There are many different investment strategies you can follow to make money in the markets. But there’s one discipline that always appears in every strategy, and it’s the key to having a successful investing career.
This discipline is letting your winners run and cutting your losers. Most professional investors will tell you that the majority of their returns over the years have been generated by just a handful of key holdings, which turned out to be multi-baggers. No matter which investment strategy you use, riding the gains of your most successful investments will turbo charge your long-term returns.
That being said, picking individual stocks is a complicated process, even the professionals get it wrong on a regular basis. So, the best ways to succeed is to buy a handful of stocks you can trust to generate steady returns over the years without the need to babysit.
Vodafone (LSE: VOD), Diageo (LSE: DGE) and G4S (LSE: GFS) are three such companies.
A model company
Vodafone is in many ways a model company. The company’s management has always put shareholders first and in the past, when the group has had excess cash on its balance sheet, this cash has been returned to investors via dividends or share buybacks. What’s more, Vodafone has one of the largest margins of safety and business moats there is.
The company has spent tens of billions of pounds developing mobile network infrastructure across the UK, Europe, South Africa, India and a number of other nations over the years. The group now owns a network of infrastructure assets that would be almost impossible for another group to recreate overnight. In other words, Vodafone isn’t going anywhere any time soon. The company’s shares currently support a dividend yield of 5.1% and earnings per share are expected to increase by more than 50% over the next two years.
Diageo is another company that has a wide economic moat around its business. Johnnie Walker whiskey has been her for around 200 years, and sales continue to grow year after year. The other beverages under Diageo’s umbrella all exhibit similar qualities.Â
For shareholders, this steady growth is great news. Some analysts believe that Diageo could rack up returns of around 10% per annum for investors over the next decade or two. Earnings growth will account for around 60% to 70% of this increase while Diageo’s dividend yield, which currently stands at 3.1% will account for the remainder. The company shares currently trade at a forward P/E of 21.2.
Well placed for growth
Lastly, there’s G4S. Admittedly, G4S hasn’t been the model company for much of the past decade. The group has struggled with bad press, bad management and excessive levels of debt.Â
Still, the company looks as if it’s now finally starting to turn things around. A trading update published today informed the market that G4S’s revenues were up 4.5% in the first quarter. Further, since the start of the year, the group has won new contracts with annual revenues of £450m.
Despite its past mistakes, the booming private security market should keep G4S in business for the foreseeable future as long as management can successfully reduce the group’s debt. G4S’s shares currently trade at a forward P/E of 12 and support a dividend yield of 5.1%.