The fee-hungry financial services industry promotes a message that investors always need to be doing something. As a result, buying and holding even an established FTSE 100 stock for a decade is harder than it sounds.
However, I think long term is how I need to be thinking if I’m to maximise my time (and profits) on the market.
Drinks giant Diageo (LSE: DGE) is one of the best ‘forever’ stocks going in the UK’s top tier, in my opinion. While I don’t own the shares directly, I do have a stake in Lindsell Train Global Equity. This has nearly 10% of its assets tied up in the company.
Diageo has many of the things that I look for. A global presence, an increasingly vast array of premium brands and huge margins. Collectively, these qualities should ensure the company continues growing in the years ahead.
Sure, it’s certainly faced its share of headwinds recently. The closure of drinking dens across the world last year significantly disrupted earnings. Supply chains could cause more hassle in the months ahead.
Nevertheless, the affection consumers have for Smirnoff, Guinness and Captain Morgan lead me to think I could buy and tuck Diageo away for decades and it’ll still be worth a lot more than I paid for it. This is especially true if I choose to reinvest those regularly-hiked dividends.
FTSE 100 outperformer
Scottish Mortgage Investment Trust (LSE: SMT) has been one of the standout members of the FTSE 100. In five years, its share price has surged 371% in value. In stark contrast, the index has climbed just 8%. If anything, it shows the potential gains on offer from actively selecting stocks over hugging a benchmark.
Much of SMT’s outperformance has been down to its heavy tilt toward disruptive tech stocks like Amazon and Tesla. Unfortunately, many of these US-based companies now trade on eye-watering valuations. Should interest rates finally push higher in 2022, these could be the stocks investors jettison first.
Predicting exactly when this will happen is a fool’s errand, of course. This is why I intend to continue drip-feeding my capital into the trust for some time to come.
At £21bn, SMT won’t double in value overnight. Bar the odd (inevitable) period of downward selling pressure, I see no reason why this top tier constituent won’t continue outperforming the FTSE 100.
Its line of work may not be pleasant but pest-control and hygiene firm Rentokil Initial (LSE: RTO) is another blue-chip stock whose value should continue rising in the years ahead.
Like the other shares mentioned, RTO doesn’t present as a bargain. In fact, a P/E of 38 suggests the risk/reward trade-off isn’t in my favour. Then again, the price paid for a stock arguably becomes less important if an investor’s confidence in the outlook and intends to retain their holding for many years.
As star manager Terry Smith argues: “Over the long term, it’s what the company does that makes money, not what you do“. And based on its most recent update, RTO looks like it’s cleaning up. Ongoing revenue rose 10% to £750.2m in Q3 as an end to Covid-19 restrictions lifted demand.
Today, I’d be comfortable buying the stock and holding for a decade. If a market crash happens, I’d be backing up the truck…
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Paul Summers owns shares in Lindsell Train Global Equity and Scottish Mortgage Investment Trust. The Motley Fool UK has recommended Amazon and Diageo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.