Let’s be clear from the beginning: where you can “set and forget” those stocks completely. Since the dawn of the world, the pace of social change has only accelerated. I don’t think this change will happen soon. Therefore, no company is 100% safe from interruption.
In other words, there are some stocks that have three crucial characteristics for any good investment. Many of the qualities that I derived from the work of former trader Nassim Nicholas Taleb.
Today, we will discuss why Amazon (Nasdaq: AMZN), Alphabet (Nasdaq: GOOG) (Nasdaq: GOOGL) and China Technology Giant Tencent (NasdaqOTH: TCEHY) are stocks that you may always hold. I have great confidence in these three people – as of this writing – they accounted for 37% of my real life holdings.
Requirement #1: Wide moat with many experiments
So far, the most important thing for any long-term investor research is the company’s sustainable competitive advantage – often referred to as the “moat.” Although there is no standard definition of the moat in my book, it has four different forms:
Network effects: Each additional user of a product or service makes it more valuable to the current user.
High conversion costs: Once someone starts using a product or service, the cost – whether it’s obvious financial or difficult logistics – is onerous.
Low-cost production: When a company can provide the same product rather than a competitor, the company wins.
Intangible assets: including brand value, patents and regulatory protection.
Usually, if the company has only one of the moats, then the company is lucky. The scarcity is that there are more than one. However, one thing that makes these three companies so valuable is that they have huge moats.
|Network Effect||Each additional customer to Amazon incentivizes third-party vendors to use Fulfillment by Amazon||As more people use Android OS, third-party app developers are motivated to build apps for it.||The WeChat app might have the strongest network effect in the world right now.|
|High Switching-Costs||Amazon Prime is a deal that can’t be found anywhere else.||Once your Gmail is set up, and you sign in to third-party sites using your Google identity, it’s a pain to switch.||As WeChat continues to integrate new functionality — like payment systems — switching costs are rising.|
|Low-Cost Production||Amazon’s network of fulfillment centersguarantees quick delivery that others can’t match.||With seven products with over one billion users each, Alphabet produces data for use in targeted ads that others can’t match.||As with Alphabet, Tencent’s data on over one billion WeChat users and all of its gamers makes for an advertising gold mine.|
|Intangible assets||Amazon has tons of patents, and Forbes rates its brand as the world’s sixth-strongest.||Alphabet also has many patents, and is rated by Forbes as having the second-most-valuable brand globally.||Along with patents, BrandZ rated Tencent as the eighth-most-valuable brand in the world.|
Equally important, none of these companies are holding the crown. They are adopting alternatives: ways to modify low-risk, high-return experiments.
This is the reason why Amazon has changed from an online bookstore to an e-commerce, content production, package transportation group. Alphabet’s Google [x] is chasing moonshots. In addition to his own repairs, Tencent also used additional funds to invest in several other Chinese and international emerging companies.
The large moat is not affected by competition, and the repair project opens up the possibility of a huge new growth path – relatively few disadvantages.
Requirement 2: Financial Toughness
This is a measure of what will happen to a company’s prospects – within a few decades – if the economic crisis hits now.
In general, three things may happen:
A fragile company – with little cash, a lot of debt and cash flow – will be difficult to maintain.
A sound company – with a healthy war box, modest debt, and moderate and reliable cash flow – will be largely unscathed.
Negative companies – with huge cash balances, low debt and huge cash flow – will become more powerful. They can buy back their stocks cheaply, buy troubled start-ups, or devalue their competitors by cutting prices.
Take a look at the financial statements of these three programs, they are very fragile.
|Company||Cash||Debt||Free Cash Flow|
|Amazon||$31 billion||$25 billion||$6.5 billion|
|Alphabet||$110 billion||$4 billion||$24 billion|
|Tencent||$48 billion||$21 billion||$15 billion|
Amazon is undoubtedly the weakest group here. But it is worth noting that most of the debt has only recently increased due to the acquisition of Whole Foods. If the crisis occurs, what the company must do is to step on the brakes when reinvesting.
Requirement 3: Skin in game
Finally, we have an area that is often overlooked. If a company is run by a founder, then this person often has his/her “soul in the game”: the company is an extension of their existence. If they are just for the money, they will be sold out after the IPO.
However, in order to prevent them from being motivated by cash, the huge stocks they hold will prevent companies from making decisions that may affect their long-term viability.
As you can see, these three companies are still run by their founders and they all have management teams that are significant in the game.
|Company||Founder/CEO||Management Stake||Value of Stake|
|Amazon||Jeff Bezos||17%||$118 billion|
|Alphabet||Larry Page||58% (voting power)||$46 billion|
|Tencent||Pony Ma||9%||$47 billion|
I believe that when you combine these three aspects – selectivity in the game, financial toughness, and skin – these three aspects – you find that these stocks are close to “permanently buy and hold”, just like you are now Can get it.
They are all worth your investment in dollars. My skin is firm in this decision and I think you should consider putting you in.