Investing in great businesses whenever you have some extra cash to spare will do well for you. Simply stay invested for a long time and let the magic of compounding interest do its work.
If you’re starting from scratch, $500 invested every month for an annualized rate of return of 7%, which is the long-term average market return, will transform into a nice retirement fund of $566,764 in 30 years. You’ll have contributed a grand total of $180,000.
However, it’s possible to do better than that, namely, get a higher rate of return than 7% if you choose your stocks carefully. For example, Berkshire Hathaway averaged returns of 20% per year from 1965 to 2020.
Here’s a smart stock you can invest in for a long time that highly resembles Berkshire: Brookfield Asset Management (TSX:BAM.A)(NYSE:BAM).
Brookfield Asset Management
The global alternative asset manager delivered returns of close to 19% per year over the past 12 years. Like Berkshire, it is a value investor with lots of liquidity to invest in distressed macro environments. The company also sells mature assets to make hefty profits and redeploy the proceeds elsewhere.
For example, in Q1, through its capital recycling program, BAM booked US$6.4 billion of gains from asset sales split between $1.8 billion for Brookfield and $4.6 billion for its clients. The amounts on behalf of its clients enabled the company to realize carried interest of US$681 million.
Asset sales helped contribute to record net income during the quarter of US$3.8 billion, as it strategically monetized various investments at values above their accounting carrying value.
Brookfield Asset Management is invested across real estate, renewable power, infrastructure, private equity, and credit assets. Its total assets under management (AUM) and fee-bearing capital increased to US$609 billion and US$319 billion, respectively, as it grows its portfolio and recycles capital in an ongoing process. Its fee-related earnings climbed 29% from Q1 2020 to US$413 million for a total of US$1.5 billion over the last 12 months.
It raised about US$40 billion of private fund capital over the last 12 months, which demonstrates its ability to attract new capital because of its strong track record of returns with the aim of generating 12-15% returns on its investments. Growing AUM and fee-bearing capital will lead to greater fee-related earnings down the road.
Investors with a long-term mindset should therefore buy reasonably valued BAM stock now and buy more on meaningful corrections.
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Converge Technology Solutions
Another smart stock to buy with $500 is Converge Technology Solutions (TSX:CTS). After achieving the status of Titanium Partner with Intel last week, the company announced that it had achieved Diamond Partner status with Palo Alto Networks, which seemed to have pushed Converge stock another 7% higher. The Diamond Partner status is rare. Apparently, only the top 2% of Palo Alto partners globally achieved this status!
You’ll be thrilled to know that Converge stock has been a five-bagger in the past 12 months! These partnerships are much more meaningful to Converge than Intel or Palo Alto because the tech stock is so much smaller.
Analysts have become increasingly bullish on Converge, as it has both expertise and customer service and continues to execute on its growth plans. Indeed, analysts believe the tech stock is undervalued by about 18% with 12-month upside potential of roughly 23%.
Interested investors should consider buying some shares now and buying more on pullbacks for strong price appreciation potential over the next few years.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Kay Ng owns shares of Brookfield Asset Management and Converge. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Brookfield Asset Management, and Palo Alto Networks. The Motley Fool recommends Brookfield Asset Management Inc. CL.A LV and Intel and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares), long January 2023 $57 calls on Intel, short June 2021 $240 calls on Berkshire Hathaway (B shares), short January 2023 $57 puts on Intel, and long January 2023 $200 calls on Berkshire Hathaway (B shares).