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 Royal Dutch Shell (LSE: RDSB) (NYSE: RDS-B.US), ARM Holdings (LSE: ARM) (NASDAQ: ARMH.US) and Burberry (LSE: BRBY) are worth consideration for a beginner’s portfolio.
Royal Dutch Shell
Royal Dutch Shell is the biggest company in the FTSE 100. This oil titan’s market capitalisation is over £150bn, almost double the size of rival BP.
Now, you may have heard the famous investing saying “elephants don’t gallop”, meaning big companies can’t grow as fast as smaller companies, but another thing about elephants is that they’re hard to knock over.
While I think portfolios need some racier shares to turbo-charge long-term returns, it’s not a bad idea for novice investors to build up from heavyweight foundations. Shell, as I say, is the heaviest of the Footsie heavyweights.
The company generates prodigious cash flows, and has increased or maintained its dividend every year since Word War II. At a share price of 2,384p, Shell offers a yield of 4.7%, and the prospect of snowballing the long-term value of your investment by using your dividends to buy more and more shares.
ARM Holdings
If you’re new to investing, you may not have heard of ARM Holdings. However, ARM is a notable success story in a sector in which Britain isn’t renowned for global leaders: technology. ARM’s microchip designs are found in over 95% of the world’s smartphones and a host of other devices.
I mentioned racier shares. Well, despite being a FTSE 100 firm, ARM has been growing at a rate many smaller companies would be envious of. Furthermore, the next big technology wave — the ‘internet of things’ — could continue to drive ARM’s profits upwards for many years to come.
Naturally, such a company doesn’t come cheap. At a share price of 887p, ARM trades at 33 times forward earnings, more than double the rating of the average FTSE 100 company. But you have to pay for best in class.
Burberry
You may not have heard of ARM until a couple of minutes ago, but I’m sure you’ll have heard of Burberry — a far more visible British champion at home and abroad.
Renowned for its classic trenchcoat — think Audrey Hepburn in Breakfast at Tiffany’s — and iconic black, tan and red check pattern, Burberry has exported well as the fashion house of timeless British style. ‘New York, London, Paris’? Sure, but also ‘Tokyo, Beijing, Dubai’ these days.
Burberry hasn’t quite been able to match ARM’s growth, but the earnings multiple — about 18 times at a share price of 1,464p — is less eye-popping than the tech firm’s, if still above that of the average FTSE 100 company.