What's the greatest advantage an individual investor has? Time. You don't have to be as concerned about day-to-day stock fluctuations or occasional disappointments and setbacks. Buying and holding can make you a lot of money over time -- if you pick the right stocks.
Stocks that you can buy and hold forever are those of companies with solid business models that are built to last. Here's why three stocks that fit the bill nicely are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), and Iron Mountain (NYSE: IRM).
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While you can't learn everything about a company from its performance in one quarter, there's much to glean from Alphabet's recent quarterly update. First, it's a cash cow, with over $6.7 billion in earnings in the third quarter thanks mainly to its core Google business, which includes Search, Android, Chrome, Cloud, Gmail, Maps, Play, and YouTube. Second, the company continues to grow rapidly. And third, Alphabet is investing in some really cool technologies for the future.
When a company with 2016 revenue of more than $90 billion can increase sales by nearly 24% year over year, you know it's on to something. Google is by far the most used search engine in the world, which means Alphabet keeps raking in huge advertising revenue. YouTube, likewise, ranks as the top video website, trouncing all rivals in hours consumers spending on the site. The bigger Google Search and YouTube get, the harder it will be for any other company to dethrone them.
The steady (and massive) cash flow that these core businesses provide to Alphabet allows the company to pour money into other bets that have the potential to be game changers down the road. Alphabet's Waymo stands as a leader in self-driving car technology. Nest connected home products, Fiber high-speed internet, and Verily Life Sciences products are already contributing significant revenue. If there's a cutting-edge technology, Alphabet's likely to be involved -- and that makes this a stock one likely to stand the test of time.
Berkshire Hathaway might seem like about as different from Alphabet as you can get. However, the companies have some similarities. In particular, Berkshire executes very well on its business model, just as Alphabet does. Instead of investing in new technologies, though, Berkshire Hathaway invests in businesses -- lots of them.
There are more than 60 companies within Berkshire's corporate structure. Company chairman and CEO Warren Buffett especially likes the insurance industry. Berkshire owns several insurance businesses, including GEICO and reinsurer Gen Re. But he also likes manufacturers, retailers, and more. And that's just inside Berkshire. The company also owns stakes, both large and small, in over 40 publicly traded companies.
Berkshire Hathaway's historical performance has been far superior to the S&P 500 index. Even though the stock isn't beating the index as much as it used to years ago, that's to be expected due to the company's size. Still, Berkshire remains one of the best stocks on the market because of how well it uses its cash. I expect the Buffett mind-set to reign within the company well beyond the the Oracle of Omaha's tenure at the helm, making Berkshire a great buy-and-hold pick.
With a name like Iron Mountain, you'd expect a company to have a rock-solid business that's virtually impenetrable from significant competition. And that's pretty much what you get with this real estate investment trust stock.
Iron Mountain specializes in records storage and information management. That's a great business to be in for three key reasons. First, demand is growing steadily as more records and data are generated. Second, customers tend to stay with a vendor. And third, it's a profitable business, since storage facilities have relatively low operating costs. Put all that together with the fact that Iron Mountain has more than 230,000 customers, including 95% of the Fortune 1000, and you have a stock with a nice moat.
As a REIT, Iron Mountain must return at least 90% of net income to shareholders as dividends. My colleague Matthew Frankel has called Iron Mountain "a dividend investor's dream" -- and he's exactly right. Its yield currently stands at 5.76%. The company thinks it will grow the dividend by at least 4% annually. That's the kind of stock you can buy and hang on to.
Warren Buffett has said in the past that his "favorite holding period is forever." But even Buffett doesn't always hold on to stocks forever. Can investors really buy and hold Alphabet, Berkshire Hathaway, and Iron Mountain forever? I think so, but there is a catch.
Many people overlook the first part of Buffett's quote. He prefaced the comment about holding forever by stating "when we own portions of outstanding businesses with outstanding managements." Alphabet, Berkshire, and Iron Mountain are currently outstanding businesses with outstanding management teams. It's possible that this could change, though.
For example, if Alphabet threw too much money at unproven technologies, the stock could suffer. If Berkshire began overpaying for companies that it buys, the same could happen. If Iron Mountain lost lots of customers' data and records, it could be in big trouble.
I doubt any of these things will happen, however. My view is that investors can buy all three of these stocks and sleep peacefully, knowing that over the long run the chances of achieving market-beating returns are pretty good.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Speights owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.