Johnson & Johnson: A Typical Building Block for Your Portfolio

I read something in Barron's this weekend that reminded me of an important building block about long term investing.

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The chart compares Johnson & Johnson (JNJ) to the S&P 500 for the last 15 years which I view as long term.

The first thing you probably see is the extent to which JNJ has beaten the S&P 500 over that time. But if you look a little closer, you will also see plenty of short term periods where the stock endured nasty declines, resulting in lagging performance for short periods of time.

Anyone buying in October 1999 at about $52 was sitting at $35 per share five months later, about a 33% hit as the S&P went up about 8%. Yet if anyone unlucky enough to have bought then, but held on, would be up 30% since then, plus dividends, compared to flat for SPX. There have been other big puke downs for the stock, yet over most long periods of time, JNJ, which is a client holding, has outperformed the broader market.

There are plenty of other stocks that have delivered the same effect over long periods of time. I might offer this advice then: With all that we read about the next few months or, what to buy now, what to sell now and so on, there are companies that you can buy that will rarely be what's hot but will deliver to your ultimate goal: having enough money when you need it.

In looking at the chart, how much does it matter whether JNJ beat or lagged small cap, foreign or anything else? If you manage money professionally it might matter, but if you are a do-it-yourselfer I'd say probably not.

Including a few great companies in your portfolio that you can likely hold forever, makes sense for a lot of people. Certainly there is no guarantee that Johnson & Johnson will triple up (plus dividends) the returns of the market in the future, but there are companies that will double or triple the market and many of them will not be obscure.