Multi-billionaire Warren Buffett, probably the world’s most famous and successful investor, follows a strategy of buying great businesses with a view to holding his shares ‘forever’.
What’s good enough for octogenarian Buffett should be good enough for an investor just starting out on the road to long-term wealth accumulation.
Today, I’m going to tell you why I think National Grid (LSE: NG) (NYSE: NGG.US), London Stock Exchange Group (LSE: LSE) and Ocean Wilsons Holdings (LSE: OCN) are worth consideration for a beginner’s portfolio.
National Grid
You may have come across Buffett’s famous warning — “unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market” — and decided you have the stomach for it.
However, I can guarantee that a market panic when you have hard cash at stake will be more unsettling than you imagined. For this reason, I think new investors are well advised to include some core ‘defensive’ shares in their portfolios. These are shares that may not shoot the lights out in a bull market, but should decline less than other shares when markets are in freefall.
You’d be hard-pressed to find a better example of a defensive share than National Grid, the company that runs the UK’s electricity wires and gas pipes. National Grid — which currently offers a prospective dividend yield of 5% at a share price of 886p — is a popular choice with income investors, such as pension funds and individual retirees. However, younger investors can reinvest the dividends and benefit from the compounding effect of owning more and more shares in the company.
London Stock Exchange Group
While defensive shares, such as National Grid, can be a steadying influence during market wobbles, you’ll need some racier shares to fully exploit the tendency of markets to rise over the long term (multi-decades).
One of the most direct ways to exploit this tendency is to buy shares in the London Stock Exchange Group. So long as markets thrive, and the company is well managed, you should effectively get a geared return.
The shares of London Stock Exchange are rated relatively highly because of this growth potential. A current price of 1,892p represents 18 times the company’s annual earnings, compared with 16 times in the case of National Grid.
Ocean Wilsons Holdings
I think Ocean Wilsons Holdings also merits consideration as a racier selection for a beginner’s portfolio. The company has two principal subsidiaries: Wilson Sons, whose activities include harbour and ocean towage and container terminal operations in Brazil, and Ocean Wilsons Investments, which is simply a portfolio of holdings in investment funds.
The company is well-run, has exciting long-term growth prospects, and the shares are attractively priced relative to the value of the assets. The shares are currently trading at 1,143p, but at the Board’s last reckoning, if the company sold all its assets, the cash raised would amount to 1,463p a share. Put another way, when you buy the shares you’re paying just 78p for every £1 of assets.