Some of the best investors in the world have built enormous wealth by buying great businesses and holding onto them for years. It may seem counterintuitive, but less activity in the stock market tends to translate into higher returns.
Long-term investing is boring, and so it should be
Why? Great businesses with great managers can often deliver compounding capital faster than you can trading in and out of stocks. When you trade stocks, you have to pay capital gains tax on returns.
Likewise, then you have to deal with re-investing the profits. Trading in and out is time consuming and stressful. However, when you look at a stock like a business owner, you don’t have to do much.
Keep track of the stock (and the company’s) progress on a quarterly or annual basis. If it keeps doing what it promises and growing value for shareholders, there is no need to do anything — just keep holding on.
If you are new to investing and like the hands-off approach of long-term investment ownership, here are three Canadian stocks that could do well over the decades ahead.
A top tech stock that nobody knows about
Topicus.com (TSXV: TOI) is not a household name in Canada. One of the biggest reasons for this is because its business operates solely in Europe. Topicus develops and consolidates vertical market software (VMS) businesses throughout Europe.
Topicus is a recent spin-out of Constellation Software. Many believe owning Topicus is like owning a young Constellation Software 10 years ago. This certainly means expectations are high, and the stock is very pricey (26 times free cash flow).
However, the company has demonstrated an ability to re-invest capital at very high rates of return. It has maintained a return on invested capital (ROIC) ratio of over 30% for nearly three years.
You may want to wait for a pullback in the stock. However, for a very long investment timeline, this stock could really deliver.
A growth stock at a great value
If you are looking for a cheaper stock that still has ample growth, take a look at TerraVest Industries (TSX: TVK). This stock only has a market cap of $615 million, meaning it still has significant room to get bigger.
TerraVest owns a diverse mix of energy, heating, and transport products/services businesses. These businesses are not flashy or exciting. However, it can acquire these businesses at very low valuations, apply best practices, and turn them into cash-generating machines.
Despite delivering a 28% compound annual average return for the past five years, this stock only trades for 13 times earnings. It does operate in more cyclical industries. However, over the long term, TerraVest has a track record of great returns.
A long-term compounder for patient investors
Speaking about cheap growth stocks, a long-term investor might want to look at Colliers International Group (TSX: CIGI). Colliers has a brand synonymous with commercial real estate brokering around the world.
However, many are not aware that it has significantly diversified its business into recurring revenue sources such as property management, financing, engineering and project management, and asset management.
Real estate transaction volumes have collapsed due to high interest rates. As a result, Colliers stock has suffered since early 2022. It is uncertain when real estate transaction activity will recover. However, when it does, Colliers will likely see a surge in demand for its services.
In the meantime, over 50% of revenues are from recurring business. The company has a record of earning over 20% average annual returns over the longer term. Yet the stock trades for only 15 times earnings, which presents an attractive price-to-growth ratio for a long-term investor.
