Tips for Picking Stocks for the Next 20 Years

Tips for Picking Stocks for the Next 20 Years
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Warren Buffett famously said that his favorite holding period for a stock is forever. This being SmartMoney magazine’s last issue, it seems a good opportunity to screen for stocks to hold, if not quite forever, for at least a decade or so.

But today’s stock market seems to favor nimble traders. The S&P 500-stock index lost more than half its value and then doubled it — all within the past five years. Facebook has been valued as low as $ 54 billion and as high as $ 96 billion, and it has only been trading since March.

Fortunately, such erratic price swings work to the advantage of long-term investors, especially those who regularly screen the market for bargains. In his 1949 classic “The Intelligent Investor,” economist Benjamin Graham described Mr. Market, a character who comes to the investor’s door each day looking to trade shares. Sometimes he is ecstatic, and other times, deeply depressed — and his prices vary accordingly. An investor who does his research and keeps a cool head can make a lot of money from a trading partner like that.

The first step: Identify quality companies. Wall Street obsesses over profit growth, but more important for long-term holders is something called return on invested capital, or the return a firm earns when it sinks funds int…………… continues on

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