Best Stocks for Long-Term Investing: Building Generational Wealth

#What Makes a Great Long-Term Stock?

The data is clear on what predicts long-term stock performance:

1. High and Persistent Profitability

Companies with high returns on invested capital (ROIC) tend to maintain that advantage. Research by Novy-Marx (2013) showed gross profitability is a powerful return predictor precisely because profitability persists.

What to look for: Profitability scores of 70+ in our model, sustained over multiple years.

2. Durable Competitive Advantages (Moats)

The best long-term stocks have something competitors can't easily replicate:

3. Reasonable Valuation

Even the best company is a bad investment at the wrong price. Our value factor prevents overpaying, which is critical for long-term returns.

The math: A stock growing earnings 10% annually from P/E 40 will underperform one growing 8% from P/E 15 over most 10-year periods.

4. Conservative Capital Allocation

Companies that invest wisely — not recklessly — create long-term value. Our investment factor (which rewards conservative asset growth) directly captures this.

Learn more: Profitability beats growth →

#The Power of Compounding

Why long-term investing works:

The difference between 8% and 15% seems small year-to-year. Over 30 years, it's the difference between $100K and $662K on the same $10,000 investment.

This is why stock selection matters for long-term investors.

#Long-Term Factors vs. Short-Term Factors

Not all factors work equally well over long horizons:

Notice: profitability, value, and conservative investment — the factors most associated with long-term returns — together make up 55% of our composite. Our model is inherently biased toward long-term quality.

#The Tax Advantage of Quality Investing

Long-term factor investing is also tax-efficient:

• Quality stocks need less frequent trading (lower turnover)
• Holding for 12+ months qualifies for long-term capital gains rates (20% vs. 37%)
• Dividend-paying quality stocks receive qualified dividend treatment (20% rate)
• Compound interest grows faster when you're not paying capital gains taxes annually

#Sectors for Long-Term Wealth Building

Explore sectors →

#Building a Long-Term Factor Portfolio

The Core-Satellite Approach

1. 1Core (60-70%): Top 15-20 stocks from our rankings with composite scores 70+, high profitability, and reasonable valuations
2. 2Satellite (20-30%): Sector-specific picks or momentum-driven names from our upgrades page
3. 3Cash Reserve (5-10%): For buying opportunities when quality stocks become cheap

How to Use Our Rankings for Long-Term Selection

1. 1Check the rankings page — focus on the top 50 by composite score
2. 2Filter for profitability — ensure profitability rating is 70+ (top quartile)
3. 3Check value scores — avoid stocks with value scores below 30 (overvalued)
4. 4Review stability — scores above 50 mean lower drawdown risk
5. 5Read the individual stock pages — verify the business is one you'd want to own for a decade

Rebalancing Rules

• Review quarterly, but don't over-trade
• Only sell if a stock drops below 45 composite score (from "Buy" to "Reduce")
• Reinvest dividends into your highest-conviction positions
• Add to positions during broad market selloffs when quality stocks get cheaper

#The Long-Term Investing Mindset

The biggest risk to long-term returns isn't market crashes — it's investor behavior:

• Panic selling during corrections destroys more wealth than the corrections themselves
• Performance chasing leads to buying high and selling low
• Over-diversification dilutes your best ideas
• Ignoring quality for excitement leads to permanent capital loss

Our quantitative model removes emotion from the equation. The data doesn't panic. The data doesn't chase. The data just identifies the highest-quality stocks, consistently.

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