There is a difference between trading in stocks and investing in
them but too often they get confused as being the same thing.
Trading is usually done in a short time period, much like the day
traders of the dot-com era, whereas investors are supposed to take
a longer term view.
The problem is that too many investors think like traders and get
sucked into thinking about stocks in the short term.
Warren Buffett, one of the great long term investors of all time
"I never attempt to make money on the stock market. I buy on
the assumption that they could close the market the next day and
not reopen it for five years. As far as you are concerned, the
stock market does not exist. Ignore it. Much success can be
attributed to inactivity. Most investors cannot resist the
temptation to constantly buy and sell."
Could you buy and hold a stock for 5 years without checking to see
what it is doing? Could you ignore it completely?
Warren Buffett's five year rule reminds me of the Washington Irving
story about Rip Van Winkle. Irving described a man who goes up to
the top of a mountain, falls asleep, and awakes 20 years later to
find that life has turned upside down.
Rip Van Winkle doesn't recognize anyone. His wife is dead. His
small New York town is no longer controlled by the British but has
a new government with George Washington at its helm.
The Rip Van Winkle Strategy
What if you were to pick stocks as if you were Rip Van Winkle? It
would be a strategy where an investor buys a company with the
belief that he could "wake up" five years later and that investment
would still be sound.
I can hear you thinking, "that's impossible to do. Too much can
change in those 5 years."
Sure, Borders is no longer in operation and Best Buy is on the
ropes. Neither of those companies would have been good investments
in a Rip Van Winkle strategy five years ago.
But there are plenty of other companies that have stood the test of
time and are likely to not just survive, but thrive, in the coming
4 Stocks For a Rip Van Winkle Portfolio
What do these four stocks have in common? They all are businesses
with an edge.
1. Agrium (
If Rip Van Winkle could choose a stock to wake up to years later,
Agrium would be it. We all have to eat, right?
Agrium produces all three of the major fertilizers as well as
micronutrients and plant protection products. It is the largest
direct-to-grower retailer in North and South America, selling seeds
and irrigation products.
P/E = 10
2012 EPS Growth: 2.6%
2013 EPS Growth: -0.12%
Zacks #2 Rank (Buy)
2. The TJX Companies, Inc. (
A retailer might seem a strange choice for an investor who is
looking out five years because the sector can be volatile but the
TJX Companies have been growing earnings in the double digits for
the last 3 years and has been operating its low priced model since
1956. It operates TJ Maxx, Marshalls and home furnishing stores
like HomeGoods in the United States, Canada and Europe.
P/E = 18.1
F2013 EPS Growth: 23.9%
F2014 EPS Growth: 11.4%
Zacks #2 Rank (Buy)
3. The Madison Square Garden Company (
Do you think Madison Square Garden is going anywhere in the next
five years? The Madison Square Garden Company also operates other
famous venues including Radio City Music Hall, the Forum and the
Chicago Theatre. It also owns the New York Knicks and New York
Rangers sports franchises. Additionally, the company manages a
media division which consists of web, digital and television
Owning a piece of the Garden isn't cheap, however.
P/E = 31
F2012 EPS Growth: -4%
F2013 EPS Growth: 24.7%
Zacks Rank #3 (Hold)
4. Chipotle Mexican Grill, Inc. (
Chipotle is in the midst of worldwide expansion. It currently only
operates Mexican casual dining restaurants in the United States,
Canada, Great Britain and France. In five years, its expansion is
likely to continue.
Chipotle is an aggressive growth stock with a big P/E but with
large double digit growth projections to match.
P/E = 37
2012 EPS Growth: 33.3%
2013 EPS Growth: 21.2%
Zacks #3 Rank (Hold)
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Tracey Ryniec is the Value Stock Strategist for
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AGRIUM INC (AGU): Free Stock Analysis Report
CHIPOTLE MEXICN (CMG): Free Stock Analysis
MADISON SQUARE (MSG): Free Stock Analysis
TJX COS INC NEW (TJX): Free Stock Analysis
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