There is an interesting argument going on Twitter regarding what stock you would buy if you had to hold it for 25 years.
Say your grandchild was born and you wanted to set them up with the good life when they hit a quarter century.
First, you’d want an asset that would still be around. Gold would work. In 1993, gold was trading at $375 an ounce. Today it is at $1,224 an ounce, which would amount to a 227% 25-year gain. $10,000 would turn into $32,700, which is about double the rate of inflation.
We can do better. Let’s see what was happening in 1993.
Time Machine
Twenty-five years ago was 1993. The inflation rate was 2.96%. The Dow Jones Industrial Average closed the year at 3,654. Interest rates were 6%, and a new house cost $113,200.00. The FBI burned down the Waco compound. Intel created the Pentium microprocessor, and Snoop Doggy Dogg’s Doggystyle went to number one on the Billboard charts.
The largest companies in the U.S. in order of revenue were General Motors, ExxonMobil, Ford Motors, IBM, GE, Mobil, Altria, Chevron Texaco, DuPont, Chrysler, and Boeing.
None of those, with the exception of Boeing, would make the cut. BA went from $15 to $354, a 2,260% gain. $10,000 would turn into $236,000. That is almost a house.
IBM went from $11 to $145. Exxon went from $15 to $86. Ford is trading at the same price. You could have bought GE in 1993 at $7. Once the world’s largest company, GE is now selling at $13 a share.
Blue Chips
Today’s largest companies are Apple, Alphabet, Microsoft, Amazon, Tencent Holdings, Berkshire Hathaway, Facebook, Alibaba, Johnson & Johnson, JPMorgan Chase, Industrial & Comm Bank of China, and ExxonMobil.
Boeing comes in at 37.
Going through the list of potential buys, you’d cut out most technology. I would make an exception for Microsoft — 1993 price of $2.80, now $107.85 for a 3,752% gain! A $10,000 buy of MSFT would now be worth $385,200. A very happy grandchild indeed.
Apple, Alphabet, Facebook, and Tencent Holdings would be cut. The banks blow up every 10 years or so. JNJ looks good but could be destroyed by a lawsuit.
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Retail is constantly changing. Walmart was the king in the 1990s. It is still big (ranked 15), but Sears was once the king as well. ExxonMobil will have trouble keeping up its reserves.
Many people would say go with Berkshire Hathaway. In 1993, it was $12,000; today it is worth $300,743.19. That’s a 2,400% winner! Which is fantastic.
The thing is that Warren Buffett is 87 years old and unlikely to make it to 112. BRK-A will take a big hit on his death. His successor is unlikely to match his returns.
Two of the stocks I like for the long run weren’t public in 1993. They are Visa (V), which went from $15 in 2008 to $140 today, and Broadcom (AVGO), which went from $16 in 2009 to $216 today.
Visa is a strong bet because it will win big in the future cashless society. It has a monster moat and is expanding around the world. Plus it makes money just about any time anyone buys anything, which is the best business plan you could think up. Visa will be around in 25 years.
Broadcom is a winner because the future is all about data — think cloud computing, 5G wireless, Internet of Things, and robot cars. Broadcom creates semiconductors and other products that store and transmit data. In 2015, there was 1.0 zettabyte (ZB=1,000,000,000,000,000,000,000 bytes) transmitted by data centers. By 2020 this will be 4.3 zettabytes a year and growing rapidly.
Of course, after 10 years or so, the future is less predictable. I doubt it, but perhaps semiconductors will go the way of film cameras.
You could also buy a high-paying dividend stock that rents buildings to the federal government. There is no doubt the feds will still be here in 2043. Without any growth in the share price or yield, the dividend alone will turn $10,000 into $212,305.
If you assume a 3% dividend growth rate and a 5% share price growth rate, your $10,000 initial investment will turn into $1,390,209.46.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
