The 12 stock for 10 years portfolio consists of stocks I would be comfortable putting into an IRA for 10 years. The main criteria is for companies with a history of large positive cash flow, that seemed likely to continue that trend.
Since April of 2005 the portfolio Marketocracy* calculated annualized rate or return (which excludes Tesco) is 7.5% (the S&P 500 annualized return for the period is 6.8%).
Marketocracy subtracts the equivalent of 2% of assets annually to simulate management fees – as though the portfolio were a mutual fund – so without that (it is not like this portfolio takes much management), the return beats the S&P 500 annual return by about 270 basis points annually (9.5% to 6.8%). And I think the 270 basis point “beat” of the S&P rate is really under-counting as the 200 basis point “deduction” removes what would be assets that would be increasing (so the gains that would have been made on the non-existing deductions in the real world – are missing). Tesco reduces the return, still I believe the rate would stay close to a 200 basis point advantage.
I make some adjustments (selling of buying a bit of the stocks depending on large price movements – this rebalances and also lets me sell a bit if I think things are getting highly priced and buy a bit if they are getting to be a better bargin). So I have sold some Amazon and Google as they have increased greatly and bought some Toyota as it declined (and now sold a bit of Toyota as it soared). This purchases and sales are fairly small. Those plus changes (selling Dell and buying Apple for example) have resulted in a annual turnover rate under 5%.
I am strongly considering buying ABBV and maybe ABT. Abbot recently split into these 2 separate companies. I probably would have added this last year but I wasn’t sure what to do given the breakup so I waited (luckily I bought it, personally, as they have performed quite well) I may also sell some or all of Tesco and PetroChina.
The current stocks, in order of return:
| Stock | Current Return | % of sleep well portfolio now | % of the portfolio if I were buying today | |
|---|---|---|---|---|
| Amazon – AMZN | 486% | 8% | 8% | |
| Google – GOOG | 311% | 17% | 15% | |
| PetroChina – PTR | 104% | 6% | 6% | |
| Templeton Dragon Fund – TDF | 89% | 4% | 4% | |
| Danaher – DHR | 78% | 9% | 9% | |
| Toyota – TM | 70% | 13% | 11% | |
| Templeton Emerging Market Fund – EMF | 50% | 6% | 8% | |
| Apple – AAPL | 22% | 12% | 15% | |
| Pfizer – PFE | 20% | 7% | 7% | |
| Cisco – CSCO | 19% | 4% | 5% | |
| Intel – INTC | 9% | 7% | 7% | |
| Cash | – | 7%* | 4% | |
| Tesco – TSCDY | -5%** | 0%* | 4% |
The current marketocracy results can be seen on the Sleep Well marketocracy portfolio page.
Related: 12 Stocks for 10 Years: Oct 2012 Update – 12 Stocks for 10 Years, July 2011 Update – 12 Stocks for 10 Years, July 2009 Update – hand selected articles on investing
As I mentioned in the October 2012 update I thought Toyota is a very strong company for the long term, and the decline in the price was overdone (so am a bit overweighted in the “if I were buying now column” as I think price is good). I have started to sell a small bit of Toyota just as the price has shot up. I’ll probably keep the amount of Toyota at about 10% (so I may well sell a bit more if the price increases).
While I am very positive on the companies that I have set the largest holdings for I am less strongly positive on the rest of the stocks (compared the the top stocks now, and compared to the rest of the stocks 5 years ago).
I would still consider replacing PetroChina and Pfizer: I like both sectors more than I like the companies themselves. Still as part of the portfolio I think they are valuable. I would like a bit more exposure to commodities and health care but I haven’t found the right companies to add to this (though maybe ABT and RYN could work).
In order to comply with the marketocracy diversification rules and deal with not being able to buy Tesco (in marketocracy) I own fairly small amounts of several other stocks in the portfolio (that are included in the marketocracy return). I only have: RYN and USG plus a bit of ABBV.
* In order to track performance created a marketocracy portfolio but had to make some minor adjustments (and marketocracy doesn’t allow Tesco to be purchased, though it is easily available as an ADR to anyone in the USA to buy in real life – it is based in England). The portfolio has 7% in cash (only 3% if you figure 4% of total is in Tesco but not shown in Marketocracy).
** Tesco had a purchase price of $22.55 on Dec 11th 2006 and has paid approximately 40 cents a year in dividends. The current price is $17.43.
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Its been more than 3 years since I started my Marketocracy portfolio, so far pretty good considering the 40.98% return since inception. Thus my initial capital of US$1,000,000 has grown to US$1.41m. If you are trying to establish a long term portfolio track record, its not an easy task, there will be periods where your returns will be down because the sectors you have chosen may not be the flavour of the month. Hence the best measure of a long term portfolio is to benchmark against the S&P 500. Since 3 years ago, the fund has beaten the S&P 500 by 12.09%.
Top returns: Amazon – AMZN 622%, Google – GOOG 388%, Danaher – DHR 111%…