	1,837.8	152.3
48	Rapid-American	1,827.1	20.7
49	Dow Chemical	1,797.1	148.7
50	Sealed Air

 

Thats the top 50 of Fortune 500 in 1970. Many still around, some got put out to pasture and some taken out back behind the barn. There are many on this list that I would bet will be around in another 50 for sure. So much changes, not a lot of "big tech" on this list... hard to predict, at one point probably every woman in America had a sewing machine in the house.  Imagine if it was 1970 and we are having this discussion...some of those big names for sure some people would have thought that they would still be somewhere near the top..

 

I dont think its as hard as people think to pick businesses that will be around in 50 years There are many companies I can imagine a way when I really let my mind wander about future tech possibilities that I could see a time when they are taken out to pasture and that glide slope starts. What is difficult IMO is to determine where in the cycle the survivors will be, still a player, or put out to pasture in their downward glide slope. When that transition happens in the 50yr window and what your return will be assuming you predict with some degree of accuracy and you hold full term, will that return be "adequate". Then will that return be greater than the index? And if so, by how much, are you being compensated for taking some sort of concentration in hand picked names for the long haul vs the relatively easy index set it and forget it method. Will the juice be worth the squeeze. 

 

Thinking of Warren talking about businesses that are so good that they can survive and make it even with an idiot running them because sooner or later there will be... those odds increase significantly the longer you go out on the timeline.  I like BRK energy. Railroads, utilities, people are always gonna need water and possible that it becomes something people are willing to pay quite a bit more for in the future as scarcity gets worse. I think kids will still love Disney in 50 years even if they remake Mambi with a non-binary deer (joking, relax)  Those ultra wide moat businesses that arent necessarily sexy like the big tech names. Otherwise its probably just best to pick the index for the majority of people, with the majority of their port, if unable to confidently figure the above, place some other side bets to catch a flier. Also doesnt have to be the top 50 in 50..I just used those as an example. 

 

 

 

 

[Masterofnone]

When our nephew was born we wanted to give him a small teaching tool. We started a DRIP account with five shares of PEP. Soda, chips and Gatorade, regardless of the nutritional value, were pretty certain to be around when it was time to set off in life and it was pretty easy for a kid growing up to see how the business worked. Over his twenty years, with dividends reinvested, it has beat the S&P by a small but meaningful margin. We wanted an example of compounding and thinking long term. Should be doing just fine in 20 more years. It took a fair amount of thought to pick the stock. Did I invest personally? Yup, 10 shares in a DRIP....... Hah.

[Sweet]

7 hours ago, LearningMachine said:

 

 

 

The next question is which ETF would do the best over decades?  Why not consider VGT over QQQ so that you are not artificially deciding by which exchange they list in, and both VGT and QQQ are tracking each other. 

 

Next questions is why not consider FDN or PNQI, but meticulously walking through that list, you realize, there are so many crappy companies in there who are still taking cash from owners instead of giving cash to owners that you wouldn't buy yourself. 

 

We discussed some of this at 

 

 

 

I would go with Vanguard for the expense ratio.  If you managed to buy during periods when the index is down a lot you’d have a good chance of producing a return that would beat almost all active managers.  
 

Indexing is definitely my preferred approach when buying into a sector where I can’t be sure what companies will last and which won’t.  Obviously if you could buy a Google or an Apple at inception, and hold that would be better, but very difficult to do.

[dealraker]

I might add that in cases like mine there's a difference as to being a long term diversified investor in stocks vs an index.  At this point my portfolio is 75% AJ Gallagher and Berkshire.  If you add in Erie Indemnity, Markel and Norfolk Southern that's 83%.

 

All of the above with the exception of Gallagher which began with a $500k (rounding on all these figures for clarity) merger value - that was my 50.1% of our business- all were very small initial investments.  Berkshire started at $3500, Markel was a $10k start, Norfolk was less than $3,000 and so forth.  Erie was larger but I can't remember that at the moment.  All made in certificate form now in street name so I have to imput the basis if sold which I haven't done.

 

The largest investment I have ever made initially with the exception of AJG is a recent one into JOE (St. Joe).  But I haven't made investments with the exception of energy in some time - except a tad more of Meta at $96 or so.

 

Rambling.