Last week, I told you about our latest report -- The Top Stocks For 2018 -- and how our subscribers have found it to be the most consistently profitable piece of annual research we publish.
I even gave away one of the picks from this year's report. (To read the issue, go here.)
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I know everyone likes a free stock pick, but I really want to drive home just exactly why we believe this report is so important. Because the truth is, it's not just about the stock picks.
It's about the investing principles that lead to the stock picks.
To recap, I said that we like to focus on companies with the following three traits:
1) Companies that enjoy huge, long-term, advantages over their competition.
2) Companies that produce goods and services necessary for everyday life.
3) Companies that pay investors by growing dividends or buying back massive amounts of their own stock.
By focusing on these three traits, you end up with some of the world's greatest businesses in your portfolio. And that's the key to building long-term wealth.
It sounds simple. That's because it is. But you'd be surprised at how many investors don't follow this advice. And I know exactly why they don't.
Investing in great businesses isn't "exciting" to most people. You don't get rich overnight. You aren't going to wake up, check your portfolio and see that one of your holdings is up 20%.
Great businesses take time to reach their full potential. The key is letting their returns compound year after year, building wealth over a period of years or even decades.
But most investors aren't interested in that. They are most interested in making money as quickly as possible. That's why the latest tech IPO or social media startup seems to get all the headlines. People equate shares of a publicly-traded to a lottery ticket. They hope to buy a few shares and strike gold.
But that's just part of the story. You see, millions of investors do put money into some of the world's greatest businesses.
Investors Are Becoming Less Patient
On Thursday this week, nearly 59 million shares of Cisco Systems (Nasdaq: CSCO) traded hands, making it the second-most widely traded stock on the market. As I mentioned in last week's StreetAuthority Insider, there's no doubt Cisco is among the world's greatest businesses.
So investors are obviously buying these companies... the problem is that they are also selling them just as quickly.
To see what I mean, just take a look at this chart from Ned Davis Research. It shows that the average holding period for a stock has declined to 8.3 months.
Now, of course, there are a lot of reasons for this. The rise of the individual investor (aided by the computers, the internet, low brokerage fees and more) has certainly contributed to the buy-and-sell frenzy. There's also an argument to be made that our patience (and attention span) has shrunk, too.
But if you want to build serious long-term wealth, you really need to be holding on to your stocks for longer. But only if they're quality stocks, of course.
So what's the ideal holding period? Longtime readers, stop me if you've heard this before...
We've mentioned many times that this is Warren Buffett's favorite holding period. And while this may be a bit of hyperbole (after all, you're going to have to sell at some point), just consider this...
The folks at Oppenheimer did a study a few years ago looking at the instances of a loss in the S&P 500 on a rolling annual basis of one year vs. 20 years. And while the S&P 500 has dropped 16 times over a one-year period since 1950, it has never suffered a loss in any 20-year period dating back to 1950.
The research shows that when you hold stocks for a short period of time, your odds of losing money are much higher. And you can lose a boatload of money in a hurry. In fact, in its worst one-year period, the S&P 500 dropped 44.8%.
The conclusion from this is clear. According to my colleague Jimmy Butts: "You could choose to join the average investor in ignoring these facts, but the longer you hold an investment, the better your chances of making money."
Of course, you simply can't just throw your money into any stock, hold forever and expect success. That would be foolish.
That, in a nutshell, is why we pour so much effort into researching and recommending companies for our Top Stocks For 2018 report. Because the truth is that these aren't just stocks we recommend for next year -- these are companies that are built for the long-haul. They're companies you can feel comfortable owning in just about any market environment.
All you have to do is sit back and let compounding annual returns take care of everything.
That's why we're so proud of our track record of success with this annual report. Just take a look at the gains our subscribers have made from our picks over the last four years...
Now I want to be perfectly clear. While there are no guarantees in investing, we fully expect this year's picks to deliver more of the same. In fact, I want to give you a taste of a few of the picks in the report.
A Preview Of 3 More Top Picks
Top 10 Stock #3 is one of the most stable businesses in the world -- it gets a cut from one out of every two retail purchases in the US... on everything from apples to airline tickets. Its high profit margins make it more profitable than 98% of all companies in the S&P 500.
Since going public in 2008, the stock delivered a total return of 813%... Yet this company's streak is a long way from being over because its revenues are still growing 23% a year.
Top 10 Stock #6 owns enough energy pipelines to circle the earth twice. What makes this company unique is that even though it operates in the oil and gas business, it's insulated from much of the wild oil and gas price swings. Think of it as a "toll" operator for the energy industry, collecting fees for every barrel of oil and gas that passes through. The company has NEVER cut its dividend and currently yields 6.4%.
Top 10 Stock #10 is one of the most game-changing medical companies in the world. It recently received FDA approval for two cancer medicines that increased the company's net income by $1.2 billion last year. And that was only the start... In the last six months, sales of these two cancer treatments grew by 61%. These revolutionary cancer treatments should keep flooding this company with cash through 2018 and beyond... while saving the lives of millions.
This is just a taste of three picks in this year's report, but there's plenty more where that came from.
Bottom line, if you take nothing else from today's essay, remember this...
Most investors chase after the latest "hot pick," expecting triple-digit returns with each and every investment. (This is not even investing, really.) And often times, when they do happen to invest in a quality name, they end up selling far too quickly.
Instead, you should be patient... Put your money into the world's greatest businesses -- like the ones in this year's Top Stocks For 2018 report -- and let your returns pile up year after year. If you'd like to get your hands on this research, simply go here.
This article originally appeared on StreetAuthority.