Keeping tabs on your investments isn't for everybody. It can be stressful, unpredictable and time-consuming, none of which might be worth the financial reward. At the IC, naturally, we think there's some compromise between day trading and premium bonds, but the reality is that active investing requires a degree of commitment some would rather do without.
One way to do this is to stick your cash in an index tracker, and reap the rewards of compound growth (providing, of course, the index grows over time). This comes with the twin advantages of low fees and the comfort that passive investing usually beats managed funds in the long run, particularly once dividends are reinvested. On the downside, the most successful constituents in that group will be diluted by the weaker performers. So is there a way of taking the same buy-and-hold strategy and applying it to the quality companies that are likely to carry on performing well for the next few decades?
Warren Buffett thinks so, and his approach of buying and holding companies for the long term has served him pretty well. And while the Sage of Omaha has the advantage of being able to buy corporations outright, once he's in, he's typically in for the long run. One of the only exceptions to this rule, Mr Buffett told Berkshire Hathaway investors in 2009, would be if "a company promises to lose money indefinitely, or there's a labour problem". But, in essence, this is a strategy that doesn't require you to do much. Gone are the frantic calls to brokers and the daily checks on the share price.
Not that this strategy is solely for passive investors. Those who are happy with more speculative bets may also want to balance their portfolio with core holdings that aren't going away any time soon, and come with a bit more security or yield.
It's worth commenting on a few shared features of the companies selected below. First is that there is a heavy weighting towards producers rather than distributors, and a leaning to consumer goods stocks. Of course, there will always be enormous competition and pricing pressure on production, but as technology continues to have a greater effect on the way (less what) we consume - be it grocery shopping, clothing or entertainment - the pressure will continue to be felt most keenly on the middle men and women of the business world.
Secondly, most of these companies are already at the top of their industries, and are by no means modest players. Several are also American. There's a reason for that: the US remains the home of the most significant and powerful global corporations. On one level, this reduces the opportunity for expansive growth, but what these companies do possess is defensiveness and a central role in the global economy. This doesn't mean these companies are impervious to disruption, or that the historically high multiples on which several of these companies trade properly account for unforeseen economic and business risks, but what they do offer is a safe bet on long-term growth.
Investing over many years also reduces the need to screen for disparities in value and current earnings forecasts. The working assumption here is that both value and earnings will rise over time, and the growing dividend yield will follow.
Profit first
A good place to start when looking for a buy-and-hold share is a track record of profits, which is normally a strong litmus test of longevity. Given the central role it occupies in the digital world and many of our lives, it might feel like the 21st century belongs to Facebook (US: FB), but until it is profitable, the heady sentiment the stock has managed to retain since it listed in 2012 doesn't yet translate into a long-term investment case.
Similarly, for all the technological disruption Amazon (US: AMZ) has caused to the world of retail, its corporate structure and focus on reinvesting everything back into the business means it reports zero earnings, and does not pay a dividend. Despite this, Amazon's share price has seen a stratospheric ascent since the dot-com bubble burst, on the back of revenue now reaching $90bn (£58bn) a year. But the same logic chief executive Jeff Bezos applies to his business - incremental cost savings or improvements in the Amazon platform will magnify into huge gains for customers further down the line - is exactly why dividends are so important for long-term investors.
Long shelf life: Unilever delivers the goods
Consumer confidence
It is a much better idea to get exposure to the established makers of the products Amazon sells. Even the most boring consumer goods company knows it must market its wares over the internet, as well as through traditional high street retailers, and there's little sign of slowing global demand for basic goods such as toiletries, drinks and food. To this end, Unilever (ULVR) and Diageo (DGE) are two UK-listed shares to buy and keep.
Co-headquartered in London and Rotterdam, Unilever was founded in 1930 and now sits among a small handful of consumer goods global giants, with sales in almost every country on the planet. With its product lines spanning personal care, food and beverages, and brands including Ben & Jerry's, Lynx, Lipton Tea and Hellmann's Mayonnaise, it has a huge range of highly competitive brands which have given the company a consistent track record of market-beating growth. Unilever also has excellent exposure to faster-growing developing economies and is both a proven effective cost-cutter and product innovator. These factors combined with the company's heritage should ensure that growth is all but guaranteed over the next decade.
Despite having a more volatile share price, alcoholic beverage giant Diageo - like Unilever - boasts a dividend yield of 3 per cent, which is an excellent entry point to the shares when you consider shareholder payouts have increased each year since the millennium. Simple compounding through the reinvesting of steadily increasing dividends is the best way of building long-term gains, and that's what Diageo offers.
It is for similar reasons that James Bullock, a manager at the long term-focused investment firm Lindsell Train, likes consumer goods stocks. He is a fan of both drinks group Dr Pepper Snapple (US: DPS), which has rewarded shareholders by buying and retiring almost a third of its stock in recent years, and Japanese cosmetics company Shiseido (TYO: 4911), whose share price has climbed 90 per cent this year so far. The launch of Lindsell Train's Japanese equity portfolio, Mr Bullock explains, was not down to a call on the state of the Japanese economy, but rather "because Japan has some fantastic global companies which fit our long-term strategy".
Shiseido is the fourth-largest pharmaceutical company in the world and possibly one of the oldest. "It's one of the dominant players in Japan, has cemented a very important market position in China and is arguably the only genuinely homegrown luxury brand in Asia," says Mr Bullock. "Its valuation, particularly compared against its key competitors is extremely low at around a third of the price-to-sales ratio of a better-known peer in the west such as L'Oréal (Fr: OR)."
Consumer goods: James Bullock at Lindsell Train likes Dr Pepper Snapple
Monopolise, monopolise, monopolise
Dividend-paying companies with relative or absolute monopolies are also good buy-and-hold candidates. And whether you like the sound of a hands-off investment strategy - or perhaps instead prefer to trade in and out of high-risk small-caps, the London Stock Exchange (LSE) is likely to benefit in some way. With this in mind, the LSE is a good portfolio share for the long-term investor.
It may offer a piddly yield, but the LSE is arguably guaranteed a place in the UK's financial piping, certainly more so than the major retail banks. And while trading houses have seen some consolidation - and will inevitably face a long-term challenge from alternative forms of financing - at present there is little reason to doubt that the LSE won't be around to see in its 250th birthday in 2051. Moreover, the LSE will continue to thrive as part of the infrastructure underpinning the continued financialisation of the economy. For all their immense power and profitability, investment banks represent a far more volatile - and heavily regulated - form of exposure to that trend. It's hard to imagine Goldman Sachs (US: GS) won't also be as dominant as it currently is over the same time frame, but the post-2008 landscape means regulation is likely to continue to disrupt the industry for the time being.
As the owner of a national gas and electricity network, National Grid (NG.) is another company with a huge monopoly, steady share price momentum and a dividend yield over 5 per cent, which is in part guaranteed by Ofgem's regulation of energy prices in the UK. And as National Grid does not directly serve UK consumers, it is somewhat unique in the utilities sector in that it avoids the political firing line. This combination of guaranteed income, governmental interdependence and an enormously high barrier to entry makes National Grid an ideal component of any buy-and-hold portfolio.
'Monopoly' is perhaps too strong a phrase for Disney (US: DIS), but as a producer of must-have content, the diversified business has proved that its magic touch has extended to global equity investors. Buoyed by excellent performance from Walt Disney Studios, shrewd acquisitions including Marvel Comics and Star Wars-maker Lucasfilm, and box-office smashes including Frozen, the share price has tripled in four years and now trades at a heady premium to peers. Despite this, its growth profile, brand power, track record and ability to produce and dictate box-office hits will ensure its continued long-term commercial success. And despite recent concerns that more of its customers are switching from paid TV to video-streaming than previously thought, Disney is considerably less affected by disintermediation than the groups supplying content to its customers' cinemas and homes.
Disney's magic touch has extended to global equity investors
Staying (not too) focused
Perhaps the most important thing to remember when holding quality defensive shares over many years is that patience is a virtue. Knowing that identifying the ups and downs of the market is probably best done in hindsight is a necessary requirement. Lindsell Train - which consistently outperforms the market - has held many of the 60 stocks in its funds for more than 20 years, and isn't prescriptive when it comes to the valuation metrics often found in these pages and analysts notes. In some years - as has been the case since 2011, the fund managers will not sell a share at all, and may only do so if the share price is significantly overpriced compared with its peers.
That may not be possible if regular income is required, but for those prepared to sit it out, backing quality defensive and cash-generative businesses is one of the best ways to invest.
