fool.com is an excellent site. They offer commentary that is both informative and even better educational. One strong theme they preach is to buy for the big score. Today, one of the founders, David Gardner, has a great article on this theme: The Highest Possible Returns. Period.
I disagree. Investing in great companies early on in their high-growth stages, then holding them for the long term, will provide the highest possible returns. Period.
We call those companies Rule Breakers. Our investment service of the same name seeks out the great growth stocks of tomorrow — the potential AOLs — before the Street catches on.
I missed out on the IPO for Google, much as he missed out on AOL. Luckily for me, I did buy at $220 (the IPO price less than a year earlier was $85): now it is at $476. Buying after you watch a stock more than double is not easy. My investment experience helps me make that decision today when I likely would have decided not to buy before – thinking I should have bought before it doubled so since I didn’t I wasn’t go to jump in later… I doubt I would buy Google now but I am keeping what I have.
Related: 10 stocks for 10 years update
In April of last year I posted on 10 stocks for 10 years. At that time I also setup an fund through Marketocracy, which allows for 3rd party tracking of investing results. See the results so far on Marketocracy’s site. Thusfar the portfolio is up 20%, in under 9 months (versus 13% for the S&P 500 for the same period of time.
The 10 stocks didn’t meet the diversification requirements for marketocracy, at the time, so I modified the portion of the portfolio for each stock when I setup the fund. The portfolio as of Jan 2006 (17% cash):
|
|
Stock | % of fund | Current Return |
| Google – GOOG | 16 | 114% | |
| Templeton Dragon Fund – TDF | 12 | 25% | |
| Toyota – TM | 10 | 48% | |
| Dell – DELL | 8 | -13% | |
| Petro China – PTR | 5 | 36% | |
| Cisco – CSCO | 5 | 8% | |
| Amazon – AMZN | 4 | 39% | |
| Pfizer – PFE | 4 | -9% | |
| First Data – FDC | 4 | 11% | |
| Yahoo – YHOO | 4 | 25% | |
| Intel – INTC | 3 | 13% | |
| BP – BP | 3 | 5% | |
| Walmart – WMT | 3 | -5% | |
| Templeton Emerging Markets Fund – EMF | 2 | 43% | |
| Microsoft | 1 | 6% |
Obviously Google is doing quite well, up 114%. The second largest gain is for Toyota, which is up 48%, I’m sure a surprising result to many.
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The annual meeting of Berkshire Hathaway is being held this weekend in Omaha (cnn article). Recently the 2004 Berkshire Hathaway Annual Report (by Warren Buffett) was published. The report is excellent reading for anyone interested in investing. Some quotes from the annual report:
- In one respect, 2004 was a remarkable year for the stock market, a fact buried in the maze of numbers on page 2. If you examine the 35 years since the 1960s ended, you will find that an investor’s return, including dividends, from owning the S&P has averaged 11.2% annually (well above what we expect future returns to be – [bold added]). But if you look for years with returns anywhere close to that 11.2% – say, between 8% and 14% – you will find only one before 2004. – page 3
I decided to look at selecting a portfolio of stocks I would be comfortable putting into an IRA for 10 years. My main criteria was companies with a history of large positive cash flow (that seemed likely to continue that trend).
The 10 stocks I came up with are (closing price on 22 April 2005 – % of portfolio invested):
- Templeton Dragon Fund (TDF – 16.40 – 16%) – a closed end mutual fund investing in China, Hong Kong, Taiwan, Singapore… This one doesn’t fit the criteria but does a great job of filling out the portfolio in my opinion.
- Dell (DELL – 36.43 – 12%)
- Toyota (TM – 72.42 – 12%)
- Google (GOOG – 215.81 – 12%)
- Pfizer (PFE – 27.22 – 8%)
- Amazon (AMZN – 33.04 – 8%) They are only just starting to generate cash but I like their prospects.
- Intel (INTC – 23.24 – 8%)
- Petro China (PTR – 61.68 – 8%) Investing in PTR is based on the potential for China, the prospects for oil over the next 10-20 years and Warren Buffet’s ownership of the stock.
- Cisco (CSCO – 17.43 – 8%)
- First Data (FDC – 37.48 – 8%)