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If you want to own a stock forever, you don’t necessarily want the fastest growing stock. Sometimes reliable growth is just as important. In fact, if you want a stock to own forever, its ability to steadily compound its capital is even more important.
You want growth, but sustainable growth
When a company deploys precious capital, you want to know that it uses its resources to create value. For example, if your company invests $1 and it earns $0.15 over the year, you will end up with $1.15.
If you invest $1.15 at the same rate of return (15%), it would be worth $1.3225 the next year. Invest $1.3225 again at that rate of return and it would become $1.52. You end up with 50% more capital by the end of year three.
Look for high quality compounders for the long term
The point is you don’t want growth for the sake of growth. You want to own stocks that thoughtfully and consistently use their resources…
