Long-Term Investment Insights: Stocks to Consider
“If you’re not willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” This well-known piece of advice from Warren Buffett highlights a key principle of long-term investing. Building wealth isn’t about chasing market fads or trying to time your moves perfectly.
Rather, a solid long-term investment strategy focuses on finding outstanding companies that have strong competitive positions and holding onto them long enough for the power of compounding to take effect.
When you’re investing with a horizon of 20 years, time becomes your greatest ally. Here are two stocks you might want to consider on your next investment.
Coca-Cola
Coca-Cola (KO +2.75%) is often seen as one of Buffett’s quintessential investments. The company boasts a robust economic moat, substantial pricing power, and a remarkable track record of 64 consecutive years of dividend increases, ensuring a consistent cash flow across different economic conditions. Currently, its dividend yield is around 2.6%. Consumer goods companies like this tend to benefit from global brand recognition and a distribution network that’s hard to beat. Their products are consumed daily around the world, which helps insulate them from regional downturns more effectively than many others.
Coca-Cola’s business model is quite clever; it primarily functions as a high-margin concentrate company. This means it sells syrup to local bottling partners, who take care of the more capital-heavy tasks of manufacturing, packaging, and distribution. This arrangement allows Coca-Cola to expand internationally while keeping capital expenditures low and maintaining control over brand equity, marketing, and pricing.
Berkshire Hathaway, which has held a substantial stake in Coca-Cola since the late 1980s, showcases the brand’s durability. They’ve accumulated around 400 million shares, making it a central part of their portfolio. When inflation drives up costs for ingredients or packaging, Coca-Cola generally passes those costs on to consumers without losing sales volume. While people might delay buying a new car in tough times, they’re unlikely to skip out on their favorite, affordable beverages.
Recognized as a Dividend King, Coca-Cola has increased its dividends for more than 60 years. Berkshire Hathaway receives hundreds of millions in passive income from this investment, demonstrating how powerful yield can be over time. For individual investors, reinvesting these growing dividends over a span of 20 years could significantly boost overall portfolio returns.
American Express
American Express (AXP -0.35%) is another long-time favorite in Buffett’s holdings. It stands out for its unique approach to the financial ecosystem. Instead of just being a conventional bank, Amex operates a closed-loop payment system, appealing specifically to affluent consumers who appreciate premium benefits and are willing to pay annual fees.
This customer segment gives Amex resilience during inflation and economic challenges, as these cardholders generally have strong purchasing power and low default risks. Amex is both a credit card issuer and a payment processor, making money through merchant fees every time a card is used, in addition to earning interest and fees from cardholders.
Thanks to a wealth of proprietary data, American Express can target its marketing efforts with remarkable precision, which keeps customer acquisition costs low while enhancing retention rates. This model has driven significant financial success, as evidenced by Amex’s record revenue of $72 billion in the last full year, an increase of 10% year-over-year, accompanied by adjusted earnings per share rising 15% to $15.38.
When the costs of goods and services rise due to inflation, the fee structure of Amex automatically adjusts, creating a built-in inflation hedge. This helps the company maintain and grow its profit margins and intrinsic value over the next couple of decades. With a track record of increasing dividends—most recently by 16%—the current yield is around 1%.
