Picking a Stock for the Year 2048

Which stock would you pick if you had to leave it untouched for 25 years?

An investment fund run by a group of college students is taking on a unique challenge: Pick a stock that they won't touch for the next 25 years.

Meet the investors who picked their stocks and plan to keep them untouched for 25 years.

 

Tiffany Gray, 22, is a senior majoring in finance and wealth management at historic Delaware State University in Dover, Delaware. Jonathan Rivers, 20, is a junior at the University of Virginia double majoring in environmental science and religious studies. 

 

Gray and Rivers, along with their peers, plan to build a portfolio of 15 to 20 stocks and leave it untouched for the next 25 years. 

 It sounds crazy, but investors of all ages could learn from these young people.

 It's part of a very long-term experiment by Thomas Gaynor, CEO of Markel (MKL), an insurance company based in Glen Allen, Virginia. Mr. Gaynor has been running MKL's investment portfolio since 1990 and has grown it to $22 billion through a patient, conservative approach.

 He has established student investment funds at both universities. Gaynor's family will contribute a total of $750,000 to the two funds in 25 annual installments through 2047. 

This year, 29 University of Virginia students and nine Delaware State University students will use the money to pick stocks they won't touch for the next 25 years. Each year, members will pick one more stock to invest in for the next 25 years. No one can sell anything, no matter what. 

 

In the 26th year, the members who picked the stocks 25 years ago will have half of the money invested in scholarships, and the other half will be reinvested by that year's members for their future. 

 When I interviewed these students this week, I was impressed to hear them refer to each other as "analysts" and to potential investments as "companies" and "firms" rather than "stocks."

 Delaware State's Gray says, "We're not looking at what's going to happen in the next year or two: 

We don't just look at what's going to happen in the next year or two, we look at what's going to happen in three, five, 10, 25, even 50 years. We're not afraid of the long term, and that's inspiring.

University of Virginia's Rivers says, "We're not afraid of the long term:

If we can think about investing in a way that most young people don't think about and most professional investors think is a big challenge, it's a huge opportunity.

One of the lessons of this new club is the incredible power of letting winners run as long as possible. Even the biggest losers will never lose more than 100% (unless you buy with borrowed money), but the potential gains from the biggest winners are limitless.

 For example, according to the Center for Research in Security Prices (CRSP), from the beginning of 1993 through Feb. 28 of this year, 58 stocks gained more than 10,000% each. Ten had returns of more than 25,000%.

 These "super stocks" included the now-familiar giants Apple, Qualcomm, and Monster Beverages, as well as powerhouses like air conditioning company Aeon, tobacco and real estate holding company Vector Group, and kitchen equipment maker Middleby.

 Going back even further, the mutual fund known today as the "Boya Corporate Leaders Trust" was founded in 1935 with a frozen portfolio of 30 stocks. While its long-term performance has been stellar thanks to a handful of stocks making big gains, the 0.49% annual expense ratio is steep for a fund that literally does nothing.

 The key is not to sell. In "The Coffee Can Portfolio," veteran investor Robert Kirby describes a client's husband who copied all the buys Kirby's firm recommended to his wife, investing about $5,000 each. 

Unlike his wife, however, he ignored every sell recommendation. Several of his holdings grew to more than $100,000 each, including one stock, Xerox, which grew to more than $800,000, more than the value of his wife's entire portfolio. 

 Because our brains aren't wired to extrapolate huge growth rates over decades, it's easy to underestimate the long-term tailwinds of letting winners run wild.

 To capture all possible big winners, you can invest in an index fund that represents the entire stock market, but that requires some trading. Alternatively, you could buy every stock in the entire market directly, then freeze it and make no other trades.

 If you want to spread your $10,000 total across most of the 4,000+ companies in the Dow Jones U.S. Total Stock Market Index, an index that covers the entire U.S. stock market, you can do a commission-free "basket trade" with the online brokerage Interactive Brokers. You can hold the entire basket in perpetuity and watch what happens without selling any of the component stocks.

Students in Gaynor's Investment Club already understand the incredible power of compounding.

 

Joe Beck, 22, who helps run the University of Virginia's student fund, says: "We and our successors will be the few winners:

If we and our successors pick a handful of winner stocks and invest in them, they will drive returns, and the losers will become insignificant.

All of this echoes an idea that Warren Buffett believes in: 

Imagine you can only invest 20 times in your life. Whatever you buy, you should understand it well, focus on a few opportunities, and hold on to them for as long as possible.

That's what Jacob Slagle, 21, another leader of the club at the University of Virginia, says:

It makes you think about companies in a different way: "Can we survive for 25 years?" he says.

Omar Parker Jr, 20, of the Delaware State University club, is already thinking beyond 2048:

When we're long gone, our fund will be a legacy to future generations.

--Jason Zweig, "Picking a Stock for the Year 2048"--