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3 Reasons To Heed Omar Little's Advice

February 27, 2014 12:07 pm
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3 Reasons To Heed Omar Little's Advice

Omar Little, who robbed drug dealers for a living in the HBO hit series The Wire, advised that, "When you come after The King, you better not miss!" For investors, there is much to be said for buying the shares of publicly traded companies that are "The King" at what they do.

Here are three reasons for long-term investors to consider firms that are the biggest and the best at what they do, such as Coca-Cola (NYSE: KO), ExxonMobil (NYSE: XOM), IBM (NYSE: IBM) and Wal-Mart (NYSE: WMT).

They are the biggest and the best for a reason.

It is possible to be born a king. But to become the biggest and the best requires a great deal of time, effort and accomplishments in building an organization. As General George S. Patton remarked, "Success demands a level of logistical and organizational competence." That successful organization creates a virtually unassailable brand, building an economic moat that protects a business from the forces of time and competition.

Coca-Cola, ExxonMobil, IBM, and Wal-Mart all have dug deep and wide moats to protect their dominance. That is why legendary investor Warren Buffett, the biggest and the best at what he does, is a major shareholder of all four.

Related: Why Charlie Sheen's Fourth Engagement Proves The Value Of Investing With Due Diligence

It pays to be a shareholder of the biggest and the best.

Coca-Cola, ExxonMobil and Wal-Mart are "Dividend Aristocrats." To be that, a company must have increased it dividend annually for at least the past 25 years. IBM has increased its dividend annually for nearly 20 years. The longer the stock is owned, the bigger the dividend amount grows for the shareholders of these entities.

Shareholders hang on to the biggest for those long-term rewards

As detailed in a previous article on Benzinga, stocks with below-average betas perform the best over the long term. The lower the beta, the less the share price of a company moves up and down. There is a simple reason for that: if a stock rewards investors, there is no reason for it to be sold. That is especially so for those with increasing dividends. Coca-Cola, ExxonMobil, IBM and Wal-Mart all have betas well below the average of one for the stock market as a whole.

There is no shame investing in the tried and true.

Coca-Cola, ExxonMobil, IBM and Wal-Mart are hardly unknown values. But investing in companies that have established formidable economic moats is what made Warren Buffett wealthy. For the long term, investing in the biggest and the best at what they do such as Coca-Cola, ExxonMobil, IBM and Wal-Mart should be very rewarding for shareholders.

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