The “2045 Test” or Can the World Survive Without Facebook, Johnnie Walker and Chunky Monkey?

LTI Annualized Dividend Income Scenarios for KO

Many fellow Long Term Investors are deeply concerned with the very short term: “Chevron (CVX) lost 2% this week, is it time to sell my stocks?” “Jim Cramer recommended to take some profits on Facebook (FB) after it hit its 52 week high, may be I should do that”.

The question is: if you are building wealth with a 30 year horizon, how much will answering these tiny daily questions – let’s call them ordinary investor anxieties – make a difference at the end? It may only raise your blood pressure an (…)
the total amount of your brokerage fees, buying and selling, over and over, reacting to the news, chasing a  market that keeps changing every day…
Instead, one form of discipline that I recommend is to always keep focused on the long term and one good way to concretely do it, is to look at your portfolio through the “2045 test”.

Can you imagine the world without the companies you are invested in? How easily can they be disrupted? Will their consumers simply move to the “next big thing” or will they still need their products? Will their brand lose their appeal or relevance?

The answers are obviously speculative but the exercise forces you to ask yourself key strategic questions and that is exactly what I will do today with this post. I will rate qualitatively their chances to survive till 2045 on a scale from 1* (least chances) to 5* (most chances) and add some thoughts on each of them. Your opinions are of course very welcome.  
Coca-Cola (KO)
: ***** (5)  The sodas may decline in developed countries but Coke owns the category and is very strong in other beverages. Coke embodies what a strong brand is and has global distribution capabilities that are second to none. Do I imagine a world without Coke? Absolutely not…. 
Disney (DIS):
 ***** (5)Disney proved its capacity to reinvent itself over and over. Disney is not a brand anymore. It is a modern myth that has timeless qualities and millions of dedicated followers. Its franchises (Mickey – Marvel – Star Wars – Toy Story) go across generations. It has amazing parks around the globe and let’s not forget ESPN 😉 
Johnson & Johnson (JNJ)
: ***** (5)A centenarian company that attracts the brightest in its field. A diversified conglomerate that will benefit from the healthcare mega-trend. A strong brand with very high equity in some of the largest markets in the world that will keep your hair silky, your mouth fresh and change your hip when you will need a new one. 
Exxon Mobil (XOM):
 ***** (5)Another centenarian that survived the great recession, the world wars and has the clout, the balance sheet, the cash flows and the right culture to weather any oil crash that is currently happening or that could happen one day. 
Union Pacific (UNP)
: ***** (5)Who do you think can build the infrastructure to compete with Union Pacific? UNP has one competitor (Burlington Santa Fe who belongs to Berkshire Hathaway) and this duopoly is not going to trash its market with a price war, I am pretty sure of that. 
Starbucks (SBUX):
 **** (4)The brand is starting to set itself apart. The company is right now firing up on all cylinders. Schultz is positioning it on a very promising “third place” positioning, ideal space where you spend time after your house and your work / school, where you get coffee, tea, wine, pastries, food….
Unilever (UL): **** (4)Unilever’s billion dollar brands are well known around the world (Dove / Lipton / Omo / Knorr / Lux / Axe / Ben & Jerry’s) and most importantly are familiar to the consumers of India / China / Brazil / Turkey / Indonesia….The runway is considerable…  
Nestle (NSRGY): **** (4)Conservative, powerful and stable like Switzerland, Nestle dominates many global consumer categories in 5 continents with brands like Nescafe / Maggi / Kitkat / Friskies / Purina / Herta
Diageo (DEO): **** (4)A good Johnny Walker takes 15 to 18 years of aging to be ready. A start-up would need deep pockets and a lot of patience to compete with that.  
Nike (NKE): **** (4) A powerful 20th century brand that is starting to build some deep roots across multiple generations with fans scattered around the world, recognized myths (swoosh / just do it) and a healthy strategic positioning on the new casual chic healthy lifestyles.
Berkshire Hathaway (BRK-B): **** (4) If Warren Buffett and Charlie Munger were 35, this mighty conglomerate would deserve 7*, may be 8 or 9.
Markel (MKL): **** (4) A niche insurance player, very disciplined, with a younger leadership than Berkshire and the same spirit to build solid for the ages.
Chevron (CVX): ****(4)Almost like an Exxon, with a smaller balance sheet and and Ecuadorian lawsuit that never ends.
Baxter (BAX):  ****(4)
A very conservative culture and a great track record of continuous growth in medical devices, a sector that will keep growing as we all get a bit older every year.

CSX (CSX): **** (4)
An eastern cousin of Union Pacific with a smaller footprint and less access to the Mexican emerging manufacturing base.

BHP Billiton (BBL): **** (4)
The largest miner in the world was born in the 19th century. Its mines are humongous, with low operating costs and a great proximity to the emerging asian economies.

Costco (COST): *** (3)
Costco is a one of a kind retailer with a cult following. The corporate culture is very strong. Costco’s size helps it secure very low procurement costs. But no brick and mortar retailer is completely safe from disruptions. Those big stores are heavy assets that the company will need to always pay for.

Whole Foods (WFM): *** (3)
Whole Foods is the emblematic organic grocery store with a great corporate culture and dedicated consumers. But the competition is heating up and whole foods never really succeeded out of the US.

Under Armour (UA): *** (3)Under Armour is a shooting star right now. The growth is tremendous and the brand’s appeal is quickly growing. This dynamics needs to be consolidated in the next 1 or 2 decades before thinking about UA’s posterity.

Wells Fargo (WFC): ***(3)
Among all the big banks, WFC is certainly the one that proved the most resilient during the great financial crisis, emerging even stronger than it was before the crisis. Wells Fargo is as powerful as it is conservative. But Wells Fargo is a big bank and big banks are exposed to all sorts of systemic risks. They are also exposed to disruptions and you have to keep an eye on the ambitions of a Lending Club or a Bank of Internet.

Brookfield Asset Management (BAM): *** (3)
Brookfield has a long history of successful compounding and very diversified bets across sectors and countries. The corporate culture and governance are however less transparent than a Berkshire or a Markel. 

Novo Nordisk (NVO): *** (3)
This Danish company is the king of Diabetes treatment, a market promised to a formidable expansion. But the competition is heating up and a major disruption (alternative treatments) cannot be ruled out. 

Gilead (GILD): *** (3)
Among all the biotechs, Gilead is one whose rise has been the most spectacular. Gilead has an impressive pipeline of high quality and very expensive HIV and Hepatitis C therapies. Will Gilead be able to maintain its leadership? Time will say. Kinder Morgan (KMI): ***(3)
Kinder Morgan is the 3rd largest energy company in north america and has an impressive network of pipelines going from north to south, east to west. Will it survive 30 more years? Suffice to say that its founder was president and COO of Enron Corporate. Shit happens… 

Amazon (AMZN): ***(3)
For me, a technology company that has serious survival chances of 1 decade or more is nothing short of a miracle. I think Amazon will do well, may be very well in the next 15 years. What makes a big difference is a mix of an strong brand equity and a massive supply chain infrastructure that Bezos is building every year with billions of dollars of Capex. 
Deere & Co (DE): ** (2)
Deere is an amazing company, very well financially run and with great products. But a tractor is a tractor and I am not sure how immune is Deere to the competition of a low-cost champion from emerging markets like Mahindra.

Google (GOOG / GOOGL): ** (2)Again, technology would generally go with a 1* rating. 2* connotes a considerable strategic strength. It is hard to imagine Internet without Google, but think 30 years ago, could you imagine Internet, iphone, ipads? Many disruptions can happen with a speed that may stun us.

Facebook (FB): ** (2)
I am constantly impressed by Zuckerberg’s empire. The guy was born in 1984 for god’s sake. If he created Facebook in his early 20s, imagine what he will do with more wisdom and experience ! But again, remember how fast Facebook replaced Myspace. History likes to repeat itself… 

Voila! This is what I see in my crystal ball. What do you see?

Author: G3a74g5ILZ

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