Popular concept, which helps create capital for your grandchildren and great-grandchildren.
Who invests forever and why
Among ordinary foreign investors, you can often find those, who are concerned about looking for more than just profitable investments, and such, which could be done with an eye on tens and hundreds of years.
This is not just a desire to surprise someone, and philosophy of life, which comes from, that you can reliably secure the future for yourself and your descendants in one and only way - by investing in stocks. And it is aerobatics to buy them and never sell them..
In previous years, this attitude towards savings was the prerogative of wealthy people.. They formed accumulated capital in the form of securities, then transferring them to trust funds, so that his heirs do not "squander".
Nowadays, similar ideas take possession of the minds of ordinary people.. Tens of millions of articles have been written on the English-speaking Internet on the topic of stocks to hold forever ("stock, which can be kept forever "), that is, people are looking for such companies, whose shares can be bequeathed to their descendants.
Where did the idea of "perpetual" investment come from?
The concept of "perpetual" investing was born over a hundred years ago among US endowments (university funds), the largest and most famous of which today is the American Harvard: 53,2 billion dollars in assets, according to a recent report.
Such funds in universities exist on donations from their graduates.. Fund managers are not allowed to spend those funds, what was invested in them. Their task is to do so, so that the income from the investment will provide the operating expenses of the university, leaving the initial capital for future generations.
A similar idea is at the heart of the famous European Nobel Foundation. It pays awards to scientists and eminent personalities from investment income, but at the same time its strategic goal is to survive forever, without wasting the capital of its founder and other sponsors.
How much can you earn from this?
If you look at the reports of the largest endowments - Harvard, Stanford, Yale, - you can see, that most of the capital they hold in assets, non-stock market. This is often commercial property (or even just land), physical oil (right in the barrels) and other very long term investments.
But at the same time they have a portfolio of stocks, which are freely traded on the exchange. That is, anyone can borrow and partially copy the investment ideas of the most successful endowments.. This is not an exaggeration about success.: on average, such funds outperform the stock market, and in 2021 year they have phenomenal growth - from 33% to 55%.
In many ways, this is the effect of long-term investment.: buying stocks with an eye on the years, sooner or later you will get high profits, which will cover the weak growth or decline of previous years. The secret is, that it should be shares of fundamentally strong companies, able to survive more than one crisis.
What stocks are bought forever
List of shares, who are the favorites of the endowments, will not surprise anyone. Most of them are heard, and, in fact, they are already the elite of the stock market. for example, often long-term funds are bought by Apple and Microsoft, who have been growing steadily since the 1980s.
Of the lesser-known stocks, innovative companies are most often bought for the long and super-long term.. for example, Uber and Lyft taxi services are trending now, Palo Alto Networks cloud cyber security platform and DocuSign e-document management service.
Russian stocks rarely get into the focus of foreign endowments. But, following the logic of investment managers of top universities, one might say, that we will have several companies at once, in which you can invest forever.
for example, this is Gazprom, which has the largest reserves of environmentally friendly methane (and in the future - hydrogen extracted from it). Or RusHydro, one of the world leaders in hydropower. It has no analogues in Western markets.. Another striking example is ALROSA: in terms of the volume of diamonds mined, no company in the world can compete with it. And most likely, can never.
"Eternal" investment is a logical continuation of the idea, that family capital needs to be accumulated and multiplied constantly. Individual stocks are not suitable as the basis for a portfolio, but part of the savings should be directed to the purchase of "strategic" securities. Sooner or later they will rise in value, gradually creating cash flow (regular income) from dividends.
Today's innovative companies like the listed Palo Alto Networks or DocuSign are candidates for future market heavyweights., but not everyone will be like that. The same Apple and Microsoft were just one of many stocks, which endowments were bought in the distant 1980s and 1990s. Today they are reaping the benefits of their growth..
For an ordinary investor, family money manager, the strategy of "perpetual" investment should not be taken literally. Of course, part of the grown securities can be sold in the future, to reap the benefits of this growth. Ultimately, the goal of any investment is to get freedom from the need to make money in a different way..
Author:: Valery Emelyanov, stock market expert BCS World of investments