Building a Foundation Like Home Depot Did
Editor's Note: This is a bonus story from Arne Alsin, whose commentary usually appears only on RealMoney
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Someone recently gave me an analyst report on Home Depot (HD). The report was superb, laying out the rationale to be long-term bullish on a company that has changed the face of home-improvement retail.
What's interesting is that this strong buy recommendation was written by an Alex Brown analyst way back in 1991. Since then, Home Depot has grown sevenfold, from a $10 billion company to a $70 billion company.
Building for the Long Term
Buying companies like Home Depot early in their growth cycle is rife with advantages for the investor. Forget worrying about the daily quote. If your plan is to hold as long as the story is intact, the short-term quote becomes meaningless.Whether we're in a bull or bear market in equities also becomes meaningless. You aren't going to enjoy a sevenfold increase in a stock if you attempt to trade around bull and bear market cycles. Worrying about the health of the economy, the level of interest rates and the price of oil are irrelevant if you own a Home Depot-type story early in its life cycle. And taxes? Uncle Sam can wait. In the case of investors who bought and are still holding Home Depot based on the Alex Brown recommendation back in 1991, they haven't paid a dime in capital gains taxes. All of their original capital plus their unrealized gain is still working for them.
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