If you are interested in the best long-term stocks to invest in, here are some key tips and strategies to follow
Do you know the best long-term stocks to invest in? There are a variety of options, but today we are focusing on defensive stocks and growth stocks.
We believe that both of these stock types have value in a diversified portfolio.
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The best long-term stocks to invest in include consumer stocks
You will improve your chances of making money over long periods, no matter what happens in the market, if you diversify your holdings across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.
Consumer sector companies offer products and services that benefit from continuous, habitual use and have a steady core of sales, regardless of economic and business cycles.
More generally, Consumer stocks can provide some protection against economic downturns. Generally, that’s a key difference between these stocks and firms in the Manufacturing or Resource sectors. Unlike Consumer stocks, those areas are far more sensitive to the ups and downs of the economic cycle
The best long-term stocks to invest in include growth stocks
Although growth stock picks can be volatile, they can make good long-term investments. They may be well-known stars or quiet gems, but they do share one common attribute—they are growing at a higher-than-average rate within their industry, or within the market as a whole, and could keep growing for years or decades.
For most investors in growth stocks, you should limit your aggressive growth investment holdings to a smaller part of your overall portfolio. But growth stocks typically have the potential for higher returns, especially if you always focus on investment quality first.
Here are some tips for selecting the best growth stocks as long-term investments:
Always review the balance sheets of the growth stocks you want to invest in.
While you are looking at balance sheets, look for hidden assets like real estate. At times, the hidden assets in a company’s real estate can even come to exceed the market value of its stock. (More on that below.)
When investing in more speculative growth stocks, use our “sell-half” rule. This says that if a stock you own has doubled, you should sell half so you get back your initial stake. If you are too slow to sell speculative stocks in your growth portfolio, your profits, and even your principal, can evaporate all too quickly.
Try to find growth stocks that have ownership of strong brand names and an impeccable reputation. Customers keep coming back to these businesses, and will try their new products.
Hidden assets can make a big difference to your returns over the long-term
Hidden assets can make a huge difference in growth stocks over the long term. One example of a company’s hidden assets is real estate. When a company buys real estate, the purchase price goes on its balance sheet as the historical value of the asset. Over a period of years or decades, the market value of that real estate may climb substantially. But the purchase price remains unchanged on the balance sheet.
You have to look closely to spot this hidden value. But at times, the hidden value in a company’s real estate can come to exceed the market value of its stock. This hidden value may only become apparent to investors when the company upgrades the use of the real estate.
The best time to find hidden assets is when they’re still hidden, long before the company begins taking steps to profit from them. Understanding and seeking out hidden assets while you’re evaluating a stock can add enormously to your profits in the course of an investing career. But you need the patience to profit from them because they can stay hidden for a long time after you buy.
Hidden assets can also cut your risk. Stocks with hidden assets are likely to hold up better than those whose assets are easier to spot because they are the last stocks that experienced, successful investors sell. When times are good, on the other hand, stocks with hidden assets tend to do better than average. Good times give them opportunities to put their hidden assets to work.
Follow our Successful Investor philosophy to find the best long-term stocks to invest in—and to build a top portfolio
Your surest route to investment success is to follow our three-pronged Successful Investor approach:
Invest mainly in well-established, high-quality companies;
Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities.
Downplay or avoid stocks in the broker/media limelight. Stocks in the limelight instill bloated expectations in investors. When they fail to live up to these expectations, as is bound to happen eventually, downturns can be swift and brutal.
In the long run, our three-part system will provide much better results than basing investment decisions on market opinions or predictions.
What types of stocks do you focus on over the long term?
What tips would you share with investors looking for long-term stock investments?
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