Name That Company

I was founded in 1966 in St. Paul, Minn., as an audio component systems retailer called “Sound of Music.” I’m now the largest volume specialty retailer of consumer electronics, personal computers, entertainment software and appliances. I call myself a “bricks and clicks” retailer because along with a vibrant Web site, I also have more than 500 retail stores in 47 states. In 1989, I began keeping all my inventory on the sales floor, to be sold by noncommissioned product specialists. I bought the Musicland, Magnolia Hi-Fi and Future Shop chains and am expanding into Canada. Who am I? (Answer: Best Buy)

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The fool take

W.P. Stewart

Meet W.P. Stewart (NYSE: WPL), a firm that has provided investment-management services, primarily to high-net-worth individuals, for 28 years. The founder and CEO, William Stewart, believes in maintaining concentrated portfolios of large-cap growth stocks. This approach has worked well. From inception in 1974 through the end of 2001, W.P. Stewart’s portfolios have compounded at 20.7 percent, post-fees, vs. 14.8 percent for the S&P 500 index.

W.P. Stewart stock is intriguing for several reasons. First, it’s engaged in a business where exceptionally high profit margins are possible, even in the worst of times like now. In an environment where stock values have shrunk and investors have withdrawn funds, the company’s pretax profit margin in the second quarter topped 45 percent.

Second, W.P. Stewart is based in Bermuda, where corporate profits are taxed at 10 percent, a major competitive advantage over U.S. rates of about 40 percent. The company returns a large portion of this tax savings to shareholders through dividends.

Finally, since the asset-management business doesn’t require much capital, W.P. Stewart’s management returns virtually all the cash produced by the business back to its shareholders, via stock buybacks as well as dividends.

With a dividend yield recently about 6 percent, the stock isn’t unreasonably priced. If its stock price falls lower, it will be even more attractive.

Smart investment

A million-dollar philosophy

Back in the late ’50s, we bought 100 shares of PepsiCo. We kept those shares through ups and downs and splits, and from the beginning we had all dividends reinvested in additional stock. This is a good example of long-term investing. Today that investment has become 22,000 shares of PepsiCo and 4,200 shares of its restaurant chain spin-off, Yum! Brands. Their total value is about a million dollars. My advice: Hold onto good stocks if you can. Anonymous, Tarentum, Pa.

The Fool Responds: Wow what a great example of buying and holding. Be careful with that approach, though it doesn’t mean holding and forgetting, and not keeping up with your company. Buy to hold, intending to hang on to your shares as long as you retain faith in the company’s prospects for long-term growth and success.

Some of this country’s wealthiest people made their fortunes by holding stock in great companies for decades. Warren Buffett has said that his favorite holding period is “forever.”