As an investor, you've been told that you can't time the market. So, you probably look for the best stocks to hold for the long term. After all, billionaire investor Warren Buffett has said that when owning stock in well-managed businesses, his "favorite holding period is forever."
Forever is an exceptionally long time, even for a buy-and-hold investor like Buffett. But his statement raises the question: “Which stocks are worth holding forever?”
Buffett's answer to that question was released in the Berkshire Hathaway 2019 letter to shareholders: "We constantly seek to buy new businesses that meet three criteria. First, they must earn good returns on the net tangible capital required in their operation. Second, they must be run by able and honest managers. Finally, they must be available at a sensible price."
With that in mind, here are eight suggestions, including Berkshire Hathaway itself and three companies (Apple, Johnson & Johnson, and Amazon.com) in Berkshire's investment portfolio.
On August 2, 2018, Apple became the first U.S. company to have a market capitalization of $1 trillion. As of September 30, 2020, Apple was the largest holding in the Berkshire Hathaway portfolio, with a value of $117 billion.
Apple held a 40% share of the U.S. smartphone market in the fourth quarter of 2020. It also led in the tablet industry, with a market share of 29.2%. And on November 12, 2020, Apple paid a quarterly dividend of 20.5 cents.
Johnson & Johnson (JNJ)
This New Jersey-based health care and pharma giant is known as a “dividend aristocrat.” From at least 1973 to 2020, Johnson & Johnson increased the value of its cash dividends every year. In 2020, it paid dividends of $3.98 per share, up from $3.75 per share in 2019. In the 10 years ended on May 12, 2021, the stock's split-adjusted return (not including reinvested cash dividends) was 157.24%.
Like many companies, Johnson & Johnson decreased the value of its dividends in 2021.
This Chicago-based business focuses on fluid management, industrial products, and manufacturing support systems (not exactly the stuff of dinner party banter). However, Dover, like J&J, is a dividend powerhouse and has also increased its annual cash dividend every year from at least 1973 through 2020.
In 2020, Dover paid quarterly dividends totaling $1.97 per share, up from $1.94 in 2019.
As of May 12, 2021, the stock's 10-year split-adjusted return (not including cash dividends) was 372.39%.
In 2019, Microsoft became the third company to achieve a market cap of more than $1 trillion. Co-founder Bill Gates is among the world's richest people.
Under the direction of chief executive officer Satya Nadella, who had been in charge of the company's cloud infrastructure and services business, Microsoft has become less reliant on its Office software suite and Windows operating system for revenue. In the first quarter of fiscal year 2021, the company's revenue from commercial cloud services rose 31% from a year earlier.
Microsoft has also paid a quarterly dividend since the fourth quarter of fiscal year 2004. In fiscal year 2020, it paid a quarterly dividend of 51 cents per share. The company paid a dividend of 56 cents per share for each of the first three quarters of fiscal year 2021.
McDonald’s is by far the biggest fast food chain in the U.S. by sales, with annual revenue almost twice that of its closest rival, Starbucks. It was the highest-valued fast food restaurant brand in the world in 2020, at $129.3 billion.
McDonald's has increased its total dividend payments every year since 1977. In 2020, its annual dividend amounted to $5.04, up from $4.73 in 2019.
In the 10 years ended on May 12, 2021, the stock's total return, excluding reinvested dividends, was 194.13%. Including reinvested dividends, it was 267.41%.
Amazon is the second-largest retailer in the world by revenue, behind only Walmart. Its 2020 revenue totaled $232.88 billion. But like its rival Microsoft, Amazon is relying more and more on its cloud computing business to drive revenue and profit gains.
The stock's average annual return from 2016 to 2020 was 38.93%. Amazon was the second company to reach a $1 trillion market cap.
As of May 12, 2021, Amazon founder Jeff Bezos was the wealthiest person in the world, with a net worth of $183.3 billion.
Alphabet (GOOGL, GOOG)
Alphabet pretty much controls the entire search engine universe (via Google) and online video (via YouTube). It’s also sitting on a ton of cash and securities: $135.1 billion as of March 31, 2021. On January 16, 2020, Alphabet became the fourth company to have a market cap of more than $1 trillion.
Following a stock split in 2014 that was meant to maintain co-founders Sergey Brin and Larry Page's control over the company, there are now two different classes of publicly traded Alphabet shares. Each Class A share, with the symbol GOOGL, confers one shareholder vote. Holders of Class C shares, which trade under the symbol GOOG, have no voting rights. (There are also privately held Class B shares, which are held by the company's founders and executives and confer 10 votes per share.)
Berkshire Hathaway (BRK.A, BRK.B)
Finally, we're getting to Buffett's own company. At $435,580 on May 12, 2021, Berkshire Hathaway's Class A stock (BRK.A) price was so expensive that most Americans would have to work several years to buy even one share. The Class B shares trade at a much lower price: $284.07 on that date.
Buying Berkshire stock is like betting on Buffett, who built on his investments in textile mills in the 1960s to become the world's sixth-richest person, with a net worth of $107.6 billion, as of May 12, 2021. It also means buying a piece of a large stable of companies both well known and obscure. These include insurance company GEICO, fast food chain International Dairy Queen, battery maker Duracell, packaged food giant KraftHeinz, paint maker Benjamin Moore, and Acme Brick Company.
Only 56 years have passed since 1965, which is a lot shorter than "forever." But if you had invested $1,000 with Buffett that year, it would have been worth $18 million in 2021.
The Balance does not provide tax, investment, or financial services or advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.