Buy and hold has been an investment strategy used for centuries. Unfortunately, the rise of high-frequency trading (HFT), greater volatility in the markets and the recession of 2008 seem to have stripped buy and hold of its allure. While the market’s new normal does not favor those who do not keep close tabs on their investments, strategic buy and hold is still a viable strategy that can be used with success.
When choosing the stocks he wishes to hold forever, a person must be very selective and strategic. In this case, speculation usually takes a backseat in favor of long-term, more stable stocks. This is why investors looking for buy-and-hold-forever stocks should be looking at large- and mega-cap stocks, rather than the smaller, more speculative market caps.
Additionally, large-cap stocks tend to have lower betas, which is a measurement of volatility as compared to the overall market. A beta below 1 means the stock is less volatile than the overall market, and a beta over 1 means the stock is more volatile than the overall market. For the purposes of buy and hold forever, low beta is key.
Wal-Mart Stores, Inc.
Wal-Mart Stores, Inc. (NYSE: WMT) is a retail powerhouse and a leader in the big box retailer space. As of 2015, it is having one of its worst years in decades, as its stock has fallen over -31% year to date. Wal-Mart’s poor performance can be traced back to too many corporate initiatives. At the beginning of 2015, Wal-Mart announced it would raise the minimum wage for its workers to $9 earlier in the year and $10 in 2016. For 2015, the minimum wage hike will cost Wal-Mart an additional $1.2 billion, and then $1.5 billion in 2016 when the wage is raised to $10 an hour. While the wage hikes will likely decrease employee turnover, profits are getting hit hard. Aside from wage hikes, Wal-Mart is continuing to spend vast amounts of money on its e-commerce presence to counter Amazon.com and its online retailer dominance. Wal-Mart also hinted at starting and expanding a drone delivery service, similar to what Amazon has stated it is going to use. As of October 2015, Wal-Mart has a beta of 0.31 and a dividend yield of 3.38%.
In the end, Wal-Mart is overextending itself and trying to increase its competitive edge over its rivals; however, that comes at a cost. The retailer is going through a rough patch but will no doubt be able to regain its footing. Keep in mind, the company may be down over -31% year to date, but if you had invested in shares of Wal-Mart back on Jan. 13, 1978, and still held on to them, you would have seen a massive 73,992% return on your investment.
Johnson & Johnson
Johnson & Johnson (NYSE: JNJ) is the next buy-and-hold forever candidate because health care is not going anywhere anytime soon. Additionally, with health costs continuing to rise year after year, the health care sector is certainly a good candidate for allocation into a buy-and-hold-forever portfolio. JNJ operates a consumer segment, a pharmaceutical segment and a medical device segment. One enticing aspect of JNJ is the fact that the company’s consumer segment is sort of a diversification away from traditional health care. Within the consumer segment, JNJ sells brands such as Aveeno, Clean & Clear, Dabao, Johnson’s, Neutrogena, Listerine, Lubriderm, Band-Aid, Benadryl, Sudafed, Tylenol and Pepcid. It is a provider of many popular over-the-counter (OTC) medications in addition to skin care products and feminine hygiene products. These products help Johnson & Johnson remain a leader in the health care field. Additionally, JNJ continues to develop its pharmaceutical and medical device segments to entice hospitals and surgery centers with new equipment. As of October 2015, Johnson & Johnson has a beta of 0.63 and a dividend yield of 2.96%.
Overall, Johnson & Johnson is an excellent candidate for the buy-and-hold portfolio because of its diverse businesses. The company’s medical device and pharmaceutical segments provide more traditional health care exposure, while the consumer segment provides it with a hedge. Johnson & Johnson shares are mostly flat year to date, down nearly -1%. However, in the spirit of buy and hold forever, buyers of JNJ on Jan. 13, 1978, who held through 2015 would have seen a 20,230% return on their money.
Apple, Inc. (NASDAQ: AAPL) is one of the world’s leading consumer electronic companies and one of the largest corporations overall, with a market cap of $687.35 billion. Apple’s story and past are widely known and respected by technology lovers and investors. Apple’s product lineup of the Apple Watch, MacBooks, iMacs, iPhone, iPads, iPods and Apple TV has captivated the world, as it seems mile-long lines form for new product releases. Apple released fiscal fourth-quarter earnings that once again set a record. While earnings were quite impressive, Apple’s China growth was strong and foretelling of Apple’s strong future ahead in the country. Unit sales in China rose 120% year over year during the quarter and nearly doubled revenue from the region to $12.5 billion. Additionally, with Apple opening two stores in the wealthy regions of the United Arab Emirates, the company stands to have a commanding presence in Dubai and Abu Dhabi. As of October 2015, Apple has a beta of 0.83 and a dividend yield of 1.73%.
Apple’s future depends on the continued success of its international expansion. For the longest time, China was the main expansion focal point. As time passed, Apple was slowly able to establish the foothold it has in China as of 2015. While there is still further growth to be had in China, Apple must continue to focus on its international expansion to continue posting impressive quarters of earnings growth. Apple is having a good year in 2015 as the stock is up 9.2% year to date. Shareholders who held Apple stock since Dec. 19, 1980, through 2015 would have realized a return of 5,769.21%.