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Friday, March 17, 2017
"It's really not a good idea to sell anything," Bill said.
Bill Bonner and I were in Nicaragua for the fifth annual Bonner & Partners Family Office meeting at Rancho Santana. After the conference was over, we went to dinner "off campus" for a change of pace.
In pitch darkness, we drove on unlit dirt roads, dodging the occasional cow. We came upon a little town where some kind of festival was going on, nosing the car past a parting sea of people.
Then we made a wrong turn and had to double back... nose the truck past the crowd again... but we eventually found our spot. It looked like a shack with some tables and chairs and lights haphazardly set out near the beach.
Bill and I settled in at a table by the water and ordered up a couple of Tonas, the Nicaraguan beer of choice.
We talked about a lot of different things – wealth, money, building businesses, real estate...
During our talk, Bill mentioned that it's not a good idea to sell anything. Well, not anything. He was talking about good assets.
I agreed. There are taxes when you sell. And fees. And then you have to decide what to do with the money, which you may very well lose in the next investment.
Good assets tend to hold their value and even grow more valuable over time. It's a lesson I learned all over again when I researched for my book, 100-Baggers: Stocks that Return 100-to-1 and How to Find Them. (In fact, on my list of essential principles, it's No. 10: "You Should Be a Reluctant Seller.")
One great example of a good asset to hold for the long term is Monster Beverage (MNST), the famous maker of energy drinks and other beverages...
Monster enjoyed high profit margins and returns on its capital, two marks of a great business.
It became a 100-bagger in 10 years – a remarkable feat that required a 50% annual growth rate. But it fell more than 25% at least 10 times during that run. In three separate months, it lost more than 40% of its value.
Yet if you focused on the business – and not the stock price – you would never have sold. And if you put $10,000 in that stock, you would have $1 million at the end of 10 years.
The most stunning gains come when people just leave their stocks alone... And then they wake up shocked by how much they're worth.
If you don't need the money, it's probably best to let your investments ride. Do less, and make more. There are many inspiring examples.
In 100-Baggers, I tell the story of Ronald Read, who was the subject of a Wall Street Journal piece in 2015, "Route to an $8 Million Portfolio Started With Frugal Living."
Ronald Read was a janitor at JC Penney "after a long stint at a service station that was owned in part by his brother." So how did he make his money?
He had 95 stocks when he died. Many of these he held for decades. He owned Procter & Gamble (PG), JPMorgan (JPM), J.M. Smucker (SJM), Johnson & Johnson (JNJ), and other blue chips. Not every stock he owned was a winner. But the profits from the winners overwhelmed the losers.
It's a simple formula. Timeless.
I've got a lot of stories like this, some of them from readers. Here's one:
Bill is right. It doesn't pay to sell. Buy the best assets – ones with durable cash flows and potential for growth – and sit.
THE BULL MARKET IN HOME IMPROVEMENT
Today's chart highlights the big gains of "fixer upper" stocks...
Regular readers know we look at several sectors to tell us what's going on in the U.S. economy. In the past, we've discussed how big banks and manufacturing companies can help us measure economic strength. And that's true in the homebuilding sector, too.
For proof, we'll look at two homebuilding giants: Lowe's (LOW) and Home Depot (HD). Each company offers a one-stop shop for all your homebuilding and repair-project needs. Together, the companies sell nearly $160 billion worth of products per year... And they earn $12 billion in annual profits. Their success is a sign consumers are putting money into their homes...
As you can see in the chart below, shares of both companies have thrived in the last year, recently hitting new all-time highs. Shares climbed nearly 14% in the last year... And they're up around 25% for each stock since their November lows. The "fixer upper" sector is on a tear...