Avoid The Dark Alleys

Focus on what’s happening in the present, not try to guess what might happen in the future

There’s a conundrum at the heart of successful investing. It’s impossible to predict the future with any accuracy but what happens in the future defines the value of any investment. In the end, you have to give it a go.

The key is to keep your assumptions firmly rooted in the present. So instead of thinking about how things are likely to change, you think about how they are likely to stay the same.

There’s a subtle but important difference between these two approaches, because change compounds quickly, leading you down a multitude of dark alleys, whereas the same, well, stays the same – at least until it changes.

With stocks, this means focusing less on trying to guess how things will actually turn out and more on the factors – which are apparent now, in the present – that will serve a company well whatever the future holds.

These qualitative factors must then be blended with price, which is where much of the art of investing lies: a great company can make a terrible investment if you pay too much for it.

Over the short term, the price – what people are prepared to pay – makes the most difference to an investment. But over the long term, quality comes to the fore.

So, here are five stocks we think will still be around in 20 years, having grown at least in line with the economy. Remember, though, that this is not a stock pick for now. Your aim should always be to buy great businesses at attractive prices.

1 Sydney Airport

Great businesses have protections in three main areas: they have a product that people want; they have a competitive position that allows them to deliver it without too much interference; and they have the management and culture not to stuff things up.