What is Forever Stock?
Forever stock is a term used to describe a stock that you can buy and hold for the rest of your life.
How Does Forever Stock Work?
Forever Stocks are high-quality securities that you can count on for strong, steady returns -- year after year -- all while ensuring you get a good night's sleep.
You can identify 'forever stocks' by following Warren Buffett's simple yet successful investing advice: 'It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.'
[InvestingAnswers Feature: 50 Warren Buffett Quotes to Inspire Your Investing]
These investments typically share three main characteristics:
- The company enjoys huge (and lasting) advantages over its competitors.
- The company pays investors every year by dishing out fat (and growing) dividends or buying back massive amounts of its own stock.
- The company has a conservative balance sheet (including lots of cash) to safely weather any economic storm.
In addition, to be a true 'forever stock,' it must have long-term growth opportunities, strong and lasting consumer demand for its products or services, and excellent management that will increase the value of the company for decades to come.
Why Does Forever Stock Matter?
Investing in excellent companies (like forever stocks) for the long term is not a new concept. But throughout history, it has been a very successful one.
Warren Buffett's philosophy of buying 'wonderful companies' has made him the world's greatest investor. Buffett's investment firm, Berkshire Hathaway, which closely follows this investment philosophy, gained +513,055% from 1964 to the end of 2011. By comparison, the S&P 500, including dividends, gained just +6,397% over the same time period.
