As we continue to look for stock portfolios that we hope will provide income and beat the market, we have come across a number of recommendations and here we have one more. Nick Kapur of the Motley Fool outlines his approach to find the stocks that he would want to own for the long run.
His goal was to cut to the chase to find the type of stocks that:
- Don't implode.
- Perform well on an absolute basis.
- Beat inflation.
- Hopefully beat the market.
His criteria are:
- Sustainable competitive advantage. Brand, style, and design are fickle, which is why I can't say I'll own shares of Apple (NASDAQ:AAPL) forever. A great business does something special that others cannot easily replicate.
- Businesses that churn cash efficiently and don't put their assets at risk.
- Products and services that people adore or must have.
- Management that commands respect.
His five stocks -- note that he has skin in the game, as he already owns all these stocks:
- Berkshire Hathaway (NYSE:BRK.B)
- Philip Morris International (PM)
- Walt Disney (DIS)
- Visa (V)
- PepsiCo (PEP)
Nick also goes on to say that he could up with others but these were the ones he listed out.
My take on his list is:
- Berkshire Hathaway -- while Buffet is there, you stand on the shoulders of giants. I am not completely comfortable that they have the succession planning fully worked out.
- Philip Morris -- they may be a strong company but I just cannot overcome my dislike of the product and what it does to the consumer
- Walt Disney -- there will always be kids wanting to see movies and even if they don't, there's always ESPN
- Visa -- clearly a leader but what about on-line payment with cell phone etc.
- PepsiCo -- I have some concerns about the type of product and associated health risks but this is a long term winner and I am an investor in MacDonalds (MCD) so it would be a case of the pot calling the kettle black
I am going to substitute British American Tobacco (BTI) for Phil and am going to compare this selection with our dividend bearing ETF benchmark and three other selections that we have previously made for reference.
- The safest and best dividends on the Dow
- Three of the best stocks
- Five Stocks For The Timid Investor
The ETF portfolio:
|Asset||Fund in this portfolio|
|REAL ESTATE||(ICF) iShares Cohen & Steers Realty Majors|
|FIXED INCOME||(TIP) iShares Barclays TIPS Bond|
|Emerging Market||(VWO) Vanguard Emerging Markets Stock ETF|
|US EQUITY||(DVY) iShares Dow Jones Select Dividend Index|
|US EQUITY||(VIG) Vanguard Dividend Appreciation ETF|
|INTERNATIONAL EQUITY||(IDV) iShares Dow Jones Intl Select Div Idx|
|High Yield Bond||(HYG) iShares iBoxx $ High Yield Corporate Bd|
|INTERNATIONAL BONDS||(EMB) iShares JPMorgan USD Emerg Markets Bond|
- 5 Stocks to Own for 50 Years-- Total of $10K invested equally in each stock
- The Safest and Best Dividends on the Dow-- Total of $10K invested equally in each stock
- Five Stocks for the Timid Investor-- Total of $10K invested equally in each stock
- 3 All Star Stocks-- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
Portfolio Performance Comparison
|Portfolio/Fund Name||YTD |
|1Yr AR||1Yr Sharpe||3Yr AR||3Yr Sharpe||5Yr AR||5Yr Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||-0%||0%||1%||9%||72%||7%||55%|
|3 All Star Stocks||4%||20%||118%||25%||124%||9%||31%|
|Five Stocks for the Timid Investor||3%||9%||54%||17%||119%||5%||23%|
|The Safest and Best Dividends on the Dow||3%||12%||52%||21%||91%||5%||15%|
|5 Stocks to Own for 50 Years||10%||21%||101%||25%||132%|
Thanks to Visa having a relatively short history, we can only go back three years. That gives me a moment's pause because I would think that we would like to have stocks that have a proven history. While it's true that we don't want to invest in a company with a great future behind it, we want to see companies that have been successful in building long term barriers to entry.
Three Year Chart Five Year Chart
When I look over the longer term, I note that the diversified ETF portfolio comes out pretty well. This doesn't assume that one company will win out but that the market will grow. Notice that it uses a momentum approach (which has detractors as well as supporters) that requires monthly trading whereas the stock portfolios are truly fire and forget.
I also think that it is nearly impossible to predict what changes will come in fifty years. I think in 1964 an IBM computer that had much less computing power than a cell phone was the size of a bedroom and cost $4M -- few have predicted the changes we have seen.
I think you can make a selection of what is safe for the next five to ten years and have a quarterly review to see whether you want to make any changes.
Some of the selections Nick makes are OK, but I am sticking with what I have so I'm not sold.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.