How our 10 stocks to buy and hold forever have fared

Our July 2017 cover story highlighted 10 shares to buy and hold forever – here’s how they have fared over the past year. 

Our July 2017 cover story highlighted 10 shares to buy and hold forever – here’s how they have fared over the past year. 

Spotting a business that will stand the test of time is easier said than done, particularly in an age when technological change is disrupting various industries. 

But, as a wealth of evidence shows, backing a long-term winner can be extremely profitable: just ask Warren Buffett, who has held various high-quality companies in his portfolio for decades. American Express, for example, was first purchased in the 1960s. Other long-term bets include Coca-Cola and Procter & Gamble. 

However, history is also littered with numerous examples of market-leading businesses falling off their perches: the rise and fall of Nokia is a case in point.  

Given the challenges of finding long-term winners, we asked a selection of fund managers to name one business that they view as a buy and hold for the next couple of decades and potentially forever. 

A year on, we have crunched the numbers to find out how these 10 stocks have fared; but first we quickly run through the key characteristics that fund managers say they look for in pursuit of long-term winners. 

How to find a buy and hold stock for the long term 

There’s a mix of ingredients that fund managers look for, namely: a strong market position in a stable sector, strong pricing power, and some form of intellectual property. This could be, for example, a superior product or service that competitors cannot easily replicate.
Being a consistent dividend payer is also a desirable attribute, as is strong cash flow generation. Other traits include a strong management team, preferably one that (along with other directors) has ‘skin in the game’. 

In addition, a sensible valuation is key. As Alastair Mundy, manager of the Temple Bar investment trust, points out: ‘History tells us that stocks with a high price to earnings ratio tend to disappoint.’ 

One year on: how the 10 buy and hold stocks have fared 

The 10 stocks chosen by fund managers were a varied bunch, but seven out of the 10 were UK-listed. Of these just one company, Unilever, is a blue-chip firm that resides in the FTSE 100 index; this was the only stock to be tipped twice, by Job Curtis, of the City of London investment trust and Hugh Yarrow, manager of the Evenlode Income fund. 

Over the past year (31 May 2017 to 31 May 2018) this popular stock, which makes Dove soap and Hellmann's mayonnaise, has been flat, delivering a small loss of 1.3 per cent according to SharePad, a data service for private investors. 

The other six UK stocks are either mid-caps or small caps. The top performer over the past year has been Aim-listed Burford Capital, which provides financing for legal disputes, typically commercial legal cases in the US. Alliance Pharma takes second place, with a total return of 66 per cent, while Renishaw took third spot, posting gains of 47 per cent. The fourth best UK performer was A&J Mucklow, having gained 14 per cent. 

The other two UK stocks posted losses. RWS Holdings’ loss was small, down 5.6 per cent. But the same cannot be said for Mears Group, which has declined by 35 per cent over the one-year period.  Mears is the leading social housing repairs and maintenance provider in the UK, but has released disappointing trading updates over the past year, causing investors to hit the sell button. 

The three overseas stocks chosen are all in positive territory. US-listed Heico was the best performer, returning 55 per cent. Berkshire Hathaway, Warren Buffett’s company, posted a gain of 16 per cent, while German-listed Rational gained 14 per cent. 

It’s worth emphasising that although these returns vary considerably, they reflect only a short timeframe; any stock held for the very long term is likely to have its less successful periods. 

*Period examined was 31 May 2017 to 31 May 2018. Source: SharePad.

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