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This article is for the kind readers who ask me in messages or comments what stocks I have in my own portfolio. Readers of my many articles on Berkshire Hathaway (BRK.A)(BRK.B) have been particularly interested in what other stocks I own. I can’t think of any good reason not to share the names and the reasons I own them along with a few of my guiding principles. Everybody should periodically conduct a full portfolio review, and the many requests for information about my holdings provided a prompt. Maybe the comments of readers will push me to look more closely and clarify a few things.
For this article I am combining my holdings with those I manage for my wife who is a savvy businesswoman but has only a general knowledge of the market. We discuss major decisions and almost always agree. Most if not all that we own will eventually be passed along to our children, hers and mine, and perhaps to our grandchildren. We are happy to be able to help our children from time to time but we are careful not to help so much that we deprive them of the opportunity to make their own way in the world.
My wife and I are both frugal and we both have the view that the primary purpose of financial assets is to provide protection against unexpected events as well as the freedom to do the things we want to do. Neither of us sets much store by material possessions. Her most recent gift to me was two pairs of slippers, one for upstairs and one for downstairs so that I wouldn’t track things from the basement or garage too far into the house and upset her. The real gift was her taking the trouble to go to a store and get them. I hate being in stores, perhaps one of the reasons I don’t own retail stocks with the exception of one small position mentioned below. Frugality, knowing yourself, and having a clear sense of what money is for are the starting points in putting together a portfolio. My first piece of financial advice to clients when I was a Registered Financial Advisor was to spend less than they make. The second was to invest carefully and avoid crippling losses.
Without further ado, here are a few principles that have consciously or unconsciously guided most stock choices over the years:
I try to adhere to these principles with all of my holdings.
Be clear about one thing. This is one family’s portfolio grounded in one family’s values. It is not a model for anyone else. It is somewhat concentrated and certainly not diversified in the traditional way. It was put together piece by piece and occasionally pruned by elimination of positions which appeared to have a problem. Despite the lack of diversification it is rather conservative as befits a man of my age (77) but I think it will continue to have reasonable growth.
Here’s a chart of BERK.B and PH since 2000, two pretty similar shareholder friendly companies:
And here’s BAC from the time I bought it:
These three are keepers.
The apparent severe drop of RTX in 2020 is simply the chart’s inability to digest the merger of UTX and RTX. The simple correction to get the true return is to raise the last two years after the vertical green line to the top point of the chart.
The following group included positions of about half to one third the scale as those above. They are nevertheless significant.
When something was going wrong in Vietnam the smart officer I flew around the Mekong Delta with sometimes wrote up a Lessons Learned packet marked TS Eyes Only and sent me as courier up to Saigon to place it in the hands of General Westmoreland. It was a nice day off with a visit to Cercle Sportif where he played tennis. One write-up that I remember was about airfield defense. We realized that the VC fired rounds with a sharply elliptical beaten zone which only worked well if they fired off one of the long axes of the military airfields. The airfields were all conveniently located near provincial capitals. This made it possible to register artillery or prep gunships (my boss had previously run the 13th Aviation group) so that the VC couldn’t get away before the sun, moon, and stars dropped on them with no warning. They eventually caught on, of course, a principle which probably applies to the markets.
Fidelity, I’m pretty sure it was, did a study that showed that the best returns of their investors were in stocks they had forgotten they owned. I’m personally a slow learner, but I learn darn good in the end. ADP, BR, ABT, and ABBV make up one of my Lessons Learned Packets. Writing covered calls on PH is another one. Whenever I think about selling something or trying to hedge I force myself to remember those mistakes.
Everybody should own I Bonds, which are U.S. Savings Bonds with inflation protection which you buy for yourself at TreasuryDirect. They are absolutely the best inflation hedge. I have written about them three times, most recently here. Just two words: BUY THEM. Use your first $10,000 of fixed income money. I do, every year. They are now a significant six figure position in my portfolio. I was lucky to start in 2000 when you could buy up to $30K annually and the fixed and permanent real return was 3.6%, but they are still good and I now buy them every year for children and grandchildren. You can let them run for up to 30 years and I’m pleased to think that children, grandchildren, and a stepson will cash them in after I am gone.
That’s about it. I’m conservative. In the long irregular CAGR that tracks the uptrend of these and other stocks the rising sine curve of ups and downs above and below trend are flatter and smoother than the ups and downs of most stocks. That’s an important principle. If your portfolio drops 50% it has to go up 100% to get back to even. If it drops 40%, it has to rally 67% to get even. At 30%, it’s only 42% to break even. And so on. Long-term portfolio success in strongly linked to patience and owning things which outperform in down markets. Berkshire Hathaway is the model for this, beating both the S&P 500 (SPY) and the NASDAQ 100 (QQQ) since 2000 when I first had a major position in it. Most other stocks in my portfolio share this trait.
I never paid much attention to diversification in the usual sense of buying stocks that cover many different sectors. I buy what looks solid and cheap and appears to have a long runway for growth. What has happened over the years is that a portfolio has emerged which diversifies for various types of risk. I got there more or less intuitively but have been more conscious of it in recent years.
All of my positions are currently in the black. A few relatively new ones are close enough to break even that a bear market or single company problem could pull them into the red. If I have a position in the red in the month of November my policy has always been to sell and take a tax loss. A position in the red suggests taking another look to be sure there isn’t a problem I haven’t noticed. A stock that is down can be an early indicator that you missed something and were wrong. If you sell early in November you can usually buy back at about the same price in 31 days if you want to.
My portfolio is not benchmarked to anything. It is measured by the balance between growth and safety which feels right at a given point in my life. I don’t worry about beating the S&P 500. I’m happy with good risk-adjusted returns. My largest position, actually, is cash.
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Disclosure: I/we have a beneficial long position in the shares of ABT, ADP, BAC, BRK.B, DEM, DFJ, DGS, DOV, DXJ, ISCF, JNJ, JPM, MCK, ROST, SNOW, TRV either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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