Packs of Marlboro cigarettes are displayed at a smoke shop on April 28, 2023, in San Francisco.Justin Sullivan/Getty Images
The flame in Paris has now been extinguished, but let’s not forget there is a financial Olympics happening nearly every day.
It’s called the stock market, and it’s got everything the sporting version has: furious competition, triumph and failure, a rich history of cheating.
So, who is the stock market GOAT? It now seems settled, for example, that Simone Biles is the greatest gymnast of all time. Which stock is a comparably singular towering force against which all other corporate listings are measured?
Arizona State University finance professor Hendrik Bessembinder has the answer in a new research paper. And it’s not exactly a feel-good story.
From a century’s worth of data involving nearly 30,000 stocks, the stock that rises above all others is none other than Altria Group Inc. (NYSE:MO), formerly known as Philip Morris, the maker of Marlboro cigarettes.
This is a company for which “faster, higher, stronger” refers to the delivery of nicotine into the bloodstream rather than the extremes of human athleticism.
But the numbers don’t lie.
Over a 98-year time span up to the end of 2023, Altria’s stock generated a cumulative return of 265 million per cent. In other words, one dollar invested would have grown to US$2.65-million over that time.
This isn’t just a matter of trivia. The stock market as a whole is a proven compounder of wealth over decades. But it’s a paper-thin minority of companies, like Altria, responsible for almost all that growth.
As for the Canadian GOAT, we argued in these pages a couple of years ago the title belongs to Constellation Software Inc. (CSU-T) The case has only strengthened since.
Since Constellation went public in 2006, the stock has generated a compound total return, after factoring in dividends, of 36.3 per cent annually. That’s better than any other TSX name over the same time frame. And incidentally, it’s neck and neck with Nvidia Corp. (NVDA-Q), the chip maker at the heart of the hottest trend in investing.
The difference between the two is that Nvidia has catapulted to the very peak of the stock-market pantheon over just the past few years, while Constellation has risen with absurd consistency, year-after-year.
The stock has had just one negative calendar in its history. That came in 2022 when long-duration stocks and those with high valuations were pummelled marketwide. The company’s shares declined by 9.9 per cent. A gain of 55 per cent followed in 2023. Year-to-date, the stock is up another 24 per cent.
The company is built on a pretty simple formula. Scoop up high-growth software businesses at good prices. Never sell them. And reinvest the cash flows in more companies. Repeat ad nauseum. Constellation has now acquired roughly 1,000 businesses over the past 30 years.
If you stay disciplined, you can create a “perpetual compounding machine,” said Barry Schwartz, chief investment officer at Baskin Wealth Management. “Constellation may be one of the best businesses the world has ever seen.”
The problem with rollup strategies like this is that you end up getting so big that it makes it difficult to stay disciplined on acquisitions. Skeptics have long predicted that Constellation will falter in the same way.
The company itself has always been alive to the risks. In a 2017 letter to shareholders, chief executive Mark Leonard wrote: “I don’t know if the analysts and journalists who predict reversion to average performance for CSI will be proved correct in the next few years.”
It hasn’t happened so far. “No one that I am aware of has done this better for as long as Constellation,” said Richard Liley, an analyst at Leith Wheeler Investment Counsel, which has held shares of Constellation since the initial public offering.
The company has targeted bigger deals in recent years, while also lowering its expected returns to compete for larger takeover targets. But it’s bread and butter has remained mission-critical software companies in niche businesses with relatively modest valuations.
“Their addressable market is massive,” said David Driscoll, chief executive of Liberty International Investment Management. “The vast majority of software companies are boot-strapped, tight on cash and talent-constrained.”
For a greatest stock contender, Constellation is distinctly low profile. But that’s the case, more often than not, in an arena filled with fads and hype. “It is often the companies out of the limelight that in fact are the true champions and compounders of shareholder wealth,” said Jason Del Vicario, a portfolio manager at Hillside Wealth Management.
This tracks with Prof. Bessembinder’s research, which has showed that the vast majority of stocks are duds. Over the past century or so, 96 per cent of publicly listed U.S. stocks failed to outperform Treasury bills.
The remaining 4 per cent is responsible for all of the net stock-market gains. Miss out on that short list – topped of course by the GOAT – and good luck even keeping up with the market.