6 characteristics of a good long-term stock | Author: Kalpen Patel | The Capital | July 2021
Hi everyone, thank you for coming back to my blog. I hope you found my last blog interesting and useful, in which I introduced “How to invest like Warren Buffett‘.
In this blog, I will show you what characteristics you should pay attention to when it comes to a good long-term stock, because these stocks can bring you larger and more stable returns, the longer you hold them.
Warren Buffett and other value investing proponents quickly pointed out that you should be willing to persist for a long time in order to benefit from the selection of value stocks. Sometimes this may even take more than 10 years.
It is important to be able to distinguish long-term investment companies from short-term investment companies. To find stocks that may be kept for 10 years or more, it is important to understand the characteristics of these stocks. Fortunately, these long-term games usually have something in common.
Long-term stocks usually have the following characteristics:
Simple businesses that produce products or services that can stand the test of time are usually good long-term investments. Some examples of such products include toothpaste, toilet paper, office supplies, banks, and insurance companies.
· Many of these businesses may be considered “boring”, but these products and services have been around for some time and will continue to play an important role.
· High-tech companies usually do not meet this requirement unless they are very mature. Microsoft would be a good example, but AOL that still exists (yes, really) is hardly the company it came back to in the late 90s.
Even in a recession, companies with the least debt and good cash flow may survive. These companies are usually unshakable and pay stable dividends. Dividend payments come from earnings beyond what the company needs to thrive or expand.
· Is the company’s valuation fair? How fierce is competition in pricing in the industry? This is the ideal place to use the P/E ratio (P/E ratio) in the analysis.
Is income affected by economic strength? If so, how many? When income fell in the past, do you understand why? Has revenue been increasing in the past 10 years? Can you reasonably expect them to continue to rise?
· Value investors believe that prices will eventually follow returns. It is only natural that long-term earnings growth will lead to long-term stock price increases.
If you look at the popular companies today, you will find that most of them held a certain position long ago. A company does not suddenly have this characteristic. Many of these companies existed during the childhood of your parents or grandparents.
· How did the company perform in the economic downturn? If it performs poorly, is it still vulnerable to the same economic conditions?
The executives of this type of company do not need to do anything compelling. They just guided the boat gently and avoided doing anything stupid. Human factors are unpredictable, so reliable management is very important.
- The best companies may not need excellent management, but it is a good thing to own it anyway.
Is it cheap labor, new technology, or imminent debt payment? Will competition make the company difficult?
- Play as a supporter of the devil and try to create a scene that will bring disaster. How likely is this to happen?
· Understanding the unfavorable factors is important to assess the favorable factors. How much risk does it take to gain potential profits?