In investing, making definitive statements is usually very foolish and very unintelligent. But I will make as close to a definitive statement as I can, one that is almost impossible to refute.
Here goes: Invest in high-quality stocks. Buy and hold. Beat the market.
There's likely going to be a lot of disagreement about that statement. But what prompted me to suggest that quality stocks will beat the market over a long period of time is this week's article in Barron's about the world's best CEOs. The article profiled each CEO and, in doing so, noted the underlying company's annualized return during the CEO's tenure as compared with the S&P 500.
Here's a snapshot:
Delta Airlines (DAL): Richard Anderson has been CEO since 2007 and shares are up 13.2% annualized vs. 6.7% for the S&P.
Anheuser-Busch InBev (BUD): Carlos Brito has been CEO since 2005, and shares are up 20.8% annualized vs.8.1% for the S&P.
Apple (AAPL): Tim Cook has been CEO since 2011, and shares are up 29.5% annualized vs. 19.4% for S&P.
Honeywell International (HON): David Cote has been CEO since 2002, and shares are up 10.6% annualized vs. 7.2% for S&P.
JPMorgan (JPM): Jamie Dimon since 2006, and shares are up 7.5% annualized vs. 7.9% for S&P.
BlackRock (BLK): Larry Fink since 1988, and the shares are up 25.6% annualized vs. 5.2% for S&P.
Disney (DIS): Robert Iger since 2005, and the shares are up 18.5% annualized vs. 8.4% for S&P.
The list goes on and on. Names like Novartis (NVS), Macy's (M), Fiat Chrysler (FCAU), CVS Health (CVS), TJX (TJX), Google (GOOGL), Berkshire Hathaway (BRK.A, BRK.B) and other high-quality, well-known names illustrate the same pattern. (Apple and Google are part of TheStreet's Action Alerts PLUS portfolio.)
A buy-and-hold strategy of high-quality stocks is not an extinct or underperforming investment approach -- on the contrary, it's perhaps the best approach. Yet nearly eight out of 10 investment pros can't match the S&P. And over time, data show that investment holding periods get shorter and shorter. I doubt shorter holding periods and underperformance are a coincidence.
Yet despite compelling evidence that owning high-quality stocks for years or decades can crush the market indices, many investors are more excited about fashionable investments that pay off in weeks or months. In the end, let the facts speak for themselves. There is nothing unexciting about compounding money consistently over long periods of time. Perhaps you may not be the center of an investment discussion at a cocktail party, but the value of your portfolio will do all the talking for you.
