Premium Portfolios: Is Buy And Hold Dead And Gone? (Part 1)

Includes: GE, IBM, INTC, JNJ, KO, MCD, PG, PM, T, XOM
by: Regarded Solutions

When we do an internet search on investment strategies there are a plethora of articles about buy and hold strategies not working, and how following trends and timing the markets based on fundamentals, politics, and geo-political events are the only way a savvy investor can navigate today's world of investing.

My own opinion is that it depends on what the goals of the investors are. I used to say that buy and hold strategies were an attempt by the world of mutual funds to keep everyone invested at all times without making any changes to their holdings. That way, the fund managers can "trade" whenever and whatever they wanted, knowing that their core customers will be sitting in the stocks that they were buying and selling.

Window dressing, fund rebalancing, quarterly holding reviews, whatever anyone wants to call it, that's what those fund managers get paid to do, and that is where all the fee's for investing in mutual funds come from.

After all, what would a fund manager do all day if he or she had a portfolio that consisted of: ExxonMobil (NYSE:XOM), Johnson and Johnson (NYSE:JNJ), General Electric (NYSE:GE), Procter and Gamble (NYSE:PG), Coca Cola (NYSE:KO), IBM, AT&T (NYSE:T), Intel (NASDAQ:INTC) McDonald's (NYSE:MCD),and Philip Morris (NYSE:PM)

That being said, no matter what the current market environment is right now, an investor seeking to build a portfolio that will produce results over time, produce dividend income immediately, and be simple to manage for just about anyone could be initiated today for the long term.

An Initial Analysis Of These Stocks

ExxonMobil: Price: $82.15/share, Dividend Yield: 2.90%, ESS Rating: Bullish

ExxonMobil is the biggest dog in the big oil sector. It has basically everything and with money to burn. Before Apple (NASDAQ:AAPL) had its big run XOM was the largest company on the planet.

Johnson and Johnson: Price: $63.94/share, Dividend Yield: 3.90%, ESS Rating: Bullish

The biggest brand name big pharma company on the earth. It has it all and has an amazing record of paying dividends (as just about all of these stocks do by the way)

General Electric: Price: $18.59/share, Dividend Yield: 3.70%, ESS Rating: Bullish

One of the oldest companies on the Dow, and whether you like the management or not. Whether it has underperformed the market over the last 5-6 years or not, the fact remains that this company is part of everyone's life. It is in every important business and has enormous resources at its disposal. No portfolio for a long-term investor should be without this stock in my opinion.

Procter and Gamble: Price: $63.57/share, Dividend Yield: 3.65%, ESS Rating: Bullish

Through good and bad times this stock has proven to be the ultimate defensive holding to have as well as having a continuous record of dividend payouts that are as pristine as any company's. This stock is a must own in my opinion.

Coca Cola: Price: $76.86/share, Dividend Yield: 2.70%, ESS Rating: Bullish

Coca Cola is the real thing. The number one brand on the planet is also not just a defensive play in any economic climate but it has been on the offense of late. There is no other brand like it, and should be in everyone's core holdings.

IBM: Price: $199.48/share, Dividend Yield: 1.80%, ESS Rating: Bullish

IBM is the gold standard as far as technology stocks are concerned. Not only has it been magical a performer since its inception, but "Big Blue" has transformed itself more often than just about any other mature blue chip on Earth, and has succeeded. There would be no Microsoft (NASDAQ:MSFT) or Apple if it were not for the genius of IBM.

AT&T: Price: $33.53/share, Dividend Yield: 5.30%, ESS Rating: Bullish

Before today's version of AT&T, there was the old "Ma Bell" that was broken up officially in 1984, but the company has completely reinvented itself and almost all of the parts that were spun off are back "home" with "mom" again. It has stiff competition, but they have found a way to be an amazingly profitable company forever.

Intel: Price: $27.01/share, Dividend Yield: 3.10%, ESS Rating: Bullish

Intel makes all computers work. It basically owns the chip business and as much competition as it has faced through the years, it has stood the test of time. With a dividend and an attractive share price this could be the premium performer of our portfolio.

McDonald's: Price: $90.88/share, Dividend Yield: 3.10%, ESS Rating: Bullish

I don't know about you but in this sector of fast food restaurants, in just about any economic environment, I want the stock of the company that has a restaurant on every corner, in every market, in every country on the face of the Earth. Sometimes there are 2 on a corner! Through its franchises, McDonald's has created more wealth and more millionaires than any other company I can think of, and we can own its shares now, while the price is cheap and the dividend is sweet.

Philip Morris: Price: $85.39/share, Dividend Yield: 3.70%, ESS Rating: Bullish

I made a bunch of money when Altria (NYSE:MO) was cheap and the dividend was ridiculously high. Now that it has split up, I believe that Philip Morris has the advantage because of the markets it sells in, Europe, Asia, and the Eastern half of the globe. Smoking in other countries, especially emerging markets, is where that growth is, and this will go on for decades to come in my opinion. Pricing power, brands and customer loyalty - PM has everything.

The analysis is basic for each stock however, it is enough for me to suggest that this portfolio be our buy and hold forever portfolio. It has paid off in the past and should do the same over the long term in the future.

Our Next Step

In upcoming articles I will be breaking down how this particular portfolio of stocks has performed using these guidelines:

  • All dividends will not be reinvested; they will be in a cash reserve account
  • The allocation will be the same for each stock, 100 shares purchased initially
  • No compounding, just simple math to keep it easier for comparison
  • A comparison to the S&P 500 will be made for each time period
  • The time periods will be in 10-year increments up to a 30-year time frame between 1982-2012
  • There will be no additional purchases after the initial purchase
  • All splits will be accounted for with the additional number of shares during each period

By using a basic format, together we can decide if buy and hold strategies have a place in today's world, based on the historical views.

While it is not a perfect science and the portfolio can be completely different for everyone, I think we at Seeking Alpha can shed some much needed light on a subject that has been kicked around for decades now.

My Opinion

Without giving too much away since this is just part 1 of this series, I can tell you that by adopting a portfolio of dividend-paying, top-notch, blue-chip stocks, just about anyone can develop his or her own little "mutual fund" and probably outperform most of the so-called super duper funds that will charge fees for just about anything.

Who knows, when the buy and hold strategy is searched for on the internet, WE might pop up!

Disclosure: I am long XOM, GE, JNJ, KO, T, PG, INTC.