Go With A Winner!
The Dow first crossed 10,000 nearly eleven and a half years ago.
I remember watching CNBC as this historic event occurred. It was March 16, 1999. Traders on the floor of the New York Stock Exchange began cheering and tossing homemade confetti. Everyone was celebrating the markets historic moment.
I doubt they would have been so excited if they knew what the future held.
More than eleven years later the Dow is still hovering around 10,000. A far cry from “Dow 20,000 by 2006” some analysts were predicting at the time.
Clearly a buy and hold strategy hasn’t worked out so well. The idea of simply buying and holding a diversified portfolio is dead. You certainly haven’t made any money that way over the past decade.
But that doesn’t mean holding individual stocks for the long run is a bad idea. It just means you can’t buy broad indexes of stocks and expect to hit a homerun.
I have a better solution…
Instead of focusing on index investments, look for individual companies with long term potential. I have one stock in my sights. I’ll tell you about it in a moment…
But first, let’s explore what to look for in stocks for the long run.
You should start from the big picture and work down to company specifics.
First you take a look at the macro trends. In other words, look for catalysts driving future growth. The bigger the growth the better.
Just as importantly, those catalysts need to have staying power. You don’t want some new technology or development to change the game.
For me, these two criteria eliminate all but a few sectors of the economy. In fact, there are only three sectors making the cut in my book.
Energy, Agriculture, and Health Care.
These sectors all have strong long term demand drivers. Everything from population trends to the evolution of emerging markets are driving growth in these sectors.
And new technologies or developments aren’t likely to change the game. Products produced by these industries are hard to replace. (I can’t imagine technology replacing my ham sandwich.)
Once you’ve identified an industry or two, it’s time to dig down on individual stocks.
It doesn’t need to be difficult. Start with world-class companies with a proven track record.
In the energy industry, one company fits this bill perfectly, Schlumberger (SLB).
SLB is a global oilfield and information services company. For more than 80 years, they’ve been at the forefront of the oil and gas exploration and production industry. They’ve grown into a world-class organization, building on their expertise and innovative technology.
And their future looks as bright as ever.
Demand for oil and gas continues to grow. The population trends in emerging markets like China and India alone will be a catalyst for decades to come. And the depletion of existing wells will only accelerate, creating the need to find new wells.
Of course, well productivity and safety are key to the industry’s future. And SLB is at the head of the class when it comes to improving safety in offshore drilling.
SLB has a strong balance (more than $3 billion in cash), growing earnings, and solid dividend growth. It’s everything you should look for in a stock to hold for the long run.
In short, buying and holding a broad index of stocks is a thing of the past. But you can still buy and hold stocks of rock solid companies in essential and growing industries.
Category: Commodities
