I came across a fascinating section in Jeremy Siegel’s Stocks for the Long Run in which he showed the returns of the 20 best performing firms of the original S&P 500 that have survived intact. The make-up of the list was interesting–the 20 firms included 11 in the Consumer Staples sector, 4 in Healthcare, 2 Industrials, 1 Energy, 1 Utility, and 1 Consumer Discretionary. There were no financials and no miners. Perhaps the financial crisis took its toll on the financial sector (this data was collected in 2012). Anyway, I take encouragement from the huge number of staples and healthcare companies because these also form the bulk of my own portfolio.
The price of a consumer staples company is never likely to take-off; they are boring and defensive. No new type of biscuit or shower gel is going to come along and grow like an oil explorer that has just struck lucky. But this smoother path and more predictable earnings flow make for simpler investment propositions. Strong and durable brands enable these businesses to last for a very long time. It is probably no coincidence that staples have been such a large and important part of Buffett’s investing over the decades.
So guess who comes top of Siegel’s list with an average annual return of 19.47%? Yup, Altria Group. This return is almost double that of the S&P over the period measured (1957 – 2012) and would have turned $1000 into an astonishing $19,737,000.
The company, although known as Altria Group today, is still better known by its original name of Philip Morris. In 2003 Philip Morris changed its name to Altria Group and in 2008 it spun off its international division (now Philip Morris International). The current Altria Group is therefore what was originally the American operation of Philip Morris. Warren Buffett, according to Barbarians at the Gate, explained the reasons for the success of the tobacco business: “I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.” Of course, there is much more to dislike about the cigarette business and I do not think it will be mourned when it eventually does die.
Other runners and riders include:
- Coca-Cola: average annual return 14.68% (nearly 10% of this is owned by Berkshire Hathaway)
- Pepsi-Cola: 14.13% (the other cola and various tasty snacks comes in just a bit behind Coke)
- Heinz: average annual return 13.80% (tomato soup and ketchup; now part of Berkshire Hathaway)
- Crane: average annual return 13.57% (I didn’t even know this was a company)
- Pfizer: average annual return 13.38% Boooooo
- General Mills: 13.12% (Cheerios, Lucky Charms, Haagen-Dazs, Yoplait)
- Procter & Gamble: 13.00% (Ariel, Fairy, Gillette, Olay, Pampers etc. etc. etc.)
- Deere & Co.: 12.86% (Farm machinery and iconic baseball caps)
- McGraw-Hill: 12.58% (S&P ratings)
It will (would) be interesting to see whether any of these companies can hang on for another 50 years. If they do not, then I expect that being taken over will be the reason, rather than business failure. If these companies do not fit the definition of tried and trusted, then I don’t know what would. They keep delivering their goods and services to a high standard and paying shareholders growing dividends in the process.
Currently, I own only one top 20 company: Altria Group. Hopefully in time I will add to this list, preferably organically, i.e. by the performance of the companies that I already own soaring! (Hope springs eternal in the investment community.)
Disclosure: Long MO
Disclaimer: This post is not a recommendation to either buy or sell. Please consult your investment advisor.
Interesting – thanks FI. Some great long term returns but none as good as Berkshire’s cagr 20% over the past 50 yrs!
Hi, and thanks for the comment. Sadly, I haven’t owned BH for fifty years 🙁 Interesting point you make though and, I think, Berkshire was only “admitted” to the S&P a few years ago. I can’t remember the rationale, but perhaps it was the lack of the traditional quarterly analyst v CEO face-offs or, come to think of it, the lack of any analysts covering Berkshire at all. Not that Berkshire missed out on much by not being in the club…