Surely the simplest way to become rich in the stock market is to find the perfect young growth stock, fully invest, and ride it for 30 years. But a piece in the FT at the weekend caught my eye which illustrated just how hard it is to find long term winners in the market. The piece highlighted the biggest winners in the UK over the last 30 years – an unusual selection of stocks which certainly didn’t fit the expected profile. The truth is that near perfect companies are very hard to find, and when you do find them, they are often acquired or taken private, leaving little of the long term reward in your pocket. Anyone screening the market to find the ideal stock may find their labours are only rarely rewarded. What is an investor to do?
The profile of a perfect buy and hold stock
Many investors will agree on the characteristics of their perfect buy and hold stock – it often goes something like this:
high growth rate (EPS, Sales)
low valuation (PE ratio, Price to Book, Price to Cashflow)
high profitability (Return on Equity, margins)
consistent, sustainable upward trend in profitability
low leverage, good interest cover
Mid-cap (with room to grow)…
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