Thursday, July 2, 2009

Six Stock Portfolio Update

Portfolio performance since mentioning on April 9, 2009 that I like these six stocks as long-term investments if bought near prevailing prices at that time (or lower, of course).

While I never make stock recommendations each of these, at the right price, are what I consider attractive long-term investments for my own capital.

Stock|% Change*
WFC|+29.8%
DEO|+25.6%
PM  |+13.7%
PEP |+4.7%
LOW|-3.7%
AXP|+31.9%

Total return for the six stocks combined is 17.0% (excluding dividends) since April 9th. The S&P 500 is up 9.0% since that date. This is a conservative calculation of returns based upon the average price of each security on the date mentioned. Better market prices were available in subsequent days so total returns could have been improved with some careful accumulation.

The purpose is not to measure returns over such a short time frame. It's meant to be, in part, an easy to verify working example of Newton's 4th Law.

Above market long-term returns can be achieved if you buy 5-10 good businesses and hold them for a very long time.

Less activity generally produces higher long-term returns for most investors.

The hyperactive trading ethos in vogue is nonsense.

This portfolio certainly won't outperform in every period but in the long run it has a reasonable probability of beating the S&P 500. It will probably not outperform the very best portfolio managers but should do very well against many mutual funds over a period of 10 years or longer with lower risk.

The professional money management business is lucrative whether they perform or not. Few (if any) industries pay so well for below par performance. (Charlie Munger calls them febezzlers)

In any case, this simple experiment is designed so it's easy for anyone to check the results. So if it isn't working (it'll take a few years, at least, to meaningfully start judging performance) it will be obvious.

I don't think these are necessarily the six best businesses in the world, but I believe they are all very good businesses*** that were selling at reasonable prices on April 9th, 2009. At any moment, there is always something better to own in theory but I don't think you can't invest that way (as if stocks are baseball cards) and have consistent success.

I plan to occasionally (though rarely) add or switch some of the stocks in this portfolio but generally will make only minor changes.

Adam

Long position in DEO, AXP, PEP, PM, WFC, and LOW

This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here are never a recommendation to buy or sell anything and should never be considered specific individualized investment advice. In general, intend to be long the positions noted unless they sell significantly above intrinsic value, core business economics become materially impaired, prospects turn out to have been misjudged, or opportunity costs become high.
** As of 6/30/09.
*** There are certainly quite a few other businesses that would be good alternatives to these six. The point is for me to get a handful of them at a fair price and then let time work.
 
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