Is This The Perfect Stock Portfolio?

” Wide diversification is only required when investors do not understand what they are doing.” – Warren Buffett.

My portfolio is up 207% in six years while the Dow Jones is up 72% at the same time (figure below). Almost three times above the market rate of return. Well, one can assume that this is a great return and it, therefore, should be one of the perfect portfolios. The simple answer to the above question is there is none. A portfolio is a living thing. It changes according to the investing environment.

My stock performance comparison to the Dow Jones Index (207% vs 72%) in last six years.

Am I a genius or just lucky? I must say I have made the worst investing mistake of my life during this very timeframe (more on this in my future post). By no means, I am genius. I consider myself an apprentice of Buffettology (just by reading books related to him) at the same time I have no background in Finance or Accounting. I am a perfect example of how a stupid person can do perfectly alright in the stock market.

What exactly is my advantage over the millions of retail and institutional investors? None, I think. So, how did I achieved the above feat? Six years is a very short time to test my ability to beat the market. I might have a big mistake in the future and all is gone. I think I am just lucky.

A portfolio is a living thing. It changes according to the investing environment.

Investment Principle

To my dear readers, here is what I did. I applied these three basic rules (below) to construct my portfolio. There is way more than just this very high-level rules. This is just to get me started in the right direction. The right direction and best guidelines are what yields a good return.

  1. Never Lose money
  2. Invest in the growing industry
  3. Wait, wait and wait

We like the checklist. Checklist investing seems so simple, yet the discipline to follow the checklist is painstakingly difficult. It is pretty simple to think to select companies with a good financial background. Well, what defines a good company? What does it mean to say a company is financially strong? Majority of the stocks listed in the United States stock market makes profit. Are they all good companies?

My portfolio consists of the following companies.

        1. Alphabet (Google)
        2. Facebook
        3. Berkshire Hathaway
        4. Amazon
        5. Alibaba
        6. Tencent
        7. Oracle
        8. Home Depot
        9. Disney
        10. Microsoft
        11. Netflix
        12. Baidu
        13. Chipotle Mexican Grill
        14. United Health Group
        15. Nike
        16. Apple
        17. Wells Fargo and Company
        18. JPMorgan Chase and Company
        19. Starbucks
        20. Costco
        21. Tesla (1 share – Just a watch list)
        22. Domino’s Pizza
        23. Humana
        24. Booking Holding (Priceline)
        25. General Electric (Closed the position in a loss)

Pretty much all the big corporations. A pure diversification (Best way for dummies like me). It looks funny, but the return is not. There are more companies outside of my portfolio that I would love to have them in my portfolio. Some are probably better than the one that I am holding. I, having a limited capital, was forced to select just a few. This filtering part was probably the hardest part of the selection process.

I invested purely with gut feelings, intuition, big picture in mind and no financial/industry analysis.

The first thing is whether I make money or not I did not want to lose my money. I did not see those companies going bankrupt in the near future to totally lose my capital. This is the basic question to ask. But how exactly do I know that which company will foster? I prefer to use the companies from the growing industry. So, technology is the obvious answer. There are other industries which will equally do well for a long time like healthcare, banking, consumer discretionary, retail, Restaurant and more. If digital ad revenue are constantly increasing one can assume that those companies are growing in terms of revenue, market share, profit and compititiveness.

One can observe that my portfolio is tilted towards tech companies. Which truly is. This is a risky endeavor. My selection process is not quite refined to be protected in a downturn. Yes, a tech-heavy portfolio has naturally yielded more in the recent bull market. Therefore, a possible reason for my better performance is this. Indeed, this probably is the reason. The true test of my portfolio will be in downturn.

Second, I estimated those companies and industry to do well and fostering in 20-30 years down the road. I invested purely with gut feelings and intuition and no financial/industry analysis (having a big picture in mind). I do not recommend this. This is not the right way to deploy your hard earned money. Sometimes a bad process results in a good outcome. Maybe this is one of that scenario.

Lastly, I did nothing but waited. I bought more when I have money and adjusted the percentage from one company to another based on market performance. Again, purely with a big picture in mind and gut feelings. Patience is one of the characteristics of great investors. I have read it more than enough to try it myself. I have faith in the industry experts who have beaten the benchmark index for too many years to believe in it. The fluctuation in market price certainly has disturbed my nerves but I kept cool.

Is this the right way to go? Maybe not. But as long as my portfolio does well, perhaps this is the right way! Again, the true test of the concreteness of this portfolio will be tested during a bear market. Having said that, if one can wait long enough, perhaps the loss will be recovered. We will try to explain the intricacies of all our trades in the future. Keep an eye on future posts.

Disclaimer – Long position on all listed above except GE.

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