What Individual Stocks Would I Invest In for the Long Haul?

In the reader mailbag yesterday, I alluded to the idea that I would only buy individual stocks from companies that I was strongly familiar with and whose products I used myself and not only trusted, but that I found enough value in that I would laud them to others. In other words, I’m a big believer in “buy what you know.”

Unsurprisingly, several people wrote to me asking what stocks I was referring to, and so I’ve decided to list out the seven-stock portfolio I’ve been keeping my eye on for the last several months. These are the seven stocks I would invest my money in if I were going to invest in individual stocks. At some point, I will pull the trigger and do this, likely using a buy and hold strategy and allowing all of the stocks together to comprise about 10% of my overall investments, but I’m going to assemble a strong index fund portfolio first.

Here are the seven single stocks I’d buy, likely in equal amounts. I’d buy and hold each of these unless something dramatically changed about the company – in particular, if I lost confidence in the company’s products. Together, the companies are a diverse portfolio (all are in different industries) with a few traits in common – all of them have strong products that provide value to me personally, all are financially stable and have clear plans for the future, and most of them are among the most ethical companies – three appear on Ethisphere’s list of the world’s most ethical companies in 2008.

This is not investing advice. I’m merely listing the companies I would invest in and why, in hopes that you might understand my decision-making process and perhaps add something to your own decision-making process when it comes to stock investing. I’m also not looking to day trade – I want to buy and hold over a long period of time. I also tend to lean more towards companies who behave ethically while producing products I believe in instead of the investment that will quickly maximize my buck.

Here goes.

Herman Miller (MLHR)
If I were to invest my stock in one company, it would be Herman Miller. Herman Miller is a furniture manufacturer that focuses on office chairs, and they do superb and environmentally friendly work. I own one of their Aeron chairs, and it’s simply one of the most elegantly and superbly constructed items I’ve ever owned. I was introduced to their chairs in the workplace and was so genuinely impressed that I eventually purchased one of my own – and I began carefully following the company as well. Their chairs are ecologically sound as is their factory and they’re one of the most admired companies in America, placing at the top of Fortune’s list of admired furniture companies for the past eighteen years. Their business model is stable and the business is steadily expanding, so I’m on board for the long haul.

ING Groep (ING)
For those of you who have heard me talk positively about both ING Direct and Sharebuilder on this site, this shouldn’t come as a surprise. I’ve used many different online banks and found ING Direct to be by far the most usable, and aside from Vanguard, I’ve had the easiest time with Sharebuilder for brokerage needs. The business is growing rapidly while their stock price has held largely steady, indicating to me that the company is on very solid ground financially for the long haul. A happy customer plus a solid financial standing equals a company I’ll bet on for the long haul.

Apple (AAPL)
If there’s a “bet” on this list, it’s on Apple, who produce computer products that I rely on every day. As I type this, I’m using a Mac and I’d hesitate to say that I’d ever want to go back to using a PC ever again. It’s stable, incredibly user friendly, and reliable. Their product design all around is impeccable and their sales are growing like gangbusters. The biggest reason this feels like a bet to me is that I feel like more than almost every other company, the strength of Apple is tied to its leader, Steve Jobs. I follow Apple pretty closely and I just don’t see anyone waiting in the wings, which is worrisome because of the “cult of personality” leadership at Apple. If Steve goes, I fear Apple may stumble, which is a worry over the long haul. But for now, I’m incredibly pleased with their product and their company is clearly on the right track.

Honda (HMC)
I have a lot of faith in both Honda and Toyota as car manufacturers, and all of my research has pointed me towards them as the source for my next car purchase and my experience with both companies as a driver has been very positive. I give Honda the nod over Toyota (since I don’t want to invest in two car manufacturers) because I generally believe they’re thinking more long term and their product lines are more diverse. Honda’s revenue is heading upwards and they’re recognized for their business ethics.

Costco (COST)
If there were a Costco fairly close to me (the nearest one is in West Des Moines, simply too far away), I would happily be a regular customer. I am a frequent customer of Sam’s Club in my area and I prefer Costco for product selection and employee treatment reasons. Warehouse shopping is a concept I strongly support, especially when it’s paired with ethical treatment of employees and strong prices. As with the other companies on this list, their profits and revenues are steadily marching upwards while maintaining the ethical standards they’ve become known for.

UPS (UPS)
I like UPS because they work. I’ve had dozens of packages delivered to my home without a missed delivery (as compared to FedEx, which has an atrocious 0-for-2 record since my move) and occasional earlier than expected deliveries, plus I’ve never had any issues with shipping with them, either. Given their role as a large-scale delivery company, they’re heavily involved in improving fuel economy and moving towards green solutions with their GreenFleet, plus they’re committed to high ethical standards as part of their business model. Couple that with their steadily improving financial success and it’s clear why I’d buy and hold this company.

General Mills (GIS)
My final pick is probably surprising to some given my commitment to fresh foods, but their commitment to health-conscious food production in that they’ve switched to whole grains for all of their cereals (plus my son’s incessant love for Cheerios) has slowly won me over, as has their commitment to ethical business practices. I’ve been satisfied with their products as a customer, and their financial record is strong, which all adds up to a strong picture of the company as a whole, strong enough for me to pick the stock for buying and holding.

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  1. Trent, if you have limited experience stock picking, you would be much better off with a diversified index based ETF portfolio. That way, you have no worries, where you set it and forget it.

  2. funder says:

    I just wanted to point out that the UPS/FedEx love/hate thing depends entirely on where you live. In some cities, UPS is horrible; in some, it’s awesome. Same with FedEx. (I live in Memphis, and *surprise!* our FedEx is great, while UPS and DHL are atrocious.)

  3. deepali says:

    I second the second comment. :) I love Fedex, they always get it right (I probably send about 3-4 fedex packages a week). UPS is a bit slow, but they tend to be reliable. DHL sucked for me twice now, but came through with a bang once (an international delivery from a pretty remote part of the world). Personally, I think if you look globally, all three are pretty viable, and IMO, they serve different markets.

  4. Jessica says:

    Wow, a nearly $1000 for an office chair that’s mostly plastic and mesh? I’m curious, did you buy this before or after your debt meltdown? I’m sure it’s a great chair and all, but wow, that’s a lot of money for one piece of furniture.

  5. Trent says:

    “Trent, if you have limited experience stock picking, you would be much better off with a diversified index based ETF portfolio. That way, you have no worries, where you set it and forget it.”

    I don’t think you read the article. I stated that 100% of my portfolio is in index funds, and I haven’t even bought a single stock yet. If I did buy individual stocks, they would make up in total only 10% of my portfolio. These are just the stocks I would buy if I pulled the trigger.

  6. Trent,
    You have some excellent picks there.
    Along with General Mills and Costco, I would add two staple stocks in Johnson and Johnson (JNJ) and Gerneral Electric (GE). Both of these companies offer great resilience in market downturns due to their borad and necessary product lines.
    In addition, they offer the greatest kicker of all and that is stable and rising dividend income. There is nothing better than getting a raise in your dividends every year just by holding onto a great stock!
    Look at JNJ right now as it offers tremendous value at a very nice dividend yield. No matter how bad the economy gets, people will always purchase their products!

  7. Trent says:

    “I’m curious, did you buy this before or after your debt meltdown?”

    Long before, and it was tax deductible.

  8. mitchell says:

    fwiw, i think you should consider (since its hypothetical) dipping into REITs. the market is low and REITs pay some substantial dividends. my individual stock portfolio is entirely REITs right now, and i’m getting about 10-15% returns purely from dividends.

  9. Jeremy says:

    Hi Trent,

    You didn’t mention the most important thing about any of these companies, their current prices in comparison to what you calculate their long term cash flows to be.

    Investing in companies you know can be an okay strategy (as you know popularized by Peter Lynch) if the price is right.

    Personally it seems like you picked mostly cyclical companies (the first four, to be precise) in what is likely to be the greatest recession of our lifetimes. So even if the price seems right, it may end up being a very, very wrong time to buy into companies that will be crusehd by a recession. By the way, this has been my greatest weakness… being able to see the inevitable financial disasters springing out of the malinvestments of the housing & credit bubble, but not being able to resist buying into companies I really like on the cheap.

  10. Trent says:

    “Personally it seems like you picked mostly cyclical companies (the first four, to be precise) in what is likely to be the greatest recession of our lifetimes. So even if the price seems right, it may end up being a very, very wrong time to buy into companies that will be crusehd by a recession”

    Buy at the bottom. I’m actually tempted to start buying now, so I can buy all the way down and get tons of bargains at or near the bottom. An approaching recession – and the early stages of one – is a great time to start dollar cost averaging.

  11. Nathan says:

    I have had the same problems with FedEx. One package required me to drive to a town half an hour away twice. UPS has always been amazing.

    I love CostCo too. I won’t shop at Sam’s Club. Walmart/Sam’s Club are pretty much the only places I would shopt at, but don’t for ethical reasons.

  12. Anne K says:

    Thanks for giving the reasons why you would pick these companies if you decided to expand out of the ETF. I’ve always liked J&J, especially after working there for a while- the employees are treated very well at that group of companies, and the expectation of working by their credo extends to every job position! I’m planning on investing in an ETF (most likely Vanguard, after doing my own research) but not until after we move into a house sometime this year. I just haven’t gotten the guts to invest in single stocks.

  13. jtimberman says:

    Investing in single stocks is incredibly risky, and I would only do so with money I could throw away and not care about losing.

    Can anyone say Enron? Worldcomm?

    Single stocks are far more risky than good growth stock mutual funds with long track records (5-10+ years).

  14. Keith says:

    All very good picks. Most of them have upward trends over the last 10 years, although Herman Miller is pretty flat.

    The most solid and the ones I would pick in order are Costco, General Mills, Honda, ING and possibly Herman Miller, although it is too flat for my taste.

    UPS will be good if they hedged their bets like Southwest Airlines and bought fuel futures.

    One to think about is Cisco (CSCO). They are still the most viable player in their particular market and I technological advances may make them a real strong player in the next few years.

  15. Carlos says:

    This list is great. I wouldn’t directly put a dime into any of these companies. “Buy what you know” is a nice cliche, but, the reality is that you’ll never know all that much about any (all) of these companies (unless you’re a board member or corporate VP).

    Stick with putting your dough into a low-cost index fund (S&P 500 or Total Stock Market), diversify (own some international index funds), and reinvest the dividends.

    Slow and steady wins the race.

    If you want to invest in companies which have the potential to grow, dramatically, check out BRSIX. That’s where I’d put my mad money if I were you.

  16. Debbie M says:

    Thanks for sharing.

    You might want to look at how much of these stocks you are already holding in your mutual funds. Then instead of buying the same amount of each, you can buy more of the ones you have less of and vice versa. That would probably mean buying more of the smaller companies and less of the larger ones.

    I have not been overly impressed with General Mills’ addition of whole grains. It’s better than what they were doing before, but regular white flour is still higher on the list than whole-wheat flour, and the amount of dietary fiber is much lower than it should be. I’d rather mix a high-fiber cereal (like Uncle Sam’s) with a yummy cereal.

  17. Ryan says:

    “Wow, a nearly $1000 for an office chair that’s mostly plastic and mesh? I’m curious, did you buy this before or after your debt meltdown? I’m sure it’s a great chair and all, but wow, that’s a lot of money for one piece of furniture.”

    I originally thought this too when my fairly small company ordered them for everyone about 1.5 years ago. But look at it this way: people spend tens of thousands of dollars on a car, which they may only use 30 minutes a day. Trent works from home, so he could easily get 8+ hours a day out of that 1k chair. So after a month of use it costs about 6.25 an hour (figure 4×40=160hrs) to sit in an incredibly comfortable chair. And it only gets cheaper with time.

    I’m very strongly considering one of these chairs once my one and only debt (a car loan) is paid off. I do a lot of work from home, and I get hot incredibly easily, so these mesh chairs are great for me.

  18. BonzoGal says:

    Buying a piece of somewhat expensive but really high quality furniture can be a great way to save money over time. Same with clothes and other goods- there are sometimes cases where you DO “get what you pay for” and lasting quality saves re-buying something you use a lot.

    Good choice on CostCo for ethical reasons- they really do treat their employees well, and have very little turnover because of that.

  19. Matt says:

    I think the point of the post was not to analyze stocks, but to give a run down of companies that have sound strategies, solid ethics, socially responsible policies, and promising futures.

    I “invested” $50 in ENER for this reason. I can afford to lose $50 on an experiment and on partial ownership of a company whose mission and output I support.

  20. Randy says:

    Trent,

    I firmly believe that you should own stocks if: 1) you’ve got the amount of time needed to do appropriate due-diligence and 2) you feel comfortable that owning said stocks will provide you with a higher return and return/risk ratio than holding a diversified set of funds.

    While I like a few of your picks (AAPL, COST), I have concerns about a few of the others, given the current economic environment. UPS and GIS are both highly susceptible to the high cost of fuel and commodities; and I would suspect each will face significant headwinds in the near-term. ING has been caught up in the current financial mess; and I would likely steer clear of it until banks regain their footing.

    On another note, studies have shown that small-cap value stocks tend to perform the best over long periods of time. It might be to your benefit to do some additional investigation to see if you can uncover some smaller, high-quality, ethically-focused companies that are selling at a discount to the overall market.

    Regards,
    Randy

  21. Isabel says:

    I noticed that you have a “Rich Dad” seminar advertisement on your website. This seems extremely odd to me, since the Rich Dad series promotes some principles that are the very *opposite* of the ones you promote on this site.

    You’ve probably read John Reed’s critique of RK, but just in case: http://www.johntreed.com/Kiyosaki.html.

  22. MO says:

    Any feelings on railway stocks?
    keep hearing with gas prices, it’s way cheaper to use trains for shipping.

  23. TJ says:

    As a fundraiser for a non-profit I’m glad to see Costco and UPS listed. Both companies are very community minded. Now the others may be also, but they aren’t up here in the Northwest. Costco is very close, and continuing to grow.

  24. Keith says:

    @MO

    Warren Buffett’s Berkshire Hathaway likes Burlington Northern Santa Fe (BNI) and owns a big stake.

  25. Tagertux says:

    As a an (almost) fan boy I’ve got to take issue with just one small comment in an otherwise interesting post.

    “I just don’t see anyone waiting in the wings, which is worrisome because of the “cult of personality” leadership at Apple.”

    I think this is more to do with our, and the media’s, obsession with personality. Sure Jobs is an incredible guy and a big part of the company but if you read this article from HBR (http://discussionleader.hbsp.com/hbreditors/2008/06/steve_jobss_health_worries_me.html) you’ll see that getting great talent is systemic at Apple. The guy that is being tipped as successor is a relatively unknown guy who has a similar reputation for getting things done (fast and properly).

  26. Carlos says:

    I have a question for Jeremy in regard to comment #9:

    “Personally it seems like you picked mostly cyclical companies (the first four, to be precise) in what is likely to be the greatest recession of our lifetimes. So even if the price seems right, it may end up being a very, very wrong time to buy into companies that will be crushed by a recession”

    What on earth makes you think that this is “the greatest recession of our lifetimes”? We’re *not* in a recession as I type this. Sounds like a lot of hyperbole to me.

  27. WhirlMind says:

    Hi Trent,

    I am almost at the same stage you are in, waiting by the sidelines, before buying the first stock.

    1. You haven’t mentioned what horizon you have in mind while mentioning “long term”. Can you please ? Also what does one do once the stipulated objective is achieved ? To shift to others or to keep after a review ?

    2. I tend to agree with Comment 15 by Carlos, that it’s a nice cliche to buy only what you know. It can be the wisest-looking principle, but, unfortunately, imho, the wisdom difficult to prove. Or the contrary, is as provable as this wisdom.

    3. I also have a similar disillusionment about “rebalance your portfolio from time to time to match your risk perception” . In other words, move from Stock A to B, though A is doing well, bcos you started out with a risk perception about A. I might as well, rebalance the risk perception (make it higher) and keep the good ones, right ? Is there any obvious goofup here ?

    Thanks. Love your blog.
    Whirlmind.

  28. KC says:

    Trent we have a lot in common. First thing is cash in the bank. Second thing is a good grouping of index funds (or in my case a few index etfs) – all Vanguard. Then I pick stocks I know about and generally ones that pay dividends. I love dividends. Many studies show that over time the best individual stocks to own are ones with good dividends cause they perform better over the long run – they are consistent earners. Not all my stocks earn dividends but most do.

    I also keep a running list of stocks I look at in addition to the ones I own. I have about 50 written down with price points I would consider buying at. Every 2 weeks or so I look through them and see where their price is. If one reaches a price point then I’ll look at it in more depth to see if I think its a good buy – sometimes a stock dropping in price is a good reason to buy, sometimes its a good reason to stay away – you have to figure out which. A good look at their financials and listening to a few quarterly reports will give you an idea if its a good buy or not. I think of it like having a running grocery store list – when something goes on special I buy.

  29. Riley says:

    LMFAO. Going grocery shopping in the afternoon and then taking a shower while your wife works her ass off at work and the kids are in daycare? You are a sorry excuse for a man.

  30. katy says:

    I agree with JNJ stock; if you’ve ever been in a hospital (and I have been a patient many times)all the procucts are JNJ. and if you need an MRI, there is a big GE on the front of that machine, too!

    Don’t overlook PM; philip morris. No one who smokes wants to stop until they WANT to stop (sigh) – great dividend. MO is altria, the old philip morris that is the US market plus other stuff. And KFT, kraft foods.Food will always go up; let’s get the dividend.

  31. Cade says:

    Trent, you sure know how to generate a lot of discussion on how you ought to invest YOUR money. I’m no expert, but I’ve done okay, and for me the key is research. I’ve dinged myself when I let that part slide.

    I use the CAPS feature at Motley Fool as a good place to start. I also subscribe to the Jason Kelly newsletter. He’s written several good books on personal finance/investing.

    The main thing, though, is do your own due diligence. I lost $5000 last fall when I followed the BUY strategy of Monish Pabrai on http://www.GuruFocus.com

    I figured a Warren Buffet disciple like him, with all of his technology resources, would have done the best scrutiny possible. I bought a thousand shares at 50% what he paid for several million. He lost about $10 million, I lost the whole $5K.

    Stupid. I cheated myself by trying to ride a guru’s coattails. I have no idea where his research failed him. The guy has a great track record as a value investor.

    Good luck on your picks.

    I saw that little comment about your chair being tax deductible. Good for you. I bet it went by most everybody else. My site could help them.

    All my best,
    Cade

  32. danny says:

    I think your strategy is very much like what Peter Lynch preaches.

    In addition to knowing how to price the stock, mentioned above, I think it’s essential to ask how much does the successful product that you like represent the company’s revenue.

    Finding companies that we’re familiar with is certainly a good way to locate winners, but it’s just a starting point for more in-depth research.

  33. foofoo says:

    i’m not sure, but i believe it’s dangerous to pick stock just because you “like” the company & its products. this will not guarantee commercial success (for the company & for you).
    i’m aware that the “sympathy factor” is a strong reason and i did similar things in the past (very little, and then i stopped single-stock-picking because it took too much time & energy to follow up), but i truely believe that the hard numbers are more important.

  34. Jeremy says:

    Carlos,

    Only time will show, of course, but here are some reasons:

    -> As a nation and individually we are farther in debt than ever, and debt cannot drive a country to prosperity (it is savings that fuels long term economic growth, Keynsian theory to the contrary)

    -> If you used the same methods to calculate inflation and GDP growth that the US gov’t used until a couple of decades ago, CPI inflation is over 10% and we have been in a recession since the bursting of the tech bubble (see shadowstats.com). Why not use the old methods to make comparisons to past economic periods? If you did, we’d be in 70′s style stagflation already.

    -> The Federal Reserve has been allowing the money supply to go up at an ever increasing rate (approaching a 20% yearly rate these days, even though they stopped publishing M3 a couple of years ago), and you can’t inflate your way to long term prosperity, you can only inflate your way to ever higher inflation.

    -> The last 15 years has seen the greatest credit expansion in US history, period (way greater in percentage terms than the 20s leading up to the Great Depression). If you have studied Austrian business cycle theory thoroughly enough it is pretty easy to see that the low interest rates that fueled the credit bubble have created massive malinvestments in the economy that are only recently coming to light and that must eventually be completely liquidated (ie: The damage has already been done to the real economy, the recession and likely depression to come will just reflect this as the real losses become paper losses) (Business cycle theory is long reading but if you are really interested in finding out if I am just talking out of ignorance or have carefully studied and thought out these issues you can do a search for “desoto.pdf” on google and download Jesus Huerta de Soto’s work Money, Bank Credit, and Economic Cycles for the best treatment of austrian business cycle theory out there.)

    -> There are about a dozen other things I could point out here (including the fact that mortgage resets have only started and last until the end of 2011 with ALT A mortgages making up the majority of resets to occur, that housing prices are still way above their historic trend and have to come down to levels that people can afford and that this will cause massive paper losses and likely bank failures, that foreigners own trillions of our debt that they are beginning to cash in for real goods or other currencies, that the losses that banks have realized on all kinds of housing related investments are not according to market prices but marked according to their own estimates and hence extremely underestimated, etc, etc), but it would take a while.

    The other thing is it is very easy for you to dismiss what I have to say by calling on mainstream economic views but to actually do away with the mainstream mistakes it would take hundreds of pages of careful reasoning and logic.

    If you have an open mind look a bit deeper down the rabbit hole.

  35. C Money says:

    If you like dividends, which I do, ACAS is on the top of my list. It’s not a company you hear much about but their track record for paying and growing dividends is awesome.

  36. Chad @ Sentient Money says:

    I have to agree that Apple is a good pick, but not because of the reason you listed. No way Apple ever picks up a significant portion of the computer market. Apple is a good pick because they are well positioned to be the Microsoft of the cellphone/mobile computer. This is why they are purposefully making even less money off of the new 3G iPhone than they made off of the first iPhone. They want enough market share to be the 800lb. guerilla.

    I’m slowly starting to get back in the market myself, as the consumer confidence index suggests a bottom is coming this year.

  37. Josh says:

    I agree with Chad, I doubt that apple will ever gain control of the computer industry, as long as Microsoft is around. But I guess you never know, but as it is becoming more and more common for people to have cellphones, apple could easily grab control of that market. You have to admit, the iPhone is one cool phone. :P

    On the subject of investing, I agree, those companies are good choices for investing, they have a wide range of products, and they are spread over several sectors. They are pretty big contenders in the market place, so they will probably last any coming recession and maybe depression. In the future I might take a look at them, though right now I am just playing with stocks. I am currently invested in RBC (royal bank of Canada, I live in Canada :P) on strong advice of my dad’s investment broker. I am just trying to gain experience with the markets so I am not looking for any stellar results. Once I get out of high school, I will probably start some serious investing. Does anyone know if there is there a Canadian equivalent of an ETF?

  38. Jesse says:

    I bought AAPL back a few years ago because I noticed more and more of them popping up on tables in the study area of the library. Students were buying them, and that’s the future is it not? :)

    I’m happy with the purchase. As always, wish I had bought more.

  39. ghogiel says:

    I was rather suprised that AAPL is one of your choices~ as I see that you’re rather conventional, Trent. Like you said: Apple would stumble if Steve leaves — this has happened in the past and indeed that’s what happened: Apple stumbled. That’s 1 thing, the others are: high P/E (36+), which may be hot for some people — but too hot for me to handle and they’ve never given away dividends in the past 6 years.

  40. James says:

    Honda makes good cars. I would suggest however, if you want to take a chance and also buy American, take a flyer on Ford (F). It’s quality ratings are storming back to the point where it’s even with Toyota and Honda on most of its vehicles. And the current share price is around $5. In the long run, they could either go under, or if they hang in there through the current time of struggle, Ford’s price could be a 5 or 6 bagger.

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