Below is what I consider to be the ideal portfolio of stocks built for the long-term. If someone handed me $10,000,000 with the imperative to construct a portfolio that will, comprehensively, make money in all environments, increase wealth by at least 5% in excess of the rate of inflation over the long term, and do it in a way that the total dividends paid out would be greater each year, these are the companies I would choose. I should note that I make no assurances or promises about the future long-term performance of any of these companies on my stock list, and it is up to each investor to only purchase stocks after their own independent verification of the facts, consultation with professional advisers if need be, and with a willingness to accept full responsibility for the consequences of your own investment decisions.
When constructing this dream portfolio, I had three guidelines in mind:
(1) I wanted to create a portfolio that was diversified across sectors, with Benjamin Graham’s advice to always hold 20-50 securities kept at the forefront of my mind. Even if one of these companies went bankrupt each year (something I find highly, highly unlikely), the earnings per share growth from the other firms should, in aggregate, still allow you to become richer than you were at the beginning of the previous year.
(2) I wanted to keep in mind Charlie Munger’s advice to deal only in high-quality companies and to own firms likely to increase intrinsic value over most three and five year periods when measured. I believe that the companies listed below represent most of the dominant firms on the planet, with business models and economic moats that lend themselves favorably to buy-and-hold investing. They have strong intellectual trademarks and immense economies of scale in their distribution that make them hard for new companies to successfully compete against due to the presence of these two massive advantages.
(3) I wanted to calibrate the exposure to banks, tech stocks, and retail companies. They constitute a small portion of the portfolio. From the perspective of someone interested in making investments with 20+ year holding periods in mind, you need to be careful of owning banks because of the debt to equity levels involved in the investment, you need to be wary of technology companies because they must constantly be innovating to remain profitable and relevant (unlike, say, Hershey, which could stick with its business model of selling chocolate bars for the next century), and retail stocks which are always subject to the risk of a new low-cost carrier arriving on the block.
The whole point of limiting my exposure to these stocks is because I want to avoid what Charlie Munger has called “go to back to go.” I take capital set aside for investing seriously. If you invest $5,000 into a stock, that might represent 150 hours that you had to put in at the office. That’s a real sacrifice of labor and time. If I put that money in the stock market, it can have decades to compound into something meaningful. The last thing I want to do is put that money into a company with a credible chance of going bankrupt, as the value of my past labor becomes all for naught and I lose out on the dividends and capital gains that the $5,000 could have represented had I allocated it wisely from the start.
With that said, I believe that the companies listed on my stock list would constitute an ideal defensive portfolio that would minimize losses over the long-term and allow investors to experience the thrill of receiving more and more dividend income each year for the rest of their lives. The only company on the list which does not pay a dividend is Berkshire Hathaway, which I anticipate will begin paying a dividend within the next fifteen to twenty years at the latest.
These are the businesses that are the foundation of corporate America, and I consider to be the best hallmark of any great investment portfolio (even if you are an index investor, one of the reasons that you have done so well over time is because my stocks listed below are a meaningful portion of the overall S&P 500 index).
If you wanted to build a portfolio that (1) would allow you to sleep well at night, (2) require little maintenance and attention on your behalf, (3) allow you to sit back, collect the dividends during your lifetime and pass them on to your heirs when the Good Lord calleth, this is the portfolio I would construct:
Johnson & Johnson
Procter & Gamble
Royal Dutch Shell
Philip Morris International
Church & Dwight
*Bold indicates my favorite stocks that should be held as an investment in a family portfolio for life. The non-bolded stocks are the companies right near that level.
Perhaps my luckiest investing insight has been realizing the central importance of the major credit card companies (particularly Visa, Mastercard, and American Express) in delivering wealth to come for the years ahead. What separates these companies from nearly all other investments is that they earn an automatic “override” on the spending of the American consumer.
Since Visa and Mastercard set their fees with retailers as a percentage of the overall transaction, they automatically get to participate in whatever inflation may come to the economy. If the price goes up at the grocery store from $50 to $60, and Visa collects 0.0025% of that, it automatically participates in the gain from $0.125 to $15. Spread out across billions of transactions per day, and it makes a real difference.
In 2009, Visa stock traded at $10 per share earned $0.73 per share. Today, it earns almost $6 per share in profits and the price of the stock has risen almost twenty-fold. Why is Visa the best investment I’ve ever made and outperforming nearly everything else? Because it has a fixed network cost of about $2 billion and Americans continue to swipe about 15% more transactions each year in terms of gross dollar amount. As a result, Visa’s costs are somewhat fixed but its income keeps rising 15% each year without any corresponding need for investment. So the earnings per share keep growing at a double digit clip, and the price of the stock keeps going up and up. And Mastercard has been another one of my stocks that has done the same thing (it just so happens that I invested more into Visa than Mastercard, so that’s more noticeable).
As far as the timing of when to purchase my stocks on the list above, I think the advice of Benjamin Graham in the Intelligent Investor (page 206) comes to mind:
“It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value. If he wants to be shrewd he can look for the ever-present bargain opportunities in individual securities.”
The stocks on my list above are cash-generating machines. With the exception of Berkshire Hathaway, each one of them pays out a quarterly dividend every 90 days. In the past five years, ExxonMobil has paid out $12 per share in cash dividends. That means that, just by virtue of holding onto the stock, you would need to see the share price fall by at least $12 in order for you to experience a nominal loss on your investment.
To see My Ten Largest Investments, you can purchase my ebook by clicking the link on the left or you can click here.
Normally when I write about investing ideas, I hold little back. However, over the past year, I have come across seven companies that offer a high probability of being superior investments. These are companies with long track records of earnings per share growth well over 10% annually, steady management, entrenched moats and other competitive advantages, moderate or conservatively financed balance sheets, and current execution that suggests more wealth will be minted for shareholders in the year ahead.
This is my best stuff, and I think that someone who buys the eBook will be rewarded with useful insights that will provide fertile ground for further research. Most of the companies in the book I’ve never covered in any of my writing, and a few I have barely mentioned in passing. It was exciting for me to put this together because some of the companies that I had discovered have been rarely discussed in the financial media—one example in particular sticks out in my mind. I found a stock that has been compounding at 20% annually since 1989, and has only been mentioned on Seeking Alpha three times in the past two years. And it’s a billion-dollar company.
This is not an ebook telling you to buy Coca-Cola, ExxonMobil, Johnson & Johnson. This a book that identifies truly superior midcap (or on the small end of large cap) businesses and gives them each their fair due in a write up. The ideas presented are credible things that you could actually finding yourself buying and holding for long periods of time, and each of the stocks mentioned remained profitable during the worst of The Great Recession.
To purchase, click here: “The Sainted Seven Stocks For The Long Run.”
If you would like to see my ten largest investments, click here: “My Ten Largest Investments.”
If you are in the mood for a discount, you can purchase both as a bundle for the sale price of $19.99: “My Ten Largest Investments + Sainted Seven Stocks Bundle“.
14 thoughts on “My Stocks: The Master Investment List”
How about Boeing? The long term outlook for commercial aerospace is very bright. It operates in a duopoly. Also, I'm surprised there's no railroads on your list. Thoughts?
Did you forget hormel? I would think they'd be right up your ally.
Whats your opinion on ConAgra? Seems to be a great growth stock with a moat to boot.
Disney ? Made your "construct a dividend portfolio" list
Some other jewels
L'oreal , a top class company but orvervalued
good recommendations. thanks.
What about 3M
Berkshire Hathaway now owns BNSF railroad.
Gosh, Tim. I must be a failure. I only own 19 of those.
I've owned Berkshire twice before, but each time concluded that the only way to be paid was to sell, so I sold twice.
Great list, great companies. I happen to own quite a few on there, and you've done an excellent job identifying solid companies with enduring competitive advantages. The only one of the top 15 I'd put money in at the moment is WFC as all the others are lacking a decent margin of safety.
I'm curious as to why you put MSFT on the list? Do you think they have a sustainable moat for the next 20-50 years?
I’ll start w/ this: love your blog so much!
I have a big question that has been grinding at me for awhile now… actually, a few questions which are all centered around one thing: the supremacy of certain true Blue Chips when it comes to LONG term dividend investing. Companies like KO, PG, MO, & XOM really have no rivals in my mind when it comes to providing value and remaining viable over the long haul – and this leaves me w/ my quandary: how do I bring myself to diversify? I am currently dollar-cost averaging/automatically purchasing new shares of the above named titans 1-2 times every month with every cent of “surplus” my budget allows. Consequently, I am not “diversified”. I do also keep a separate growth focused portfolio and a market index based retirement account – but my dividend portfolio is practically monolithic! That being said, what is really the worst case scenario w/ these companies? I struggle to imagine a future/set of market conditions where these organizations don’t figure out how to excel and profit. I want to diversify, and feel like I “should”, but my problem, succinctly put is this: how do I justify diverting my cash-flow from solid as a rock “can’t go wrong” investments that are the best-of-the best to … well, anything else? I would love to hear your thoughts… thanks!
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