Investing for your retirement is probably the single most important financial decision you’ll ever make, but it’s hard to parse the signal from the noise. With so much financial media to choose from, it seems like there are a never-ending range of tips, tricks, and easy ways to get rich. But the most honest and proven technique for investing is one I learned from Warren Buffett.
Warren Buffett is without a doubt the greatest investor of the last several decades. He made a fortune for investors and did it all without fancy trading techniques or complicated formulas. How did he do it? By using a philosophy known as value investing, a method he borrowed from his mentor, Benjamin Graham.
Graham wrote a book called The Intelligent Investor, now known as the bible of value investing. “Ignore the short term” is what Graham and Buffett would say; forget stock prices for one second and study the underlying business.
Does the firm make a profit? How is it positioned within the industry? Who are the senior managers, and what does their history say about the company’s potential for success?
These are just some of the questions value investors ask themselves before buying shares in a company. They think of themselves as part owners of a company—because they are. That’s what it means to be a long-term shareholder.
One of the things you’ll notice is that there aren’t any obscure companies on this list. You won’t be scratching your head wondering what these firms do and why no one else has discovered them. That may be the get-rich-quick stories people like to boast about at parties, but a better retirement plan revolves around stable companies that know how to generate a profit. Let’s take a look.
10. Moody’s Corporation (NYSE:MCO)
Buffett owns 24.7 million shares in Moody’s Corporation (NYSE:MCO), comprising 2.4% of Berkshire Hathaway’s portfolio. The company generated an average 1.4% annual dividend over the last five years. (Source: Yahoo! Finance Key Statistics, last accessed August 11, 2015.) Over the last 12 months, growth has outpaced the S&P 500, with quarterly earnings per share jumping 11% from the same period last year. Revenues rose by 12.8% year-over-year, much faster than the industry-wide seven percent sales growth. (Source: Moody’s Corporation 10-Q Filing, July 30, 2015.)
9. American Express Company (NYSE:AXP)
One of Warren Buffett’s biggest positions is in American Express Company (NYSE:AXP). Berkshire holds over 151 million shares in the well-known credit card company, amounting to more than 11% of the portfolio. Amex has performed well over the last year despite a slight decline in revenues, with net income growing at 6.5% to $1.53 billion from $1.43 billion in the same quarter last year. The company’s five-year average dividend is 1.30%. (Source: American Express 10-Q Filing, July 29, 2015.)