Best of: the world’s greatest stocks
22:44 Share

At pigeon, expertise across public ican private markets today helped build resilient portfolios tomorrow. As a leading global asset manager with over one point two trillion dollars in A U M P, gem has navigated over thirty market cycles with active investing and disciplined risk management are combined. Global expertise and local insights give us these strategic perspectives we need to help you reach your long term goals. Pigeon our investments shaped tomorrow, today.

Hey listeners, this is jake. I produced the show. Just reminder, rob and kayan adin want to answer your markets and finance questions.

So email them at unhedged at fd that come. And your question may end up in an episode that's unhedged at F T. Dot com. Also, we are taking the american holiday of thanksgiving off. So this episode is a rerun, but you should listen anyway because is 这个 管。

pushin. Today on the show, we are going to talk about the greatest stocks of all time, the super duper stuns. But before we begin, Robin, here's a question for you. What isn't that makes a great stock?

Well, you I talked also really clever, invests all the time, and I i've loved how little I actually, I can tell you what's a bad stock. I can tell you what make that a terrible stock. Tell me, well, I you game stop A M C. Bet bathin. Beyond these, this is gonna a lot of amity and certain corners of the internet, but those are bad stocks.

They're kind of cult Mandating hype makes a bad stock. And I think what those socks are going to talk about today will prove your point in states. This is unhedged the markets and finance podcast from the financial times.

I'm rob armstrong coming to you from the hedge world headquarters in new york city. I'm joined today by Robin wicker's worth, who is the head of the fs alphaville blog. Do we still call a blog, Robin?

What do we call? Yeah where a blog in spirit and substance, I feel I was a blog retro today.

We're talking about the greatest stocks of all time. The reason we're able to talk about this is because henrici k. Bebo, who's quite a famous academic, has released a new paper, which discloses the stocks that have compounded wealth at the greatest rate over time.

And it's a bit of a surprising list, to be absolutely clear about what we are talking about here. These are the stocks which over the last century have generated the greatest returns in percent over the whole period. Am I getting that right, Robin? Yes, that sounds right.

okay. So number five, quite ironically, given its recent history, boeing and cow a stock we associate with hilariously bad mistakes in its recent history, doors flying off of airplanes, and all the data goes back to one thousand nine hundred and thirty four, and IT is compounded. There are so many digits here, one, two, three, for twenty one million percent.

Am I getting that year twenty one million percent? That is an annual compound return of just under fifteen percent. That's very incredible. IT is pretty incredible. That is a big number.

But what's interesting to me about that, Robin, is if you have a stock that you love in your portfolio and IT has a fifteen percent year, you're not like doing backflips with delight. I mean, that's a good year, but invidia lately is putting up hundreds of percent a year. The the lesson here is putting up fifteen percent year again and again and again and again.

it's the stock market because of the turtle, right? You compound that fifty percent of a very long period, the numbers you start looking astronomers period, like twenty one million percent yeah over Frankly.

less than a century, yeah over less than a century, by doing fifty percent a year. And we were talking about this before. This is a bit the wisdom of people like war and buffett. You take a step back and you say, do I have a pretty good business here, a business that is in a position to generate in an average or above average returns and you just stick with IT.

I write a lot about like hedged fund managers that have made a billion percent in any given year. And it's fun and it's sex in its exciting. In reality, if you look at the people of them best over time, they are just had lots of really good years of a long ger out of time and and that starts looking you god .

like after blow up, you don't go zero part of the magic of boeing and the other four stocks going to talk about is continuing to exist, is very powerful.

Don't go zero is my top stock market tip.

And there is an analog to that. If you're a money manager, live a long time OK. Number four, at twenty two million percent cumulative and just over thirteen percent year, general dynamics.

This really pleases me because general dynamics was actually one of my stock picks in the stock picking contest this year. I picked IT because I thought I was reasonably cheap. Stock grows reasonably well, and the world is horrible this year. So I figured to be a good your own in american defense.

Stock probably would have been even Better to owner one hundred years ago.

I know if I, my grandfather, had bought this in one thousand nine and twenty five. We ouldn't be having this conversation because i'd be riding a polo pony in the south of front somewhere. Yeah, you know, it's interesting. So far we have planes, and general dynamics is like submarines. And so we have two companies that make big machines.

weapons as well. This is a weapons. Yeah, exactly.

And speaking of big machines, you want to give us the number three.

Yeah, that's another big machine company. Those like less military tic, maybe, but that's and this is a really wide one. But kansas city southern, a railway company, yes, that doesn't actually exist anymore. IT was like a quiet a couple of years ago, but that made thirty six million percent community return over the past century or so.

Now, funny enough, I actually understand kinds of city southern Better than I understand.

General dynamics are boeing because a railway, although it's very expensive to put up and there is a lot of logistical issues and so forth, it's a natural monopoly, right? Once you own the rails, if you own a major artery of rail transportation for the twenty th century in america, it's gonna work out pretty well for you, right? You will have pricing power every year, right? Because you have the most efficient and productive form of transportation and you have a natural monopoly on a certain route. So that makes sense to me that that would be a great stock .

yeah if you're can avoid bankrupt along the way because they are obviously massively capital intensive. I mean, railways famously went bus glory in the nineteenth century, but I guess the for cancer and itzy southern was that they .

kind of hit to a tea around and you survive. And you know, a lot of these were the railways that went on to become successful or where those that appeared in the ashes of previous bankrupts, which in a lot of capital intensive businesses, that's true. okay.

Before we get to the top two, there is a couple of questions I want to raise. First of all, i'm very surprised, although kinda city southern less so i'm very surprised that all the businesses that were talking about so far are quite capital intensive types of businesses. When we talk about great stocks now so often we talk about tech stocks because they are capital light.

You have a piece of intellectual property that is you know, that creates a kind of natural monopoly or a network effect and the marginal cost of growth is zero and you go banana. So it's microsoft, its apple, it's IBM. You know slightly earlier. And i'm quite shocked that so far we're talking capital to businesses .

right down the list. Yeah, well, I mean, we do have IBM on the less they Frankly, a pathetic seventeen million percent. yes.

Yeah, I mean, that's a bit embarrassing. But yeah, he does not. Greedy old world capital intensive, not very techy or sexy.

Part of that, of course, is just that that point about staying around, like anybody who's gonna in this contest has to be around for one hundred to years or eighty years or whatever. You're just you need time to generate the massive returns. So actually, best amenda has a separate list in an earlier paper, the talks about the most wealth in dollars created the most total wealth, rather than percent return from the beginning.

And that list is a lot tech. Yer, although there is an oil company at the top of that list, apple and microsoft are two and three on that list, and I, B, M is number five. So there is truth to this idea that the dream stock for an investor is a network effect, low capital intensity text stock. But these businesses that last a long time in kind of metal banging, oil burning industries can actually do pretty damn well.

Yeah, the tRicky is a bit like with life is just not to die. Yeah yeah. I mean, so that the data base that best banda use is the C R S P, the center for research and security Prices.

And that's counted almost thirteen thousand us. Stocks that have been in existence over the past century, but the average life span of those companies is less than seven years. yes. So that's really low.

yeah. So it's a very exceptional company that lasted long. That point, number one to make but best binders. Other great point, and I know you've written about this, is the incredible concentration in returns among stock.

You know we have this idea that stocks in general are a good investment, but in fact, it's a handful of companies that make all the money. yeah. Am I getting that right?

Yeah no. So I mean, this starts getting a bit, Matthew, like the mean outcome for a century of stock market data. Basically, a what the stock market generated is twenty two thousand percent.

So Frank, if you put money in an index fund in one thousand hundred and twenty five, you wouldn't make that like a banded. yes. So the medium outcome, like what the average stock is done, although the media the stock is done, is actually loss of seven and a half percent. Most stocks have actually lost money, and something like ninety percent of they were actually done worse than if you put money in a bank ket.

Negative seven and a half percent is astonishingly bad, especially considering the kind of long term expected return for the U. S. Stock market when it's done over long time. And by the way, a lot of other markets have also gravitated around. This number is positive, seven percent, so at six and three quarter to seven and a quarter percent. So the average stock falls by seven percent, but the stock index rises by seven percent, which tells you there's like this small group of workforce that is just dragging all the other crap stocks along.

No, I mean, the old saying is stocks for the long run, but is not stocks for the long run. Stocks market does well. Individual stocks suck, right? Over half of all stocks of every existence in the united states have lost money. That's incredible.

IT is credible. In any case, back to our countdown. The number two on the list here is the company. If you asked me whether IT still existed, i've heard of IT.

But if you asked me if its still existed in was a public company, I would not known volcan material s company thirty nine million percent if grandma had bought IT in one thousand and twenty five and held IT until the end of twenty twenty three vote. According to wikipedia, here is the largest producer of construction tires, primarily gravel crush stone in sand. Now employees two thousand thousand people in over four hundred facilities, mexico, canada, the U.

S. sea. I mean, obviously the last few years have been the hate of this business. But for cripe sake, Robin crushed stone, what is the more commoditize business than that?

IT is pretty wide, right? That the second best performing stock in the us. Stock markets history is not like something that makes like A I super chips or cloud computing, yes, or whatever IT makes literally gravel. IT makes rocks. IT crushes rocks and sells IT.

One thing this tells me, though, to get back on my favorite theme of capital light, resus, capital intensive businesses is if you get a competitive advantage, even in a business that is structurally not that brilliant, that can work well, right, like you get economies of scale or you establish the strong customer relationships or a brand or something like that, the fact that your business is not that great structurally might actually help you.

In other words, that discourages competitors. Nobody is cutting your throat to get into the rock crushing business. In other words.

yeah, I know if silicon value only knew about the gold us is hidden and gravel, maybe that would change.

But I mean, you joke about silicon valley, but a business is a bit like this is amazon's retail business, which is like a low margin graded out kind of business yeah.

that's a good point actually is the scale is if you can do IT at scale or you can sell widget online at scale, then IT can be mostly profitable. You can do IT for very long time.

very long time. And you do a little Better, you earn a bit Better than your cost of capital. And you just compound that baby out and you know, to take your advice one more time, don't die, survive for one hundred years, just doing that, and you're going to do OK.

yeah. So now i'm going to ask our listeners to think to themselves what is, in fact, the best compounding stock over the last hundred years. Sit back, relax, perhaps even smoke a cigarette.

Well, you're thinking about what the best stock might be, ladies and gentleman, way Better than all the other stocks. Two hundred and sixty five million percent, sixty percent a year for almost one hundred years. Altria group.

sorry, what the hell is an ultra?

Altria is what we used to call the look, Morris, we're talking about, the more we are talking about the mobo man here. And you may have noticed that people have known that this company's core product is poisonous for fifty years now or more, and still two hundred and sixty five million percent. What do you what do you make of that? That is that to a nickey provider, essentially is our number one stock of all time.

Why public o escobar a made so much money if you saw something that's addictive? Yeah, your customers might not live long enough, but you get a lot of them all the time. If you do legally, then that's a good business.

You put that very well. And I I wonder, unlike the others, I guess boeing has a great brand. Morrow had one of the strongest brands, pepsine coca, on the list.

Her SHE is on the list. So a good brand is really powerful. I think that that's part of the story here too.

You're make an addictive drug. You brand IT really well and you don't go out of business for one hundred years and you're gonna pretty well. I think that's more a lesson.

yeah. I mean, there are a lots of other tobacco companies all this this as well like universal and ust. But phillip Morris, the artist formally known as phillip p. Morris, is just, this matches everything else out there.

absolutely crushes everything else. Now, you are probably the person in the entire world best placed as a great expert on passive investing. In an author of a book on passive investing, you are the best place person in the world to answer this question, what lesson do we take from best binders work? What we've learned so far is all the returns, a crew to a few stocks and most stocks, stock.

Now do I conclude from that? A, i'm going to spend my life, as in western stocks, trying to find those really good stocks, so I don't have to own all those terrible ones. Or do I give the whole thing up as a bad job, searching for needles and hastens and trying to predict the future and just own all the stocks at once? And trust you don't even have to trust and rest assured that somewhere in that pile of stocks, ion will be these gems.

Yeah, I think that was basic, jack bogle. So looking for gold needles by the entire haste and relax? yes.

And I do think what's so fun about best in binders papers are that they are these like raw shaps test for the finance industry, because some people do see IT, as you know, see these papers, see the sky, the distribution returns. I think, yes, abc indexing, obvious ly passive is the way to go. And yes, i'm how the entirely objective here given I I love passive, that's what I see. This is a strong contributing events to because I showed the evidence to .

a stock picker.

Oh god, yes, they will say that, Frankie, you can base if you buy one hundred stocks, nineteen nine percent of them, yeah, like ninety nine of those hundred socks can suck, is all your money on them. If you have managed, they had get one, one of these mega super compounding super stalks. Yes, then you, then you, your career is made.

All right, listeners on hedge is gone to take a cigarette break right now, and we will be right back for long. And sure.

From at the point of view of national and economic security, I can't see a scenario in which the level of trust in all of our trading partner goes back to the level that we feel comfortable not taking these protective actions. The national security agenda is much more problems in the way the global economy runs now. Then IT was before.

Learn more about the macro economic and investment implications of geopolitical risks. Subscribe to pigeons, the outthinking investor in your favorite podcast, APP .

listeners. We're back. And this is long and short.

That portion of the show where we go long things that we d like, and we go short things that we don't like. Robin, are you longer? short? something?

I am extremely short. Something conviction short.

I love IT hit us.

yeah. yes. So I write off by etf. I think past investing is cool and interesting. I'm a bit sad that way, but somebody's now launched an etf that all that does is go long.

A single company called microstrip gy and IT does IT with leverage and microstrip gies like basically a leverage bitcoin fund is basically software company where they found a Michael sailor loves bitcoin so much that he borrowed more money and basic use all the company's money to buy tons of bitcoin. So it's a leverage etf on the leverage company. And IT is I think that the moment the etf industries is jump and the shark, it's just insane for me. The fact that some regulators are less, this is bogus, my mind. This is the dumbest thing i've seen for many years.

I've got four words for you in response to that. Robin, have fun staying poor.

I can guarantee you, anybody trading this or holding this for a long time is gonna poor. These products, these leverages single lane etf, are the the most predictive capital and cinerary ors the financial rates every in, they literally make they make like CD o squared, seem like good investments. Well, I will calculate or you .

would you would .

have lost less money investing with body made off than investing some of these eps, and we still produce them.

On that very note, I am going to go long, spectacular and public incompetence. I am inspired to take this position by the performance of regan, the australian break dancer who seem to have tricked her way onto the australian breakdancing team. And SHE is a hilariously incompetent breakdown CER and seems to have set herself up for a lifetime of endorsement and branding deals.

So the tricking life, Robin, we were talking about how the tricking life is to survive. I don't think that's exactly right. I think the trick in life is to fail, but at the highest possible level, and that is the key to success.

With that in mind, listeners, we will fail spectacularly again in your feed next week unhatched. This produced by jake harper and added by bryant earth, our executive producer, as jack of golf team. We had additional help from two four has shero bumming is the ft.

Global head of audio special thanks to law Clark alter mac gradation and that I sadler F T premium subway bers can get the unhedged newsletter for free. A thirty day free trial is available to everyone else. Just go to F T dot com slash on hedge offer. I'm rob armstrong, my.