1 Share For The Rest Of Your Life

Published in Investing on 18 June 2012

You can have one share only -- forever. What's it to be?

If you had to pick one share and one share only for the rest of your life, which would it be?

I asked the same question a year ago and it elicited 71 responses. So I thought it would be interesting to see if our answers would differ today.

Last summer, the world was feeling a little rosier about its prospects than it is today -- and the weather was better, too. But neither lasted long. The same eurozone fears that continue to dog the market soon knocked the shine off the FTSE 100 index. At the time of the article, it was at 5,991; today, it's 5,479, a near 9% drop, having visited 4,791 along the way last August.

The hypothesis' conditions were as follows:

  • The share constitutes your entire sum of investments.
  • It needs to pay your future pension.
  • You will need to keep adding investments into the same company (and that company only) from your earnings until your retirement.
  • It may not be a collective investment such as an Investment Trust or Unit Trust.
  • You may not sell any of the shares before retirement -- when you may decide to sell of parcels to live on, and/or take the dividends.

It's an interesting hypothesis. No sane investor would follow it in practice, but as Warren Buffett said 20 years ago: "An investor should act as though he had a lifetime decision card with just 20 punches on it. With every investment decision his card is punched, and he has one fewer available for the rest of his life."

In other words, investors will tend to enjoy better returns from a relatively small number of shrewd decisions. And the discipline imposed by such a hypothesis is a useful one to think about.

But how do you identify such shares? What characteristics would they exhibit?

Things to look for

I would say the company you seek should:

  • Be growing at a reasonable rate.
  • Demonstrate basic good value credentials such as a lower than average price-to-earnings (P/E) ratio, a strong balance sheet and good cash flow.
  • Have a history of steadily increasing earnings and an above average yield.
  • Supply essential products or services and have a "moat" in so doing.
  • Be trustworthy and prudent.
  • Have a lower average enterprise value to sales ratio than its peers.

The results were interesting. Although not all the comments were 'votes' and accepting the fact that the results might have been very different if they were, the following table shows the list the readers came up with in descending order of popularity:

InvestmentShare price 11 JulyClosing price 15 JunePerformance*
British American Tobacco (LSE: BATS)2,839.5p3,100.5p9.2%
Diageo (LSE: DGE)1,291p1,587.5p23%
GlaxoSmithKline (LSE: GSK)1,357.5p1,441p6.2%
HSBC Holdings (LSE: HSBA)615.5p546.4p-11.3%
Reckitt Benckiser (LSE: RB)3,495p3,385p-3.2%
Tesco (LSE: TSCO)410.6p301.1pp-26.7%
Weir (LSE: WEIR)2,111p1,443p-31.7%
FTSE 100 Index (UKX) (comparator)5,9915,479-8.6%

*excluding dividends.

So a mean average performance per share of -4.93% (excluding dividends) versus the FTSE's 8.6% decline.

The standout stats come from Diageo on the plus side, with Tesco and Weir spoiling the party. Tesco's fall from grace has been well documented and much discussed on the Fool.

Pump and valves specialist engineer Weir has suffered from the feared global slowdown, and specific concerns that low US natural gas prices would limit orders for equipment for the shale gas industry.

Diageo, on the other hand, has been going great guns. Perhaps we're all drowning our sorrows in Guinness?

The companies that made the short list are all likely to be around for a good while yet, and the demand for their goods and/or services will remain reasonably robust come what may. Presumably, this is why they were selected. But if we'd run such a hypothesis at other times, the results may have been very different.

So what would your selection be today? The same fears are still around. For the record, mine would be Sainsbury (LSE: SBRY) at 285.7p for its reasonable P/E of under 10, prospective yield of over 6.2%, healthy price-to-book value of 0.98, and essential nature.

Finally, legendary investor Warren Buffett recently bought into one of the companies featured into the table above. To discover which one -- and the price he paid -- take a look at our latest free report, which will be delivered straight to your inbox.

Further investment opportunities:

> David owns shares in Sainsbury. He doesn't own shares in any of the other companies mentioned. The Motley Fool owns shares in Tesco.

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Comments

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BarneyCowshed 18 Jun 2012 , 1:02pm

Interesting that so many believe we'll all be smoking like chimneys in 25-30 years time. BAT is a one trick pony selling a product that harms its customers so hopefully it won't be around in 25 years.

But it probably will (which is why I hold) so we're definitely going to need Glaxo's products (which I also hold)

My mantra however is 'Never sell Shell' which I think will survive the rise of the electric car

theboyracer 18 Jun 2012 , 1:28pm

Potential candidates: Proctor & Gamble (PG), Diageo (DGE), Coca Cola (KO), Unilever (ULVR)

Strong brands with deep moats. PG and ULVR offering decent dividend yields currently.

I don't like Imperial Tobacco, as I hate smoking. Investment case may be strong, but I abstain on ethical grounds.

F958B 18 Jun 2012 , 1:32pm

Don't judge an intended 25-year investment by the share price performance in its first year.

My pick was Morrison.
Share price dropped from 295 to 279 (-5%).
Dividends of 10.7p (3.6% on purchase price).

But progress in the business has been good, which is what ultimately drives long-term share price performance.
Earnings per share up from 23.0p to 25.6p (+11%) and dividend per share up from 9.6p to 10.7p (+11%).
So the shares are now better value for money - from 12.8x P/E to 10.9x, and from 3.3% yield to 3.8%.
Financial position (debt and interest cover) remains very strong.
Expected to be EPS of 27.9p (+9%) and dividend of 12.0p (+12%) when the current financial year ends, so further good performance expected.

So as long as we didn't pay an obscene valuation, we mustn't let the tail wag the dog; we mustn't let random share price moves or market fashions tell us whether we bought into a good company.
The good companies will largely be those which have paid good and steadily rising dividends - remember Buffett's Coca-Cola purchase which now pays an annual dividend close to the price paid for the shares of the original 25-year-ago purchase.

UrbanDreamer 18 Jun 2012 , 2:51pm

No collective investments? Sorry, but if you are talking ONLY one share for 25 years come rain or shine then IMHO you need a company that IS a collective investment (a conglomerate*).

So no mater the merits of Diageo or Coca Cola they should be rejected as too risky. Instead companies with a wider product range, like Proctor & Gambol or Unilever would be my choice as less risky.

That said I'm not limited to only one share and hence am happy to have Diageo in my portfolio.

*Heretical I know. However most companies that last do more than one thing, or at least are willing to change what they do as times change. Shell (oil) use to sell sea shells and Sharp (TV's etc) made pencils.

apprenticeDRL 18 Jun 2012 , 4:28pm

If we were going to really look at what the world may be like in 20 - 30 years time shouldnt we be looking at technologies like 3D printing? etc

Once this is widely available you could in theory make most things, it may well revolutionise all manufacturing. Probably a long way off at the moment but who had heard of Microsoft or Apple 25 years ago?

vendric 18 Jun 2012 , 5:08pm

RDSB for me.

dpeddlar 18 Jun 2012 , 5:24pm

and me RDSB

7165 18 Jun 2012 , 11:11pm

Well, Hugh Osmond, George Soros and Medeline Albright seem to have plumped for APR Energy with their own money so if it's good enough for them, I'm in too...

Tykethat 19 Jun 2012 , 10:56am

Sainsbury would be my choice

1. Good value at todays price.
2. Experienced but still young management
3. Share price at a significant discount to NAV
4. Well covered nearly 6% yield

Looks OK to me..... and my money is where my mouth (keyboard really!) is

Robbunt 19 Jun 2012 , 12:35pm

If I got to change it in 5 years (or had to put all the money in now) I'd choose Tesco for the cheap growth, but my choice for 'share for life' is Reckitt Benckiser. They've so many great brands like durex, vanish, dettol, finish etc that you don't think about not buying that I'm confident they'll still be going strong at my retirement.

That's probably as I don't have much capital now, so I'm incentivised to concentrate more on 'solid' than 'value', as most of my share purchases in the theoretical situation would be in the future, when the share price could be anything.

UncleEbenezer 19 Jun 2012 , 4:16pm

One share for life? At today's spot prices?

Who out there is robust against bad management (not necessarily the present incumbents). Five years ago I expect LLOY might've been seen as a strong candidate! And anyone who picks, say, TSCO on the grounds that it's 300p rather than 400p is indulging in short-term-ism (even if they happen to be right).

Maybe I'll put in ARM, my biggest holding and the centre of a seriously interesting ecosystem. Though I don't like the price. Or perhaps I should more conservatively say PSON and get some yield along with another great market to be in, but that's not looking cheap either, and relies on all those acquisitions going smoothly!

IDPickering 19 Jun 2012 , 8:52pm

BATS would be my pick.

spreadbutter 21 Jun 2012 , 12:35pm

Buying at today's prices it'd be a toss between: BP or Aviva

RegDiversify 21 Jun 2012 , 1:06pm

GSK (quarterly dividend) and then BATS would be my pick.

koochak 21 Jun 2012 , 1:30pm

I had to answer this question recently when I wanted to choose one long term share to tuck away in my children's junior ISA. I chose BLT. (When I revealed my choice to them they thought it was a sandwich making company!)

Here is a share with negative short term sentiment affecting its share price but would still be going strong in 20 years time.

tunerup 21 Jun 2012 , 1:34pm

How about National Grid, or if you are very brave why not Puricore,-(they sanitise fracking water), so even if gas wells dry up, the gas from fracking still needs to be distributed.--just a thought!

yossa123 21 Jun 2012 , 1:46pm

I don't hold it, but if it is for eternity probably "William Hills".

Betting on something will be the one constant throughout time.

TheWizardOfUzz 21 Jun 2012 , 2:02pm

Generally speaking i agree that a diversified share is a good policy but for me it would be IBM.

Still around after 100 years and now a more diverse company than ever.

Weathered the storms of Microsoft, Dell, Apple, Amazon and Google. Heck, they sell to most of those.

Still sells the hardware and software that drives most of the worlds biggest financial institutions.

They are, in truth, at least 4 companies put together.

BrnzDrgn 21 Jun 2012 , 2:18pm

Oddly enough I'm going to stick with Lloyds Bank even though it has taken a battering I think it has potential as long as the British Government keep their fingers out and don't force any more deals!

Griffard479 21 Jun 2012 , 2:41pm

High risk, but the potential is massive: Sirius Minerals (SXX)

jelg 21 Jun 2012 , 2:53pm

HALMA is my choice.

I have hels shares in this company since the early 80's and the growth in value and dividends has been phenominal. ....... and will continue to be so .............

Clitheroekid 21 Jun 2012 , 6:51pm

I'm honestly baffled how people can own shares in BATS without it troubling their conscience.

I appreciate that as an investment they are attractive, but I would never want to make money out of a product that is specifically designed to cause addiction, often leading to serious illness and death.

In moral terms it's one step removed from being a dealer in hard drugs or blood diamonds, yet no doubt a typical BATS investor would be the first to condemn dealers in heroin and other addictive drugs and to call for them to be locked up or even better strung up.

It's even more cynical to invest knowing that BATS and other tobacco companies have a deliberate strategy of concentrating their efforts on less developed countries, where the health risks aren't as widely publicised and where the people are more easily turned into addicts.

I'm by no means a puritan, and I'm well aware that you can make an ethical argument against all sorts of companies, but I can't think of any whose only product is so dangerous to so many people.

The main comparator would probably be alcohol producers, but it seems to be generally agreed that small amounts of alcohol are beneficial, or at least neutral, whereas I've never heard anyone say that even small amounts of tobacco are anything but dangerous.

A decision to invest in a tobacco company is a conscious decision to make money out of harming people, and I am truly surprised that any decent person can own or aspire to own these shares.

Clackmannan 21 Jun 2012 , 7:35pm
Jonesey12 21 Jun 2012 , 9:08pm

Hi Clitheroe kid
I'm not an ethical investor at all, but I'm absolutely with you on this. I couldn't directly buy a tobacco company, for the reasons you suggest.
But then, I do hold them in FTSE trackers. Do you?

Gaunty43 21 Jun 2012 , 9:51pm

SABMiller all the way. People will always drink booze which is basically profit from water and they they have global reach. My shares have increased over 1000% in just a few years. :-)

danny19 21 Jun 2012 , 10:47pm

Unilever, sells so much stuff that we all need, is fairly valued and has a decent dividend paid every three months.

wordofandy 22 Jun 2012 , 3:25am

I say it can't be done for a meaningful long term.
The companies that will be around in (say) 30 years time will be in industries that exist in 30 years time. The industries that will be around in 30 years time will be industries that have not experienced any big changes. The big changes that can be imagined for any industry are only limited by your imagination. Your imagination is not limitless, so you are bound to miss some.
Therefore it can't be answered with anything like adequate confidence - bring out the dart-monkey for a share tip, I'll be the control group and I'll take cash.

Clitheroekid 22 Jun 2012 , 9:05am

Jonesy12

But then, I do hold them in FTSE trackers. Do you?

No, I don't have any trackers, but I take your point.

However, I think there's a fundamental difference between holding tobacco shares 'accidentally' via a tracker / pension fund / other collective investment where you have no control over the fund manager's purchase decisions and making a conscious decision to buy them.

Regards

CK

couldnotmakeitup 22 Jun 2012 , 10:46am

Hello Clitheroekid,

I am impressed by your explicit stance on this somewhat contentious
issue and on the whole entirely agree with you. Admittetly, easy for me to say, I don't hold any tobacco shares and won't buy any, but I do have a dilemma, I hold shares in Sainsbury's and they sell the stuff.

On a somewhat different issue as an investor, I am concerned with the west's (or should that now be global) obsession with ever increasing consumption. Surely, in the long run this will not be sustainable! I be interested in your views on this.

Regards

Ben

cdh1502 22 Jun 2012 , 10:49am

For me it would have to be Sirius Minerals (SXX). Some may consider it high risk, BUT...
Whilst it won't be profitable for a few years yet, and it is an AIM company, it will be timed perfectly to support my retirement.
World class resource, long term (100 years+) project/production expectancy, world class Bod (despite only being an AIM company).
Price has been pulled back over concerns about funding a mine development, but look at who's sitting on the board. Also concerns about planning permission in a national park, but the plans are minimal impact and job creation in the thousands.
Success here is of national interest, so IMO it won't be allowed to fail.

Dozey1 23 Jun 2012 , 11:19pm

BG. Appreciating assets world-wide. Sound management.

norfolkandgood 24 Jun 2012 , 4:06pm

Why do people have a problem with tobacco shares?

Is there any such thing as a truly ethical company?

Companies that sell alcohol and junk food. Companies that exploit their workers and suppliers. Companies that damage the environment. Companies that rip off their customers. Companies that reward their top people with ridiculous bonuses.

I have shares in BAT. One of my best investments. Keep on puffing away folks!

wordofandy 25 Jun 2012 , 8:14am

Expressing your morality through the avoidance of tobacco shares is like Martin Luther expressing his discontent by laying off the red wine and biccies. Its not the most effective message, you miss out on a treat, and its only you who knows of your action.
Why don't you buy BATS and then once a year have a fun day out lobbying westminster with the proceeds of the dividend?

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