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 stocks 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) in Berkshire's investment portfolio.
1. Apple (AAPL)
On August 2, 2018, Apple became the first U.S. company to have a market capitalization of $1 trillion. As of September 30, 2021, Apple was the largest holding in the Berkshire Hathaway portfolio, with a value of $128.4 billion.
Apple held a 47% share of the U.S. smartphone market in the third quarter of 2021. It also led in the tablet industry with a market share of 29.2% in the fourth quarter. And in February 2022, Apple paid a quarterly dividend of 22 cents per share.
2. Johnson & Johnson (JNJ)
This New Jersey-based healthcare and pharma giant is known as a “dividend aristocrat.” From at least 1973 through 2021, Johnson & Johnson increased the value of its cash dividends every year. In 2021, it paid dividends of $4.19 per share, up from $3.98 per share in 2020. In the 10 years ending on Feb. 12, 2022, the stock's split-adjusted return (not including reinvested cash dividends) was 159.61%.
3. Dover (DOV)
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 1972 through 2021.
In 2021, Dover paid quarterly dividends totaling $1.99 per share, up from $1.97 in 2020.
As of Feb. 11, 2022, the stock's 10-year split-adjusted return (not including cash dividends) was 270.94%.
4. Microsoft (MSFT)
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 second quarter of fiscal year 2022, the company's revenue from Office Commercial products and cloud services rose 14% from a year earlier.
Microsoft has also paid a quarterly dividend since the fourth quarter of fiscal year 2004. In fiscal year 2021, it paid a quarterly dividend of 56 cents per share. The company announced dividends of 62 cents per share for each of the first two quarters of fiscal year 2022.
5. McDonald’s (MCD)
McDonald’s is by far the biggest fast-food chain in the U.S. by sales, around twice that of its closest rival, Starbucks. It was the highest-valued fast-food restaurant brand in the world in 2021, with a brand value of $154.9 billion.
McDonald's has increased its total dividend payments every year since 1977. In 2021, its annual dividend amounted to $5.25, up from $5.04 in 2020.
In the 10 years ended on Feb. 11, 2022, the stock's total return, excluding reinvested dividends, was 158.24%. Including reinvested dividends, it was 220.95%.
6. Amazon.com (AMZN)
Amazon is the second-largest retailer in the world by revenue, behind only Walmart. Its 2021 revenue totaled $469.82 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.
Amazon founder Jeff Bezos is among the wealthiest people in the world, with a net worth of more than $179 billion as of February 2022, according to Forbes.
7. 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: $139.6 billion as of December 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.)
8. Berkshire Hathaway (BRK.A, BRK.B)
Finally, we're getting to Buffett's own company. At $479,730 on Feb. 11, 2022, 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 traded at a much lower price: $319.14 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 fifth-richest person, with a net worth of $115.4 billion as of Feb. 13, 2022, according to Forbes. 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 Kraft Heinz, paint maker Benjamin Moore, and Acme Brick Company.
Only about six decades have passed since Buffett first bought shares of Berkshire Hathaway, which is a lot shorter than "forever." But if you had invested $1,000 with Buffett when he took control in 1965, it would have been worth $18 million in 2022.
Frequently Asked Questions (FAQs)
Are stocks the best long-term investment?
On a long-enough timeline, stock investments have historically performed better than alternative investments like bonds. That relationship could shift at some point, but it has remained intact since around 1950.
What is the best mix of stocks and bonds for the highest long-term returns?
The best mix of stocks and bonds depends on the investor's circumstances, but it typically shifts toward bonds as someone approaches retirement age. Target-date funds account for this by adjusting the ratio of stocks and bonds as the target date approaches. For instance, a mutual fund with a 2055 target date may currently allocate 90% of its funds to stocks and only 10% to fixed-income, while a 2030 target-date fund may now be closer to a 50/50 allocation.
What is considered long-term investing as opposed to short-term investing?
As far as capital gains taxes are concerned, you're considered a long-term investor once you've held a stock for more than a year. In casual conversation, these terms are somewhat fluid, since investing styles vary. A day trader's sense of long-term and short-term won't align with that of someone investing in a retirement account.
The Balance does not provide tax, investment, or financial services and 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.