Best Stocks to Invest in Long Term (Lessons Learned from Stock Picking)

What are the best stocks to hold in long term? I use 20% of my net worth to bet on stocks, and I typically invest in the long term. (I am exhibiting overconfidence bias. I use the word long term to mean massive gains I had over just a two year period that totally clogged my head.)

And I’ll explain in this guide why I still stock pick and precisely which stocks are currently in my portfolio for long-term growth.

Read on to understand why I stock pick and what are the top 8 stocks.

Disclaimer: FatfireWoman.com is not a registered investment, legal, or tax advisor. All investment opinions expressed by FatfireWoman.com are from the personal research and experience of the owner and are intended as educational material. So it is very important that you do your own research before making any investment based on your own circumstances.

Why I Invest in Individual Stocks

A while ago, I decided to allocate 20% of my net worth to invest in stocks. (Honestly, I am glad that I had the self control to only allocate 20% of my net worth. It was hard. I kept thinking “if I had poured everything into Tesla, I would’ve been rich by now). But in hindsight, I am very glad I didn’t go all in.)

And this is important: 80% of my net worth is still in index funds! (It’s crazy to think how close I got to abandoning my own rule..

If I lose 20% of my net worth, I’ll be sad. But I’ll still be completely fine. (still hurts like hell to lose 20%). So please don’t buy stocks when you can’t afford to.

Stock Picking is Gambling

Let’s be real: I’m gambling. Stock picking is a form of gambling. (so true)

The movement of stocks from day to day is a random walk, like flipping a coin. If you don’t believe it, read When Will the Stock Market Crash.

But let me be clear: while I stock pick, I do not day trade.

I don’t treat stocks like video games. And I avoid Robinhood like the plague.

Because Robinhood is a dangerous stock trading app. It’s designed to get you hooked.

But investing in stocks is not a game because losing money shatters lives. (so true)

Recently guy who leveraged too much on Roinbhood killed himself. I think more of this will come as the stock market euphoria turns into tragedies. (so true)

The Upside of Buying Stocks

I pick stocks because it prevents my own self-destruction. (this is partially true, but also partially an excuse for me to gamble.)

Let me explain.

Play Sports to Avoid Wars

A prominent psychologist Williams James once wrote in The Moral Equivalent of War about the human race’s apparent love for conflict.

James argued that wars are so prevalent because it makes people feel good.

We need conflict and change to feel more alive and on alert.

War reveals the purpose of life, creates communities and inspires people to behave in honorable, unselfish ways.

And this is why we have sports today.

Sports satisfy most of the same psychological needs as warfare, have similar psychological and social effects, but not the actual suffering and deaths.

Do Nothing On 80% of Portfolio

Using 20% of my portfolio to invest in stocks is me playing sports. (maybe)

I stock pick to psychologically trick myself to not touch my index funds. (tbh, I thought about touching my index funds for awhile)

With index funds, the best thing I can do is just set it and forget it for the next 40 years.

But that is actually a lot easier said than done.

Statistically, very, very few people can psychologically avoid touching their index funds. (so true, to just do nothing when everything is going through the moon or into the ditch is the hardest thing ever)

Our ancestors have to be on alert or else they die. So our DNA is programmed to make us feel restless whenever life becomes too still.

We’re not genetically wired to sit still and do nothing.

Stillness and inaction freak us out, give us anxiety, and drive us mad.

Stock picking is using “fun money” to distract me from touching the elephant that matters: my index funds.

My fun fund lets me speculate, releasing all that energy and urge so I can feel alive and in control.

By strategically fishing in a smaller pond, I avoid drowning in the ocean.

Investment Thesis to Pick the Best Stocks to Hold Long Term

Having said why I buy stocks, let me share my investment thesis: the criteria I use to pick my stocks.

1. Invest and Hold for a Decade

My first investment thesis is that I am only buying a stock if I’m willing to hold it for at least 10 years.

I do not day trade or speculate when a stock is undervalued. I invest in stocks that I believe are the future.

Will a cruise line still be here in 20 years? I don’t know. Will Macy’s still be around in 20 years? I’m not sure. And what about oil? Not sure.

Life is changing fast and technology is upending old businesses every month. I want to identify and invest in the future.

The problem is: you can say you are committed, but when you are betrayed, would you still feel the same way? I can say I want to keep a stock for a decade, but when truth is exposed, your feelings change.

2. Pick Stocks that Avoid Competition

I pick stocks that are not just better than their competitors, they are completely avoiding competition by creating new markets.

These companies are selling things that didn’t use to exist.

And in the process, they will eliminate other competitors not because they are better but because they make competition obsolete.

In sum: I pick emerging monopolies.

Theoretically, that is true. But I picked stocks that are just market darlings, not really monopolies. Besides, monopolies get upended and replaced by new technologies all the time. Facebook is a monopoly until TikTok replaces it.

3. Find Stocks That Maximize Free Cash Flow

I typically don’t look at a company’s revenue or profits when I decide whether to invest in them.

A company could have explosive revenue growth but ultimately run out of cash to operate its business and die.

Another company could also make a decent profit, but it doesn’t know how to innovate, so its business shrinks every year until it ceases to be relevant.

Instead, I look at whether a company has great free cash flow.

True except – I picked companies with great cashflows temporarily due to COVID-19. Once the pandemic demand died down, their cashflows died with it.

Cash is King

I invest in stocks with fast-growing, and high free clash flows.

Free cash flow (FCF) is cash a company generates after removing costs. Unlike profits, free cash flow measures profit that excludes depreciation and includes capital investments.

Investopedia

Free cash flow is the company’s ability to invest in innovations after taking care of running the business (operations).

Best Stocks to Invest in Long Term

You’ll see below my top stocks for long term holding based on my three investment thesis above.

You’ll see that most of these stocks are in technology. I work in technology, and I understand this market.

But I also believe more than ever that technology is the future.

So take a look at what stocks I buy, and feel free to comment below your favorite stocks I haven’t covered.

Tesla, Inc. (TSLA)

Tesla is just at the beginning of changing the world, but not in the way you think it will change the world.

Many people think Tesla is a player in the car industry. You might think that Tesla is making electric cars so one day it might compete against traditional carmakers such as GM or Ford, or Toyota.

I don’t think of Tesla as a car maker at all.

I view Tesla as the clean energy maker of the future. Tesla will provide all of us with powerful batteries. Yes, Tesla is a battery maker.

We are talking about large batteries to power your car, your home, your entire world.

Tesla already sells a battery called powerwall for your home, as well as a solar roof that charges your entire house using solar energy.

The company has built out a network of 100K charging outlets and 40K charging stations for electric vehicles.

You see, Tesla is already deploying batteries everywhere: in your home and everywhere along the roads you will travel.

Those electric cars Tesla is making are great, but I believe sooner or later, all of the car manufacturers will be making electric cars.

Tesla can’t win on cars alone.

It is banking on creating a physical infrastructure of charging stations for any electric vehicle.

There are many competitors making electric cars. But there is only one company building a nationwide network of electric charging stations to make driving electric cars possible.

This kind of infrastructure is very difficult to replicate and becomes more available as it scales, making it impossible for any competitor to catch up.

And this is why I am investing in Tesla. The best is yet to come.

Tesla is the epitome of emotional stock picking because I am biased to love the first company who defied the odds. But the stock is arguably overvalued, still, as more and more competition are making both electric cars and batteries.

Shopify Inc. (SHOP)

Shopify is a popular e-commerce platform for small businesses to easily create an online store and sell their stuff on the internet.

You might think that Shopify is just a website maker.

But it’s more than that: it’s also a payment integrator, a fulfillment center, a third-party developer platform, and in the future, a marketplace like Amazon.

Over 200 million people have bought products from Shopify, whether they know it or not. Many of your favorite brands use Shopify.

Shopify is a platform hosting 1 million stores. And this is what makes Shopify the only retail competitor against Amazon.

Unlike Amazon, Shopify amplifies suppliers and makes shopping less transactional and more inspirational.

Amazon makes you realize anyone can buy anything online. Shopify makes you realize anyone, including you, can sell.

If Amazon is replacing the main streets of America, Shopify is making everyone a shop owner.

It’s tough to compete against Amazon. But if I bet on one other player, I bet on Shopify.

E-Commerce is still a growing business but it really slowed down post pandemic so that “our world is changed forever” doesn’t hold true. Plus, Shopify is still a great business but its stocks were so overvalued – you can be a great business, but if you are worth more than you should be after taking into account future expected growth, still not a good buy.

Spotify Technology S.A. (SPOT)

Spotify is a music streaming app.

But truth be told, the company’s financials have not been excellent. It struggles to make money because it doesn’t own any music content.

Spotify pays a good chunk of its revenue to record labels who are the creative owners of the music content.

Content is king. So when you don’t own the content, you are at the King’s mercy.

But this is all about to change as Spotify shifts from music to audio – listening to anything.

Shopify is producing its podcasts in the hope to own its content. And more importantly, Spotify is building the first ad platform for audio.

Today, ads played via podcasts and streaming music are bad: a bunch of words and music taken from ads made for TV.

Spotify is centralizing audio content (the demand) and building a platform to create and sell ads specifically made for audio (supply).

We have moved advertising dollars from the TV to YouTube, from offline to online. The next new space is moving ad revenue to where more and more Americans are spending their time: listening to podcasts and music.

Advertising audio content doesn’t exist today. It has no competition.

Spotify is uniquely positioned to dominate.

Streaming is a tough business and standalone streaming without the support of other media (movies, TV shows) is a tougher one to win. Spotify is popular, but it is not a great business with long term moat and cashflows. I would not invest in Spotify today.

Square, Inc. (SQ)

Square is a payment processing company known for its white credit card reader that can be attached to mobile phones and tablets.

This industry is competitive with low barriers to entry: Google, Apple, Stripe, PayPal, and many more international players like Alipay.

But Square is pretty special despite the competition.

Square has the most amount of transaction information on small businesses. It also has transactional information from consumers thanks to its popular Cash app, a peer-to-peer payment service.

Square is is building out related services like payroll, invoicing, and payment processing.

I don’t know what Square is trying to do with all of its data and services. But I am betting that Jack Dorsey is a visionary and that he is cooking something delicious.

And let’s not forget, Jack Dosey is big on bitcoin. Anyone can already buy bitcoin on Square’s Cash app today.

I think traditional payments and cryptocurrency will collide one day and Square is there to make it happen.

I think the online payment world is another one where there is a lot of competition now (Stripe, Apple, Amazon, all the credit card companies). Square was once the darling because it invested $50 million into Bitcoin but that ship has sailed (and wrecked into the depth of the ocean).

Peloton Interactive Inc (PTON)

Peloton is replacing the entire fitness industry. It’s ridiculous to even say this if not for the Pandemic when this reality became too real.

For those who don’t know, Peloton sells at-home exercise equipments like bikes and treadmills with a subscription program of workouts.

You can also get a subscription of live and non-live workout videos without buying the equipment. I do this: I love their yoga and core workouts!

I believe Peloton is best positioned for a future where you don’t go to a physical gym to workout with friends, you do so at home by entering the virtual world of Peloton.

Peloton is likely also building new equipment beyond just bikes and treadmills. It used to be a premium company. I believe it is now going to the mass market. There will be Peloton weights, yoga mats, rowing machines, and much more.

How big is the fitness industry? That’s the limit for Peloton.

I am, frankly, embarrassed by this pick. It is true that I loved Peloton. I thought people are now going to just workout at home forever. I thought their subscription model is gonna lock everyone in. I was completely wrong. Period.

Amazon Inc. (AMZN)

I will always be bullish on Amazon because Amazon is taking over the internet, obliterating everyone in its path.

It is already replacing retail stores. But it is also competing with Netflix (Prime Video), Spotify (Amazon Music), Microsoft (AWS), Google (Alexa, Ads Network), and Apple (Kindle).

Amazon’s Alexa opened up a whole new world, using voice search and AI to help families and building out more sensors to dominate your home.

It is obliterating FedEx and UPS with its own transportation network.

And next: Amazon is going to kill CVS by delivering your drugs.

I read that Amazon is investing in last-mile delivery of things that require cold storage. And AWS is launching rockets.

Once the COVID vaccine is available, Amazon will be delivering it to your house in temperature-controlled freezers.

That’s why I’m buying Amazon even though it is a very expensive stock.

Amazon is going through a tough time right now. But the verdict is still out and a lot rides on whether Amazon can continue to deliver the next set of innovation: in advertising, healthcare, AWS, and AI. I still believe in Amazon, but there is hard work ahead for this company.

Alphabet Inc (GOOGL)

Many people say that Google hasn’t produced a good product in years.

That may be true, but Google isn’t a product company. It never was.

It organizes the world wide web, tracks user behavior via Chrome, knows personal communication through Gmail, understands mobile through Android, video through YouTube, and controls the spatial information of the world via Google Maps.

The truth is that Google hasn’t fully monetized most of its products. How often do you see ads on Google Maps? That’s a $1 billion ad revenue opportunity Google hasn’t even explored.

Google also has Nest or devices for the home that collects more information in the physical environment.

Oh, and let’s not forget Waymo and Deepmind for self-driving cars and artificial intelligence.

At its core, Google is an AI company.

AI doesn’t work unless you train it with lots and lots of data. Google is unique in that it has massive amounts of data to train AI and the technical capabilities to develop smart AI.

In the future, Google is going to be the world’s AI assistant: it knows your search intent, answers because you ask, and organizes the information of your world and the world, both online and offline.

ChatGPT took an early lead on Google. But Google has long been a company that’s invested in AI. It still remains to be seen whether Google can invent and reinvent itself beyond search.

Taiwan Semiconductor Mfg. Co. Ltd. (TSM)

TSM is the world’s largest semiconductor company. It is a Taiwanese company, which is critical because it is outside of China’s control.

Semiconductor companies design and manufacturer microchips used in communication devices, radios, video games, etc.

TSM supplies Apple’s chips for its iPhones and makes chips for AMD and NVIDIA.

In sum, TSM makes chips for the top chip manufacturers in the world but elect to put their labels on these chips instead.

Taiwan will continue to prosper as more U.S. companies shift out of China due to this new cold.

I also like TSM because it is the most humble company, doing all the work but shying away from glory.

I’d like to think that however low-key it tries to be, making chips is hard. As our world becomes more connected, we will only need more chips, not less.

China is still a threat, and Taiwan is still strategic. The problem is I am not a deep expert in semiconductors. But I do note that TSM has yet to decline as much as some of my other stocks. This one is still a hold for me.

The Best Stocks to Own Long Term: Conclusion

Sometimes the best way to avoid touching your nest egg is to open a small fund to trade and play, knowing that if you lose it all, you will still be fine.

I have shared my thesis on how to pick future-shaping companies because I believe the future is technology and those who change the world are those who create new worlds.

What are your best stocks to own long-term? Comment below and share with us your reasons.

The RIGHT conclusion should’ve been: stock picking is just bad. You are not a genius. You might be lucky for a few years, even, but if you continue to stock pick, you will lose. Don’t do it. You don’t need to stroke your ego. But honestly, the gist of this blog post is still 100%, completely true. If you can’t control yourself, allocate a little bit of play money, leave the rest (bulk) of your net worth ALONE.

What’s Next?

Stop stock picking and invest in one of these index funds: Best Vanguard Funds for Every Stage of Your Life (2023)

Want something that delivers consistent returns and low volatility? Consider Vanguard Wellington Fund: Retirees’ Favorite

Euphorias rise and die with the stock market. When is the next one? Check out When Will the Stock Market Crash? (2023 Update)