The buy and hold method of investing has spent its fair share of time in the spotlight recently. It has been argued by some investors and analysts that the traditional way of investing is as good as dead, whereby greater returns can be recognised by short-term traders compared to those who invest for the long haul.
Following a string of bear markets, including the global financial crisis itself, it seemed many investors lost the stomach for buying shares, preferring instead to trade frequently to try and take advantage of short-term fluctuations.
However, history has shown time and again that holding onto quality companies for the long term is a more profitable way of investing. Look no further than blue-chip companies like Commonwealth Bank of Australia (ASX: CBA) or Woolworths Limited (ASX: WOW). Since 1991, shares in the bank have soared almost 990%, while the supermarket giant has skyrocketed over 1,150%. Those figures aren't even including dividends.
Could any short-term pundits have recognised such enormous gains? Almost certainly not.
Here are three companies which could drive your portfolio to great heights over the next decade:
M2 Group Ltd (ASX: MTU): After years of strategic acquisitions of businesses such as Dodo and iPrimus, the telecommunications group will now focus on paying off its debts and growing organically. Despite strong gains in recent years, it boasts a market capitalisation of just $1.12 billion and yields 3.7% fully franked. What's more, it's currently trading at a 14.3% discount to its 52-week high.
Coca-Cola Amatil Ltd (ASX: CCL): The beverage distributor's brands are amongst the most popular in the world. Following a year that most shareholders would prefer to forget in 2013, shares are now trading at a very attractive discount, giving you a prime opportunity to add some fizz to your portfolio.
Admedus FPO (ASX: AHZ): Given its market cap of just $214 million, Admedus is a more speculative play than M2 Group or Coca-Cola, but it certainly has potential to wow over the long term. In the last 12 months, its shares have risen an astonishing 480% and now stand at 16.2c each. The healthcare company is developing next generation technologies and medical devices, such as the CardioCel, which offers a number of benefits in the repair and reconstruction of heart defects.
Foolish takeaway
By holding on for the long term, you can not only benefit from a company's growth and dividend distributions, but you also become eligible for a capital gains tax discount. By holding onto your shares for more than 12 months, the tax payable on any gains recognised is treated at a 50% discount, meaning you get to keep more for yourself.
