It's one of the most common questions you'll get from the average investor: What is the best stock to buy?
In my former life as a financial advisor -- as well as my current role as Chief Investment Strategist for StreetAuthority's Top Stock Advisor premium newsletter -- I'm used to getting this question often.
The simple answer is, of course, "it depends." But if there's one thing I've learned in all my years of analyzing the market, there's one answer -- one investment -- that has always been a tried-and-true answer to this question. But to truly understand it, allow me to share a brief story with you...
The Iconic Investment That Keeps Paying Year After Year
On December 20, 1922, surveyor J.G. Tierney made his way along the Colorado River by barge. Tierney, who worked for the U.S. government, was surveying a remote spot in the Mojave Desert called Boulder Canyon.
Boulder Canyon sits in the middle of some of the most unforgiving land in America. During the summer, temperatures frequently top out near 120 degrees. Less than five inches of rain fall each year. Rattlesnakes and scorpions hide under rocks. And the sharp cliffs are near-impossible to scale.
And yet, this canyon in the heart of the desert holds one of the greatest investments in U.S. history. One that has and should continue to generate billions of dollars in wealth for decades.
But it wasn't without its costs. In total, 112 men -- beginning with J.G. Tierney, who on that December day drowned after falling off the barge that carried him and his equipment -- died to create this investment.
I'm talking about Hoover Dam.
Before I get too far... no, I am not recommending that you invest in the Hoover Dam. Even if you wanted to, it's fully owned by the U.S. government. There's not a stock you can buy that gives you access.
Instead, it's what Hoover Dam represents that is the true opportunity to grow your wealth.
The Hoover Dam (originally called Boulder Dam) project was massive. At its peak, more than 5,000 people worked on it at the same time. And the dam contains enough concrete to pave a two-lane highway from San Francisco to New York City. In total, construction costs came to $49 million by the time it was finished in 1936.
That $49 million investment is the sole reason why millions of people are able to live in the Las Vegas area today. And it has generated billions of dollars of wealth in the process.
But Hoover Dam didn't just create a massive reservoir to provide water to the middle of the desert. It also created one of the most lucrative electricity generation plants ever built.
Located in the base of the dam are 17 hydroelectric turbines that make up the Hoover Powerplant. These turbines generate roughly 4.2 billion kilowatt hours (kWh) of electricity per year, making it one of the largest hydroelectric plants in the United States.
Electric providers love hydroelectric power because it's among the cheapest power sources on the planet. Hoover Powerplant sells its electricity on the wholesale market at just 1.6 cents per kilowatt hour. In comparison, Las Vegas residents pay an average of 11.6 cents per kWh for electricity -- seven times as much.
But even at that low cost, Hoover Dam generates and sells about $63 million in electricity every year (1.6 cents x 4.2 billion kWh) -- that's nearly 130% of what it cost to build the dam in the first place.
Of course, there are a number of other costs such as maintenance and upkeep that figure into the equation, but the point remains -- the Hoover Dam has become one of the greatest individual investments ever made by the U.S. government. And it continues to increase its return year after year.
So how can this help us as investors? After all, as I mentioned earlier, you can't invest directly in Hoover Dam.
You simply have to understand why Hoover Dam has been such a success...
Hoover Dam is what I like to call an "irreplaceable asset."
No one can come along and build a competing dam. And the world isn't going to run out of a need for electricity. If anything, we'll need more electricity in the future.
That's why even eight decades after it was built, the dam is more important today than ever.
Now, I understand you can't invest in Hoover Dam. But it illustrates the power of irreplaceable assets -- and the good news is, there are dozens of irreplaceable assets around the world -- including many hydroelectric dams -- that you can invest in. And as you would expect, investing in these irreplaceable assets has proven to be extremely profitable.
Take oil and gas pipelines, for example. Pipelines are the ultimate irreplaceable assets. Another company can't simply build a pipeline next to an existing one. And the pipelines that carry fuel, natural gas, oil, and other commodities across the country aren't about to be replaced by some new technology.
In fact, pipelines have been one of the strongest corners of the market for years. The benchmark for master limited partnerships -- the Alerian MLP Index -- returned nearly 250%, including dividends, from mid-2004 to mid-2014 before oil prices fell below $100 per barrel. That's an average annual return of 13% per year for the decade, or more than two times the S&P 500's performance over that 10-year period.
But there are more irreplaceable assets than just pipelines.
Take Brookfield Infrastructure (NYSE: BIP) for example. Brookfield owns toll roads, electricity transmission grids, ports, and railroads all over the globe. All of these are irreplaceable assets. And they continue to earn a steady stream of cash for BIP and its investors. Last I checked, BIP was still trouncing the S&P 500 index while paying a dividend yield over 4%.
Don't get me wrong, there are no guaranteed winners in the investing world. Any investment can fall in value. But when asking yourself what the best stock to buy at any particular moment is, the answer is often the sort of securities that give you access to irreplaceable assets. Regardless of conditions in the market, they often end up being some of the most lucrative investments to own for the long term.
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