Time for a pop quiz: If you had to pick one stock to buy and hold for the next 30 years, what would it be?
Okay, pencils down. Not so easy, is it? After all, when you are thinking about 2043, you are not just evaluating metrics such as current price-earnings ratios or 52-week trading ranges. You have to ponder whether a company is even going to exist in three decades' time.
And that is not a lock, even with giant corporations. Investors from 30 years ago no doubt assumed iconic brands such as Eastman Kodak, Lehman Brothers, Oldsmobile and Tower Records would still be thriving today.
Maybe we should forget about whether a stock's most recent earnings matched the Wall Street buzz and do some extreme buying-and-holding instead. That is a strategy in the vein of Berkshire Hathaway Inc's Warren Buffett, who has been holding positions in sturdy companies such as Coca-Cola Co for decades.
After all, since human nature makes many of us downright terrible at investing - buying high and selling low, guided by deeply set emotions such as greed and fear - it only makes sense that a lengthier time horizon might do us some good.
"I am a proponent of buying-and-holding, since very few people have uncovered the secret of successful market timing," says Sam Stovall, chief equity strategist for S&P Capital IQ, a unit of McGraw-Hill Cos Inc.
Such ultra-long-term prognostication is tricky, though. We popped this tough question to three managers whose funds fared well at the 2013 U.S. Lipper Fund Awards: If you had to hold a single stock for 30 years, what would it be?
Here are their picks.
David Giroux, Portfolio Manager, T. Rowe Price Capital Appreciation:
One-year revenue growth (2011-12) of 21.87 percent
You have to invest in something that is not going to be obsolete in 10 years. Danaher is an industrial company that makes everything from fuel pumps to water-testing equipment, businesses that should be of very long duration.
You also want a company that is not just about one person. CEO Larry Culp has surrounded himself with a very strong bench of high-caliber people.
It is very important how a company deploys capital. Danaher has done a tremendous job in buying good businesses such as Beckman Coulter and ChemTreat, making them better, and getting excellent returns on that capital. Very few companies can do that.
Marsh & McLennan Cos Inc
One-year revenue growth of 9.25 percent
The company is a kind of middleman between insurance companies and their clients. They provide incredible insights and analytics to their customers. It is a valuable resource and there is no secular risk attached to that.
Marsh & McLennan has a very strong management team, not only the CEO, but the people who run all the different divisions such as the consulting business. It is a high-performance culture, which you like to see. They do a very good job making fill-in acquisitions, buying back stock and paying a handsome dividend yielding 2.5 percent.
In 30 years Marsh & McLennan is still going to be here and be more valuable than it is today.
Will Nasgovitz, Co-Portfolio Manager, Heartland Select Value Fund
One-year revenue growth of 3.57 percent
This pick falls right in line with long-term thinking, because over the next few months, Hospira might be an underperformer. But we see incredible intrinsic value there. It is a company that was spun out of Abbott Labs back in 2004 and is now the number-one player worldwide in injectable pharmaceuticals. If you have ever been hooked up to an IV in the hospital, it was probably a Hospira product.
They have had some issues with manufacturing facilities recently, which have been under the microscope of the Food & Drug Administration and it has impacted the bottom line. But long-term, they have a dominant market share and a tremendous path for growth.
Internationally, their footprint is still small and the use of generic drugs globally is continuing to go up. We think the intrinsic value is 30 percent higher than the current stock price - and that is being conservative.
Josh Stewart, Co-Portfolio Manager, Wasatch World Innovators Fund
One-year revenue growth of 23.85 percent
It is easy to go to a site like TD Ameritrade and buy stocks online, but this is one of the only electronic trading platforms for bonds.
A lot of that market is still conducted in old-fashioned ways, like old buddies using the telephone. This business has a great tailwind, and is slowly taking more and more market share. A few years ago the company had around a 6 percent market share, now it is already up to 13 percent.
MarketAxess takes the inefficiency out of the bond market because anyone can be connected and get a full inventory of everything that is out there. There is a ton of leverage in the business model because they take a small commission on everything that is traded. Every year more volume is going over their platform - $52.1 billion in February alone.
That makes for a growing amount of free cash flow - $71 million for 2012. In fact, the biggest question they get asked on conference calls is: ‘What are you going to do with all this cash?' That is a nice problem to have."