The "Tried-and-True" Method for Identifying Long Term Investors
- Feb 17
- 5 min read
We believe long-term investing in high-quality companies is a tried-and-true method for creating and preserving wealth. Tried-and-true methods are such because they have been tried, and not in the sense that someone thought “I’ll give it a try,” but rather in the sense that the methods have been put through multiple landscapes of trials. Only after a method has been tried and succeeded numerous times in numerous environments does it get the blessing of being designated “true.” For example, a chef who can replicate a delicious dish through a tried-and-true method creates repeat orders for loyal diners. This is the case because cooking is usually a simple system in which the ingredients, conditions, reactions, and timing are all known. Another example, the Orton Gillingham Approach is the primary tried-and-true method of teaching reading to dyslexic learners. However, because teaching dyslexic learners is not a simple system, each child will not progress at the same rate and will not achieve the same reading level due to other variables. There will be periods of time in which it might not be obvious to an observer that the Orton Gillingham Approach is a good method much less that it is tried-and-true. We believe that long-term investing in good companies is a tried-and-true method, but just like tracking the progress of a dyslexic learner, there are periods of time where it is not obvious that long-term investing is even a good idea.
When it comes to investing, we believe evaluating returns in the short run of a year or two does not allow you to differentiate between a tried-and-true method, popular fad, or luck. We do believe that evaluating returns over a decade or so allows the tried-and-true methods to separate from the methods that were simply in favor for a while, much like distinguishing the reading development of dyslexic learners taught using the Orton Gillingham Approach from dyslexic learners taught using another approach. Only over multiple decades does long-term investing in good companies stand out like your favorite dish on the menu of that special restaurant.
While the observation above may be accurate, it is still hard to distinguish long-term investors from others, but we have noticed a behavior that can be observed: Long-term investors try to own “compounders” for a decade and hopefully multiple decades without trading in and out multiple times. Compounders are the stocks of well-run companies that dominate an industry, occupy a niche, or are otherwise distinguished that often have a stock chart that moves from the lower left to the upper right over decades. One example is the forty-year stock chart of HVAC distributor, Watsco, ticker WSO, which we believe seems like a tried-and-true compounder.
Source: FactSet 1.12.2026
The stock has gone from less than $3 per share to $375 per share, and the company has a multidecade history of increasing its dividend. When RAM was founded in 2005, WSO paid a dividend of $0.62 per share, and the dividend grew steadily to over $11 per share in 2025. In fact, in its April 2024 Investor Presentation, Watsco pointed out that in the 30 years ending in 2023, it ranked #16 of approximately 1,600 public companies for Total Shareholder Return (price return plus dividends.)1 RAM has owned WSO in several of our strategies over the years, and we feel we have gotten to know the company rather well. The company remains on the leading edge of HVAC distribution, and we expect plenty of good years to come, but this does not mean WSO is immune from the trials of recessions, financial crises, pandemics, etc. Indeed, WSO has been in a tough operating environment due to tariffs, a regulatory forced change in refrigerant systems, and higher mortgage rates that negatively affect the number of real estate transactions and associated HVAC system sales, for both new and existing homes.
The price of WSO is lower today than two years ago, and worse, WSO was down nearly 30% in 2025 and underperformed the S&P 500 by about 45%! Ouch! When a stock behaves that way, our first order of business is to determine to what extent problems were internal or external to the company. After reviewing the fundamentals of the business, we concluded that WSO woes were due to external forces, and the tough operating environment should ultimately revert to a more normal environment with potentially fewer competitors and therefore a greater market share for Watsco.
Source: FactSet 1.12.2026
In the short run, there is little to indicate that WSO has been or will be a tried-and-true compounder, and this is where long-term investors exhibit a behavior that distinguishes themselves. RAM files its quarterly 13F, which informs the SEC of the holdings of our clients. If you look back through our 13Fs, you will see that we steadily held a modest position in WSO, thinking that a downturn in the stock might create an opportunity; however, in the next filing you will notice WSO right at the top of the list as we bought more in strategies where we thought it fit, and it is now one of the largest holdings firmwide.
The good news/bad news is that in 2025 it seemed there were two stock markets. One stock market had a major bull market for companies benefiting from the impressive and nascent growth in AI/Datacenters and the associated hardware and power needs. The other stock market incorporated the rest of the economy, and the stocks in this other stock market really have not done much for a few years. To illustrate the point, we downloaded the price changes for 2025 for the stocks in the S&P 500 and the NASDAQ Composite via FactSet. We were floored to see that almost 40% of the stocks in the S&P 500 were down in 2025, and more than 50% of the stocks in the NASDAQ Composite were lower in 2025. Especially surprising is that over 60% of the NASDAQ Composite stocks are Technology companies, so investors should understand that not all technology stocks performed well.2 Mainstream media and news headlines heralded the bull market of 2025, yet for nearly half the market 2025 was a pathetic year. It seems to us that the pause in activity from the confusion created by the tariffs has abated, and that makes us optimistic for many companies that saw their prices decline in 2025. The main takeaway is there are plenty of Watscos out there, and we hope to initiate or increase ownership positions in client portfolios. We still believe long-term investing in quality companies is a tried-and-true approach, though recently it is going through a trial. We feel the diminishing economic uncertainty will create a tailwind for businesses combined with their less demanding valuations, which we believe should make 2026 a solid year, regardless of what happens with the AI/Datacenter economy.
Redmond Asset Management, LLC January 2026
The opinions contained in the preceding commentary reflect those of Redmond Asset Management, LLC (RAM). The stated opinions are for general information only and are not meant to be predictions or an offer of individual or personalized investment advice. They also are not intended as an offer or solicitation with respect to the purchase or sale of any security. This information and these opinions are subject to change without notice. Any type of investing involves risk and there are no guarantees. Redmond Asset Management, LLC does not assume liability for any loss which may result from the reliance by any person upon any such information or opinions.
Redmond Asset Management, LLC is an independent, SEC registered investment management firm located in Richmond, VA and is not affiliated with any parent organization. RAM was founded in 2005 and registered with the SEC on December 22, 2005. The company offers investment management services for equity, balanced and fixed income portfolios to corporate, institutional, and individual investors.
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