QQQ: Could Be The Best Single Investment For The Next 20+ Years

What is the single best security to buy and hold as a long-term investment?

This is a question we were asked recently, and it’s a question that can be answered multiple ways. Are we looking for the best investment in terms of risk? In terms of income? In terms of volatility-adjusted return?

While we’re not an investment advisor by any means, and any sort of tailored answer that solves a personal goal probably would constitute investment advice, we chose to attack the problem on a broader basis, such that our thoughts on the topic might be informative to the general public.

We decided to answer the question on the basis of total returns over a long time horizon. Why? Because volatility doesn’t matter as much when you’re sticking with a long-term investment – especially when you don’t need the funds or won’t be forced to sell at a market bottom.

Thus, the question – which security is best positioned to potentially deliver that?

We think it’s NASDAQ:QQQ, the Invesco QQQ Trust ETF.

Sorry for the spoilers in the title & summary.

We should explain how we came to this conclusion.

Selecting For Geography

When it comes to selecting great long-term investments, we generally like to approach the problem from a top-down perspective.

This means starting with the big picture, followed then by drilling down into the smaller details.

In practice, for this, it means that we began answering the question by first identifying the best places (countries) in the world to deploy capital from a ‘building block’ perspective. Which regions have the best business conditions? The most human capital? The biggest market opportunity?

Then, once we’ve identified where we want to invest, it’s simply a matter of figuring out what the best options are within that opportunity set.

As American investors, in general, we tend to skip the first part of this analysis, as it’s often implied that we’ll end up investing into companies listed here, in the United States.

However, if we’re being academically honest about it, it’s important to establish why this makes sense.

As far as we’re concerned, here’s a succinct answer as to why.

Recently, when asked about the United States at an event put on by the Economic Club of Washington D.C., Jamie Dimon, the CEO of JPMorgan Chase, said something that pretty much encapsulates everything we believe into a single, beautiful quote (emphasis ours):

“America has the best hand ever dealt of any country on this planet today, ever.

Americans don’t fully appreciate what I’m about to say.

We have peaceful, wonderful neighbors in Canada and Mexico.

We’ve got the biggest military barrier ever built called the Atlantic and the Pacific.

We have all of the food, water, and energy we will ever need.

We have the best military on the planet, and we will, for as long as we have the best economy – and if you’re a liberal listen closely to me on this one, the Chinese would love to have our economy.

We have the best universities on the planet, there are great ones elsewhere, but these are the best, and we still educate most of the kids who start businesses around the world.

We have the rule of law, which is exceptional – if you don’t believe me; Britain, Brazil, Russia, India, Venezuela, Argentina, and China, believe me, it’s not quite there.

We have a magnificent work ethic, we have innovation… from the core of our bones. You can ask anyone in this room ‘What can you do to be more productive’ – you can ask assistants, people on the factory floors. It’s not just Steve Jobs, it’s breadth and depth.

We have the widest and deepest financial markets that the world has ever seen.

I just made a list of these things – it’s extraordinary, and we have it today.

Yes we have problems, but when I hear people… if you travel around the world, I mean, get on an airplane, travel around the world, and go to all these other countries and tell me what you think.

Go to Europe. I mean, you want to talk about bad regulations and bad politics…

We have it all.”

In our view, everything he mentioned is broadly true when you zoom out.

The United States is blessed with an incredible blend of geographic, economic, legal, and cultural inheritance, along with all of the development and capital advantages that have been built up over time as a result of that.

Without diving into a long & drawn-out history lesson, it seems to be the case that the United States is highly equipped, organized, educated, and motivated to do well, for decades and (potentially) centuries into the future.

Thus, when approaching the world from an investment perspective, there’s really no other option, at least in our opinion, when it comes to investing the bulk of your capital over the long term.

But what is the best way to do that?

Selecting For Companies

Everything we do here at PropNotes is geared towards finding your alpha. Our articles & analysis looks to find mispriced companies, unique trade ideas, and growth opportunities for you on a regular basis.

However, if you’re not keen on being active in your portfolio over the long haul – or you’re trying to answer the question posed to us earlier, then the most optimal possible position, if you’ve got a time horizon of longer than 20 years, is the Nasdaq 100.

You can easily gain exposure to this index via purchasing QQQ, the Invesco QQQ Trust ETF.

But why not just buy the S&P 500?

Here’s a fact: If you purchased the Nasdaq 100 at the start of any month between 1985 and right now, that investment would have outperformed an investment in the S&P 500 at the same time up to this point in Feb of 2024.

This isn’t to say that there haven’t been periods of underperformance for the Nasdaq 100 – there have been.

From March of 2000 to March of 2020, the S&P 500 massively outperformed the Nasdaq 100, due to the level of overvaluation that tech stocks experienced during the dot-com bubble:

Thus, it’s clear that there is a “wrong” time to buy into the index.

However, over a longer timeframe, there’s really no contest when it comes to total returns, even if you factor in dividends:

This is why we added 20 Years Plus as a qualifier- it’s just about the longest period of underperformance we could imagine for an index like the Nasdaq.

QQQ Components

But how has the Nasdaq, and QQQ by proxy, managed to achieve such an impressive level of returns over time? In short, the strong returns have been due to how the index invests into the strongest, most innovative American companies around.

These are the companies that have built the modern world and are poised to continue doing so over the coming decades.

While each of these top holdings are highly innovative, massively profitable, and leaders in their respective markets, the key to investing into the Nasdaq 100 is that the selection process for the index has managed to position investors into these companies well in advance of their world-beating runs.

The logic is simple, but essentially the index is a market-cap weighted list of the largest 100 stocks that are listed on the Nasdaq stock exchange. Nothing more, nothing less.

Yet, it rewards companies and investors with bigger and better returns as companies do better and better – it’s the ultimate self-regulating stock basket.

Let’s take a closer look at a some of the fund’s top holdings:

1.) Microsoft (MSFT) – 8.7%

With a market cap of more than $3 trillion, MSFT currently leads the way when it comes to size. With multiple booming lines of business and significant investments into both AI and Quantum Computing – which promise to be important long-term business trends – the company is well positioned for the future.

2.) Apple (AAPL) – 8.2%

There’s a high likelihood that you’re reading this article on an Apple product right now. With a high-value, concise product line and a strong subscriptions business, the company has the financial wherewithal to power the next generation of spatial computing, which just kicked off with the launch of its revolutionary Vision Pro product this month.

3.) NVIDIA (NVDA) – 5.2%

While the stock’s recent performance has made its position in the index a little bit too large relative to its market cap, Nvidia’s chips are set to power the next generation of AI computing, which has productivity implications in basically every industry imaginable. We don’t even have time to mention the company’s surrounding product suite, which promises to lock in the company’s technological moat over time.

4.) Amazon (AMZN) – 5.1%

Cloud, Groceries, Retail, and Entertainment; what can’t this consumer juggernaut do? With tremendous financial resources, skyrocketing net income, and a strong position in both the lucrative cloud and AI market segments, Amazon is poised to continue dominating and innovating for the consumer.

5.) Meta (META) – 5%

With a monopoly-like position in the social media industry and billions upon billions of daily active users across it’s highly lucrative ‘Family of Apps’, Meta is positioned to further revolutionize communication and media in the 21st century with its ongoing commitment to its VR/AR Oculus product line. With considerable investments in AI, and a unique open-source push to make its model the most accessible globally, it’s fully possible that Meta could also lead the next wave of AI innovation.

6.) Alphabet (GOOG, GOOGL) – 4.8%

Google has its fingers in all of the proverbial pies. From Search, to AI, to Autonomous Driving, to YouTube and more, Google’s internet dominance and marketplace flywheel advantages are enormous. As the company’s hardware chops continue to improve, both in the mobile market as well as the data center context, the company stands at a very powerful position in the global economy and has the ability to shape tech trends of the future.

7.) Tesla (TSLA) – 2.8%

Finally, we have Tesla, the Electric Vehicle juggernaut that’s poised to bring us autonomous driving, functional robots, and numerous other technological breakthroughs. Plus, that’s on top of the company’s already highly successful product line. With Elon Musk at the helm, we expect this company will continue to surprise and innovate within the transportation industry well into the future.

Zooming back out for a bit, obviously, we have confidence in today’s top QQQ holdings due to each firm’s respective market position and historical track record of execution.

However, what really excites us about QQQ for the long haul is the promise that the fund has a repeatable process of getting investors into the best high-growth companies around. This is proven out by the index’s track record.

Valuation

Here’s the tricky part.

If we could, we’d love to rate QQQ a “Strong Buy” over the long term due to the ETF selection dynamics we’ve discussed. However, as we also showed, investing into QQQ at the ‘wrong’ time can cost a lot in terms of future returns and outperformance.

And, while the Nasdaq 100 isn’t exactly at the same sky-high valuation that the index saw in 2000, many stocks, including a majority of tech (XLK) & communications (XLC) exposure, appears to be somewhat overvalued at the present moment, or, at the very least, trading well into what we think their ‘Fair Value’ ranges should be, with the exception of Tesla. Things definitely aren’t a ‘steal’ right now like they were a year ago:

Many industry giants like Microsoft, Apple, and Broadcom (AVGO) could present some material downside in the event that interest rates begin going back up, or ease less slowly than the market is currently anticipating.

Additionally, slowing growth following a strong period could hurt comps, and thus, multiples in 2024-2025.

Thus, we’d like to give QQQ a “Strong Buy”, but it appears better to temper this to a more moderate “Buy” rating for the time being, while we wait for some of these ‘expensive’ looking conditions to resolve.

That said, one of the best long-term techniques for investing into trends like this is to DCA, or “Dollar Cost Average”. This is a way of reducing the impact of specific market environments on a long-term investment portfolio. Thus, even if now isn’t the most optimal time in the world to get involved, it’s never a bad idea to begin investing some capital monthly, and over time, to begin this process.

Risks

Despite our opinion that QQQ is likely the best single investment for the next 20 years plus, there’s a key risk to this thesis that we haven’t mentioned.

Investing into QQQ is essentially wagering on three things:

1.) American Innovation & High-Quality Growth

2.) Nasdaq Weighting & Selection Methodology (which has produced outperformance in the past).

3.) Nasdaq Listing Attractiveness.

While the majority of our article covered number 1 and number 2 in depth, and we consider these to be highly, highly probable going forward, number 3 is more of a question mark.

Given that the Nasdaq 100’s selection process is contingent on a stock being listed on the Nasdaq exclusively, if more and more innovative companies opt to list on the NYSE instead, then there’s a serious chunk of growth that could be missing from QQQ in the future.

We’ve already seen this from top-tier IPOs, like Uber (UBER), Palantir (PLTR), Snowflake (SNOW), and Nubank (NU) which have chosen to list on NYSE.

This isn’t a clear trend, to be frank, but if NYSE continues to appeal to growth-oriented listings going forward, then the pool of ‘talent’ so to speak available to QQQ investors will be smaller in the coming decades.

It’s not an issue yet, but it’s something to monitor.

Summary

All in all, despite the risks, the potentially expensive entry point, and the virtually guaranteed fact that the index will draw down significantly in the future, we think that QQQ, and the Nasdaq 100 as a whole, appear to be the single best long term investment choice in the entire stock / fund universe.

With a small expense ratio of 0.2%, QQQ gives investors exposure to the best of American innovation, growth and profitability now, and on an ongoing basis into the future.

For that reason, we rate the fund a “Buy”.

Cheer