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 Unilever (LSE: ULVR) (NYSE: UL.US), Tesco (LSE: TSCO) (NASDAQOTH: TSCDY.US) and Mountview Estates (LSE: MTVW) are worth consideration for a beginner’s portfolio.
Unilever
Unilever, a £32bn FTSE 100 company, owns dozens of top international brands in the areas of food (eg, Knorr soups and sauces), personal care (eg, Dove beauty products) and home care (eg, Cif cleaners). Two billion people around the world use Unilever products on any given day.
Size, geographical diversification and the non-cyclical nature of the so-called ‘fast-moving-consumer-goods’ industry make Unilever a relatively steady share through all economic conditions. Investors are willing to pay a premium for such businesses, and Unilever’s current share price of 2,506p equates to over 19 times current annual earnings.
I’ll put that into context for you with the next company…
Tesco
Supermarket giant Tesco is trading on less than 10 times earnings at a current price of 179p. Tesco is so ‘cheap’ because of well-publicised troubles that you’re doubtless aware of.
Now, it’s the easiest thing in the world for investment pundits like me to only ‘tip’ companies that happen to be on the top of their game at the moment. The fact is, though, a fair number of tomorrow’s biggest long-term winners will come from among companies that are currently struggling and rated lowly by the market.
Tesco remains the dominant force in UK food retail, has established itself in a number of exciting foreign markets, and looks to me to have every prospect of being one of those big long-term winners, even if there may be a few years’ pain to go through yet.
And Buffett himself, who bought Tesco shares at a much higher price — an investment he recently described as a “huge mistake” — nevertheless continues to hold. Whether he will for ever remains to be seen.
You may not be able to bring yourself to back a struggling company if you’re a new investor. But do make a note of Tesco’s share price today, and see how the company performs over the next 10-plus years compared with currently highly-rated stocks, such as Unilever.
Mountview Estates
I suspect most new investors, as well as many seasoned market participants, won’t have heard of Mountview Estates. This £300m property company is tiny relative to the likes of Unilever and Tesco, but it has qualities I think make it worth consideration for a beginner’s portfolio.
The essence of what Mountview does is extremely simple, and is only really possible because of the very long-term view taken by the family that founded the company in 1937, and their descendants, who still run it today. Mountview acquires tenanted residential properties at a discount to their notional vacant-possession value, then sells them when they become vacant, often many years later.
The properties are recorded on Mountview’s books at cost, and so the market value is far in excess of the worth indicated by the company’s current share price of 7,725p. In other words, if Mountview simply shut down today and sold all its assets, you would see a handsome reward on your investment.