50 Reasons Why We Don’t Invest for the Long-Term

DECEMBER 18, 2018 / JOE WIGGINS

Investment is a long-term endeavour designed to meet our long-term financial objectives, so why do we spend so much of our time obsessing about the short-term and almost inevitably taking decisions that make us worse off?  Well, here are 50 reasons to start with:

1: Because it is boring.

2: Because markets are random and it’s difficult to accept.

3: Because of short-term benchmark comparisons.

4: Because we are remunerated based on annual performance.

5: Because of quarterly risk and performance reviews.

6: Because there is always something / somebody performing better.

7: Because we watch financial news.

8: Because we think we can time markets.

9: Because even good long-term investment decisions can have disappointing outcomes.

10: Because the fund we manage charges performance fees.

11: Because short-term losses are painful.

12: Because we forget about compounding.

13: Because we are obsessed with what is happening right now.

14: Because we are poor at discounting the future.

15: Because we will be in a different job in three years’ time.

16: Because we extrapolate recent trends.

17: Because we check our portfolios every day.

18: Because it is so easy to trade our portfolios.

19: Because we think poor short-term outcomes means that something is wrong.

20: Because we make decisions when we are emotional.

21: Because we think we can forecast economic developments.

22: Because we think that we know how markets will react to economic developments.

23: Because we compare our returns to the wrong things.

24: Because it is hard to do nothing.

25: Because regulations require that we must be notified after our investment falls by 10%.

26: Because it feels good to buy things that have been performing well.

27: Because there is too much information.

28: Because we don’t know what information matters.

29: Because we don’t want to lose our job.

30: Because nobody else is.

31: Because we need to justify our existence.

32: Because we think we are more skilful than we are.

33: Because we work for a listed company.

34: Because we don’t want to lose clients.

35: Because we think one year is long-term.

36: Because assets with high long-term return potential can be disappointing in the short term.

37: Because we think performance consistency is a real thing.

38: Because we don’t want to spend much of our time looking ‘wrong’.

39: Because the latest fad is alluring.

40: Because there is a new paradigm.

41: Because we vividly remember that short-term call we got right.

42: Because we can’t tell clients we haven’t been doing much.

43: Because we think we are better than other people.

44: Because we have to justify fees.

45: Because we don’t want to be invested through the next bear market.

46: Because we think short-term news is relevant to long-term returns.

47: Because short-term investing can be exciting.

48: Because we have to have an opinion.

49: Because there are so many experts and they are all so convincing.

50: Because it seems too simple.

Adopting a genuinely long-term approach to investment is one of the few genuine edges or advantages any investor can hope to exploit.  Unfortunately, it can feel as if everything is conspiring against our attempts to benefit from it – but that does not mean we should not try

https://behaviouralinvestment.com/2018/12/18/50-reasons-why-we-dont-invest-for-the-long-term/

Investing in high quality stocks for the Long Term

Investing in high-quality stocks and holding them for the correct period is the only way to create wealth. This statement is easier to say than to execute. Here come the obvious questions –

1. What do you mean by “high-quality stocks”?
2. How to select high-quality stocks?
3. How to separate quality business from others?
4. What is the correct holding period?
5. When to buy and when to sell a stock?
6. How to construct my portfolio?

Forget about intraday; short term trading, Futures & Options. Remember, there is no shortcut to earning quickly. Every quick-money makings tricks are eventually money-losing tricks.

It is time in the market, not market timing, that counts.

There is no short-term timing strategy that works accurately and consistently

Many people believe that the fastest way to the highest market returns is by short-term trades that are accurately timed.  But many years in the investment arena, there is no short-term timing strategy that works.  

All nature of pundits have come and gone over the years.

• For a short time, any of them may be right and may make one or two amazingly accurate predictions.  
• Eventually, all of them lose the interest of the public when the predictions prove inaccurate.  

There is no sure way to accurately and consistently time short-term market movements, and again, the research of scholars have highlighted this.



Better in the market invested in value stocks than play the timing game

It is simply better to be in the market, invested in the value stocks that offer the highest potential return, than to play the timing game.

• Between 80 and 90% of the investment return on stocks occurs around 2% to 7% of the time.  
• It is a daunting task to find a way to reliably predict the 7% of the time stocks do well.  

As a long term investor, the real danger and threat to your nest egg is being out of the market when the big moves occur.  You simply have to accept that you must endure some temporary market declines.  

The reality is (and it has  been proven) that the biggest portions of investment returns come from short periods of time but trying to identify those periods and coordinate stock purchases to them is nearly impossible.  Two issues are at play here, both equally important:

(1) short-term timing doesn't work; and
(2) the highest returns are achieved by being fully invested in the market at nearly all times so that you can capture the times when stocks rise the most.  You have to be in the game to win it!



Long-term value investing is like flying long distance

Long-term value investing is like flying from Singapore to London.  While you may encounter some air turbulence over Europe, if your plane is in good shape, there is no reason to bail out.  You will eventually reach your destination safely, and probably even on time.

The same goes for investing.  If your portfolio is well constructed, a bit of market turbulence is no reason to bail.  You will reach your financial goals.




Predicting short-term stock market direction is a fool's game

Predicting short-term stock market direction, however, is a fool's game and is disservice to the investing public.

Long term, the market is going up.  Always has, and most likely always will.

Market timers like to think they can capture large returns by jumping in the market to profit during periods when stocks are up, and jumping out of the market when stocks are down. 

• It may get you ahead for a brief period but you will quickly give up gains when abrupt events that could never have been predicted (such as the tragedy of 9/11, geopolitical evens, and even weather cause brief downturns that are almost always followed by rising prices).  
• You will also give up your profits to the increased costs of trading from commissions to taxes.

The majority of investors buy high and sell low.

All manner of studies have proven, in many ways under many scenarios, that the majority of investors buy high and sell low.

1.  Peter Lynch, the legendary and highly successful manage of the Fidelity Magellan Fund for many years, once remarked that he calculated that more than half of the investors in his fund lost money.  This happened because money would pour in after a couple of good quarters and exit after a couple of not so good quarters.

2.  Nobel Prize winner William Sharpe found that a market timer must be right a staggering 82% of the time to match a buy and hold return. That's a lot of work to achieve that could be accomplished by taking a nap.

3.  Even worse, other research shows that the risks of market timing are nearly two times as great as the potential rewards.

• Between 1985 and 2005, the annually compounded rate of return for the Standard & Poor's 500 Index was 11.9%.  
• However, a recent research study concluded that the average investor only compounded at 3.9% over that period.  
• Why?  The research paper concludes that most investors head for the hills during period of market declines, thinking the decline will go on indefinitely. Once the market has rebounded, they return, having missed the best part of the rebound.

Day by day, minute by minute prices are so widely available

One of the more difficult factors in maintaining a long-term approach is that prices are so widely available.  We can check the value of all of our stock holdings day by day, minute by minute.   We can see how they fluctuate around short-term factors, and in many cases this information can make us a little nervous.

An example of a successful commercial real estate broker who saved at least half of his earnings each year.  His money was invested for the long term, and he could afford to leave it invested.  But he could not stand to see the prices of stocks rise and fall each day.  If he owned a stock and it closed down on a particular day, he was deeply upset.   He did not realise that bonds also fluctuate in price; but since he could not check their closing prices every day he was not worried.  He got his regular interest check, which he reinvested and was happy.  Over the ensuing 10 years, his municipal bond portfolio grew at an assumed interest rate of 5%.  If the same funds had been invested in the Standard & Poor's 500 index, he would have made 15.3% annually compounded rate of return.  His loss for not being invested in stocks was staggering.

Would you take a minute-by-minute pricing approach with anything else you own?  

How would you react if your house was priced every day and the quotes listed in the local newspaper?  Would you panic and move if you lost 2% of your home's value because a neighbour didn't mow his lawn?  Would you rejoice and sell if it went up 5% in one day because another neighbour finally painted his house.

A collection of businesses bought at  excellent prices is no less a long-term asset than a piece of real estate and should be treated the same way.  Prices will fluctuate both up and down.  What is most important is that you own the right stocks when the market does go higher.  

You have to play  to win.  

Using the tenets of value investing and always keeping in mind the margin of safety, the odds of winning with our approach are a bit better than playing the lottery and is is far more remunerative than sitting on the sidelines.

Missing the 10, 30 and 50 best days in the market

According to an investment study, if you had ridden out all the bumps and grinds of the market from 1990 to 2005, $10,000 invested would have grown to $51,354.  

If you have missed the 10 best days over that 15-year period, your return would have dropped to $31,994. 

If you had missed the 30 best days - one month out of 180 months - you would have made $15,739.  

Had he missed the 50 best days you would have come out a net loser, and your $10,000 would now be worth only $9,030.



The evidence is clear.

It is pretty close to impossible to consistently make money market timing, and you are better off investing for the long term, riding out the bumps. 

Value investors have the extra security of knowing that they own stocks that have one or more of the characteristics of long-term winners  and that they have paid careful attention to investing with a margin of safety.

It is a marathon, not a sprint.

Advantages of Long Term Investing into Growth Stocks

Advantages of Long Term Investing into Growth Stocks

80% Success with Stock Selection
15% Annual Portfolio Return
Simple Procedures
Carefree Portfolio Maintenance




KISS Investing (Kiss It Simple and Safe)

1. You buy a company earning $1 per share ($1 EPS)

2. You buy that share for 20 X EPS ($1.00) = $20.00

3. The company grows earnings to $2 per share (EPS = $2)

4. You still sell it for 20 X EPS (20 X $2 =$40)

5. It's worth $40 and your money has doubled!

That's the secret.



The Two Most Important Tests of a Company's Value

1. What is the potential reward?

2. How much risk must I take to obtain it?



The Only Two Times You Should Sell a Stock

1. You want or need the money.

2. The company fails to perform as you predicted.

"Fails to perform as you predicted" means the quality deteriorates or the return potential deteriorates.

You hold a quality stock until you want or need the money unless the quality or potential return deteriorates.

Approximately one in five of the stocks you pick will develop unforeseen problems and need to be sold.



The Two Strategies of Portfolio Management

1. Defense - Has the quality deteriorated?

2. Offense - Has the return potential deteriorated?

Defensive portfolio management deals with making sure the growth you found and forecast is actually occuring. There will always be short term interuptions in growth which result in buying opportunities, but stocks with long term, serious problems must be caught early and delt with decisively by selling them.

Offensive portfolio management deals with grossly overvalued situations and is less urgent to pursue. Here your focus is to capture excess profit when a stock temporarily becomes overvalued by REPLACING it with another stock of equal or grater quality and greater return potential.

Missing a defensive portfolio management problem can result in serious harm to the return of your portfolio, whereas missing an offensive portfolio management problem only results in a little lost extra profit. You'll still own a quality stock.



Speculation vs. Investing

The difference between a speculator or day-trader and an investor.

A graph shows several years of weekly high - low price changes for a company that has been steadily growing its sales and earnings.

There was a lot of price fluctuations on a week to week basis, but the trend was clear. The price went up over the long term. Price follows earnings.

Speculators or day-traders try to predict the short term price directions and prosper by buying low and selling high. They don't need growth stocks. Long term investors do.

Long term investors use strategies to find these growth stocks and then pick purchase entry points and ride the long term upward trend in price.

My Golden Rule of Investing

My Golden Rule of Investing: 
Companies that grow revenues and earnings will see share prices grow over time.

• Over the long term, when companies perform well, their shares will do so too.  
• When a company's business suffers, the stock will also suffer.

For examples:

Starbucks has had phenomenal success at turning coffee - a simple product that used to be practically given away - into a premium product that people are willing to pay up for.  Starbucks has enjoyed handsome growth in number of stores, profits and share price.  Starbucks also has a respectable return on capital of near 11% today.

Meanwhile, Sears has languished.  It has had a difficult time competing with discount stores and strip malls, and it has not enjoyed any meaningful profit growth in years.  Plus, its return on capital rarely tops 5%.  As a result, it stock has bounced around without really going anywhere in decades.




Over the long term

Over the long term, when a company does well, your interest in that company will also do well.

Stocks are ownership interests in companies.  Being a stockholder is being a partial owner of a company.

Over the long term, a company's business performance and its share price will converge.

The market rewards companies that earn high returns on capital over a long period.

Companies that earn low returns may get an occasional bounce in the short term, but their long-term performance will be just as miserable as their returns on capital.

The wealth a company creates - as measured by returns on capital - will find its way to shareholders over the long term in the form of dividends or stock appreciation.

It is important to have a long-term investment horizon when getting started in stocks.

Time is on Your Side

Just as compound interest can dramatically grow your wealth over time, the longer you invest in stocks, the better off you will be.

With time,

• your chances of making money increases, and 
• the volatility of your returns decreases.

The Longer you invest, the Lower the Volatility of your Returns

The average annual return for the S&P 500 stock index for a single year has ranged from -39% to +61%, while averaging 13.2%.

After holding stocks for 5 years, average annualised returns have ranged from -4% to +30%, while averaging 11.9%.

If your holding period is 20 years, you never lost money, with 20-year returns ranging from +6.4% to +15%, with the average being 9.5%.


These returns easily surpass those you can get from any of the other major types of investments.




The Importance of having a Long-term Investment Horizon in Stocks

Again, as your holding period increases,

• the expected return variation decreases, and 
• the likelihood for a positive return increases.  

This is why it is important to have a long-term investment horizon when getting started in stocks.





Summary


While stocks make an attractive investment in the long run, stock returns are not guaranteed and tend to be volatile in the short term.


We do not recommend that you invest in stocks to achieve your short-term goals.


To be effective, you should invest in stocks only to meet long-term objectives that are at least 5 years away.


The longer you invest, the greater your chances of achieving the types of returns that make investing in stocks worthwhile.




Additional notes:

Though stocks typically perform best over the long term, there can be extended periods of poor performance.  

For example, the DJIA peaked in 1966 and didn't surpass its old high again until 16 years later in 1982.  But the following 20 years were great for stocks, with the Dow increasing more than tenfold (10x) by 2002.

Secrets of Long-Term Investing Revealed

“........... long-term investing isn’t about having a great system, or a superior analytic intellect, or better access to information, or even the best advice money can buy.  Long-term investing is about character, about depth of vision and the cultivation of patience, about who you are and who you’ve made yourself to be”

The Single Best Investment, page 149

What is long-term investing? 

Long-term investing is the process of buying and holding investment securities you believe will compound investor wealth indefinitely into the future.

Why You Need to Become a Long-Term Investor

There are 3 good reasons to become a long-term investor:

1. It reduces fees
2. It requires less of your time
3. It is highly effective

Long-term investing is so successful is because of its beneficial psychological ramifications.  

If you invest for the long-term, you will focus on businesses with strong and durable competitive advantages that have a chance of compounding your wealth for decades, not days.

Long-Term Investing Strategy

The strategy long-term investors follow is straight-forward:

• Identify companies with durable competitive advantages
• Be sure these companies are in slow changing industries
• Invest in these companies when trading at fair or better prices

Three favorite slow changing industries are:

• Insurance
• Health care
• Food and beverage

To find if a company is trading at ‘fair or better prices’, a few metrics are important.

• If the company is trading below the market price-to-earnings ratio, its peer’s price-to-earnings ratio, and its 10 year historical average price-to-earnings ratio, it is likely undervalued.  
• These 3 relative price-to-earnings ratios will help to paint a picture of if a stock is ‘in favor’ or ‘out of favor’.  

As a general rule, it’s best to buy great businesses at a discount – when they are out of favor.

Another good metric to look at for determining value is a company’s expected payback period.

• Payback period is calculated using an expected growth rate and a stock’s current dividend yield.  
• The higher the dividend yield and expected growth rate, the lower the payback period.  
• The payback period is the number of years it will take an investment to pay you back.  
• Obviously, the lower the payback period, the better.

Long-Term Investing Examples

Warren Buffett’s investment history is perhaps the best example of long-term investments.  Three of his longest running investments are below:

• Wells Fargo (WFC) – 25% of his portfolio – First purchased in 1989
• Coca-Cola (KO) – 15% of portfolio – First purchased in 1988
• American Express (AXP) – 11% of portfolio – First purchased in 1964

All of these three investments are 25 years old or older.

The American Express investment is especially impressive.  Warren Buffett has held American Express for over 50 years!

Stocks for Long-Term Investors

• Find high quality dividend growth stocks suitable for long-term investors.
• Identify high quality dividend growth stocks trading at fair or better prices.
• Have a brief list of blue-chip stocks worthy of long-term investors that are currently trading at fair or better prices.

For example:  One for each sector of the economy is shown:

• Basic Materials: Phillips 66 (PSX)
• Consumer Goods: General Mills (GIS)
• Financial: Aflac (AFL)
• Health Care: Johnson & Johnson (JNJ)
• Industrial Goods: Deere & Company (DE)
• Service: W.W. Grainger (GWW)
• Technologies: Verizon Wireless (VZ)
• Utilities: Southern Company (SO)

Long-Term Investing Is Difficult

Long-term investing is not easy.

It is psychologically difficult to hold a stock when its price is declining.

Holding through price declines takes real conviction (remember the marriage analogy?).

The nearly infinite liquidity of the stock market combined with the ease of trading makes selling stocks something you can do on a whim.

But just because you can, doesn’t mean you should.

The constant stream of stock ticker price movements also coerces individual investors into trading unnecessarily.

• Does it really matter that a stock is up 1% today, or down 0.3% this hour?  
• Have the long-term prospects of the business really changed?  

Probably not.

To compound these problems even further, the financial media promotes rapid action.

• To garner views and attention, financial pundits have become LOUD.  
• They are always promoting the next great stock to buy, or which one MUST be sold.

The Cure:  Watch Dividends, Not Stock Prices

Stock prices lie.

• They signal a business is in steep decline, when it isn’t.  
• They say a company is worth 3x as much as it was 3 years ago, when the underlying business has only grown 50%.  
• Stock prices only represent the perception of other investors.  
• They do not and cannot show the real total returns an investment will generate.

Instead of watching stock price, avoid them completely.

Look at dividend income instead.

• Dividend do not lie.  
• A business simply cannot pay rising dividends for any protracted period of time without the underlying business growing as well.

Dividends are much less volatile than stock prices.

• Dividends reflect the real earnings power of the business.  
• As a result, it makes sense to track dividend income rather than stock price movement.  
• After all, don’t you care what your investment pays you more than what people think about your investment?

The Difference Between Buy & Hold and Long-Term Investing

There is a difference between buy and hold (sometimes called buy and pray) investing and long-term investing.

Buy and hold investing typically means buying and holding no matter what.

That’s not what long-term investing is about.

Sometimes, there is a very good reason to sell a stock.  It just happens much less frequently than most people believe.

Two reasons to sell a stock:

1. If it cuts or eliminates its dividend payments
2. If it becomes extremely overvalued

The first reason to sell is intuitive.

• When a stock cuts its dividend, it violates your reason for investing. 

The second reason to sell is in the case of an extreme overvaluation.

• I’m not talking about when a stock moves from a price-to-earnings ratio of 15 to 25.  
• I’m talking about when a stock is trading for a ridiculous price-to-earnings ratio; something like 40+.  
• An important caveat to remember is to always use adjusted earnings for this calculation.  
• If a cyclical stock’s earnings temporarily fall from $5.00 per share to $1.00 per share, and the price-to-earnings ratio jumps from 15 to 75, don’t sell.  
• In this instance, the price-to-earnings ratio is artificially inflated because it is not reflecting the true earnings power of the business.  

Selling due to extreme valuations should only occur very rarely, during extreme bouts of irrational market exuberance.

Final Thoughts

Investing for the long run is simple, but not easy.

It is psychologically difficult.

The amazing success records of investors who believe a long-term outlook is critical for favorable investment returns lends credibility to the idea of long-term investing.

The financial media does not typically discuss the merits of long-term investing because it does not generate fees for the financial industry, and it does not lend itself to flashy headlines or catchy sound bites.

Invest in high quality dividend growth stocks for the long-run.

• High quality dividend growths stocks with strong competitive advantages offer individual investors the best available mix of current income, growth, and stability as compared to other investment strategies and styles.

Long-term investing requires conviction, perseverance, and the ability to do nothing when others are being very active with their portfolios.

Do you have what it takes to invest for the long run?

Read:
http://www.smarteranalyst.com/2015/11/16/secrets-of-long-term-investing-revealed/

http://www.amazon.com/The-Single-Best-Investment-Creating/dp/0965175081/ref=cm_cr_pr_product_top?ie=UTF8  (Click on the book to get a sample of the pages within.)

Warnings for calling your investment long term when they were meant to be short-term

Buffett warns against calling long-term those investments that were meant to be short-term but became long-term because the investors could not achieve the desired results quickly.

Buffett recommends being suspicious of those managers who fail to deliver in the short term and blame it on their long-term focus.

This is a very good thing.

Keeping a long-term perspective will continue to be the key to success.

As long as you have picked a long-term strategy that makes sense and you believe in.

Price Changes as Measuring Investment Results

When the general market declines or advances substantially ....
.... nearly all investors will have somewhat similar changes in their portfolio values.

Benjamin Graham, in his book Intelligent Investor, wrote that the investor should not pay serious attention to such price developments unless they fit into a previously established program of buying at low levels and selling at high levels.

The investor is neither a smart investor nor a richer one when he buys in an advancing market and the market continues to rise.

That is true even when the investor cashes in a goodly profit, unless either
(a) he is definitely through with buying stocks - an unlikely story - or
(b) he is determined to reinvest only at considerably lower levels.

In a continuous program no market profit is fully realized until the later reinvestment has actually taken place, and the true measure of the trading profit is the difference between the previous selling level and the new buying level.

The INVESTMENT SUCCESS of the investor may be judged by a long-term or secular rise in market price, without the necessity of sale.

The proof of that achievement lies in the price advances made between successive points of equality in the general market level.

In most cases this favourable price performance will be accompanied by a well-defined improvement in the average earnings, in the dividend, and the balance-sheet position.

Thus in the long run the market test and the ordinary business test of a successful equity commitment tend to be largely identical.



SUMMARY
Most of us are invested for the long run.
Even if you manage to sell your investment for a profit from your previous buying price, no market profit is fully realized until you have reinvested this amount back into the market.
Your trading profit is the difference between the previous selling level and the new buying level.

24 of the most profitable companies return an average of 573% in a decade

It might seem simple, but if you pick stocks based on earnings, you will be a winner

Bloomberg News/Landov Gilead Sciences (CEO John C. Martin) has been the most profitable of S&P 1500 member companies in health care over the past six months. Its stock has returned 431% in three years. 

 

The best-run companies tend to have the widest profit margins. So how does that translate into stock-price performance?

 

The short answer is that they are superior bets.

 

But first, there are several types of profit margins. For example, the gross margin is the difference between net sales and the cost of sales, divided by net sales. That measures the profitability of a company's core business, leaving out general expenses, interest, depreciation, taxes, amortization and other items. It is a useful measure to track companies' progress over time.

 

A conglomerate such as General Electric Co. (GE) will report an €œindustrial margin, which excludes its financial business, and will even break down a separate margin for each of its lines of business.

 

Depending on the sector or industry, certain margin measures may not be available. But the net income margin is net income divided net sales or revenue is a common measure available for every profitable company.

 

So we developed a list of highly profitable companies, using components of the S&P 1500. We picked the top three in the 10 broad market sectors by net income margin over the past 12 months, as calculated by FactSet.

 

Here they are, with the sectors in alphabetical order:
 

 

Most profitable S&P 1500 companies across 10 sectors

Company Ticker Location Sector Net income margin - past 12 months

   

PulteGroup Inc. (PHM) Bloomfield Hills, Mich. Consumer Discretionary 46.50%

Iconix Brand Group Inc. (ICON) New York Consumer Discretionary 36.10%

Priceline Group Inc. (PCLN) Norwalk, Conn. Consumer Discretionary 27.96%

 

Philip Morris International Inc. (PM) New York Consumer Staples 26.60%

Altria Group Inc. (MO) Richmond, Va. Consumer Staples 24.31%

Brown-Forman Corp. Class B (BF-B) Louisville, Ky. Consumer Staples 22.12%

 

Gulfport Energy Corp. (GPOR) Oklahoma City Energy 51.83%

Approach Resources Inc. (AREX) Forth Worth, Texas Energy 30.05%

Atwood Oceanics Inc. (ATW) Houston Energy 28.92%

 

Capstead Mortgage Corp. (CMO) Dallas Financials 76.49%

LTC Properties Inc. (LTC) Westlake Village, Calif. Financials 56.54%

RenaissanceRe Holdings Ltd. (RNR) Pembroke, Bermuda Financials 54.02%

 

Gilead Sciences Inc. (GILD) Foster City, Calif. Health Care 42.64%

Anika Therapeutics Inc. (ANIK) Bedford, Mass. Health Care 36.20%

Edwards Lifesciences Corp. (EW) Irvine, Calif. Health Care 35.70%

 

Delta Air Lines Inc. (DAL) Atlanta Industrials 27.84%

Union Pacific Corp. (UNP) Omaha, Neb. Industrials 20.58%

ITT Corp. (ITT) White Plains, N.Y. Industrials 19.81%

 

Verisign Inc. (VRSN) Reston, Va. Information Technology 57.43%

Visa Inc. Class A (XNYS:V) Foster City, Calif. Information Technology 44.65%

MasterCard Inc. Class A (MA) Purchase, N.Y. Information Technology 37.14%

 

CF Industries Holdings Inc. (CF) Deerfield, Ill. Materials 31.44%

Royal Gold Inc. (RGLD) Denver Materials 26.41%

Sigma-Aldrich Corp. (SIAL) St. Louis Materials 18.59%

 

AT&T Inc. (XNYS:T) Dallas Telecommunications 13.75%

Verizon Communications Inc. (VZ) New York Telecommunications 12.50%

Atlantic Tele-Network Inc. (ATNI)   Beverly, Mass. Telecommunications 11.78%

 

Aqua America Inc. (WTR) Bryn Mawr, Pa. Utilities 26.92%

OGE Energy Corp. (OGE)   Oklahoma City Utilities 17.59%

Questar Corp. (STR) Salt Lake City Utilities 14.46%

 

Source: FactSet

 
 

A look at total returns (through Tuesday) for those groups of companies tells an interesting story:

 

Total returns 

Company Ticker Total return -   YTD Total return - 3 Years Total return - 5 years Total return - 10 years

 

PulteGroup Inc. PHM -10% 359% 83% -25%

Iconix Brand Group Inc. ICON -8% 135% 204% 785%

Priceline Group Inc. PCLN -5% 137% 537% 4,878%
 

Philip Morris International Inc. PM 0% 46% 109%

N/A Altria Group Inc. MO 24% 96% 244% 627%

Brown-Forman Corp. Class B BF.B 17% 103% 217% 382%
 

Gulfport Energy Corp. GPOR -22% 108% 481% 1,186%

Approach Resources Inc. AREX -31% -28% 47%

N/A Atwood Oceanics Inc. ATW -21% 18% 18% 225%
 

Capstead Mortgage Corp. CMO 11% 50% 63% 181%

LTC Properties Inc. LTC 10% 73% 107% 277%

RenaissanceRe Holdings Ltd. RNR 3% 66% 89% 130%
 

Gilead Sciences Inc. GILD 39% 431% 360% 997%

Anika Therapeutics Inc. ANIK -2% 505% 490% 156%

Edwards Lifesciences Corp. EW 61% 47% 207% 531%
 

Delta Air Lines Inc. DAL 29% 357% 331%

N/A Union Pacific Corp. UNP 28% 155% 300% 729%

ITT Corp. ITT -1% 209% 182% 268%
 

Verisign Inc. VRSN -8% 85% 171% 206%

Visa Inc. Class A V -6% 147% 205%

N/A MasterCard Inc. Class A MA -12% 137% 252%
 

N/A CF Industries Holdings Inc. CF 23% 118% 238%

N/A Royal Gold Inc. RGLD 39% 4% 40% 329%

Sigma-Aldrich Corp. SIAL 45% 124% 168% 432%
 

AT&T Inc. T 4% 43% 76% 119%

Verizon Communications Inc. VZ 4% 56% 130% 119%

Atlantic Tele-Network Inc. ATNI -2% 89% 19% 504%
 

Aqua America Inc. WTR 3% 53% 103% 135%

OGE Energy Corp. OGE 11% 65% 161% 319%

Questar Corp. STR -1% 32% 113% 267%

 

S&P Composite 1500 Index 5% 78% 104% 115%

 

Total returns assume the reinvestment of dividends.

 

Source: FactSet

 

This hasn't been such a good year for the group, with only 12 of 30 beating the 5% total return for the S&P 1500. But over longer periods, the story changes.

 

Over three years, 17 have beaten the index, and 14 have more than doubled.

 

For five years, 21 have beaten the S&P 1500, with 10 more than doubling the performance of the index.

 

Going out 10 years, all but one of the 24 companies (six haven't been publicly traded that long) have beaten the index. The average return is 573%, compared with 115% for the S&P 1500.

 

So being highly profitable provides protection against the type of decline that took so much out of the index during 2008 at the height of the credit crisis.
 

Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

 

https://finance.yahoo.com/news/24-most-profitable-companies-return-100058741.html