Model Portfolio - Diversification + Musing

I think my model portfolio has a reasonable amount of diversification, but not too much. 20% of the portfolio is in special situations (seeds, gold, oil refining, and rendering) that do not really fit into any sector. The other 80% is reasonably spread across the 11 sectors, with the exception of technology and financials. Technology is just too popular right now, and financials are always too leveraged.

Sector - weight % in midcap index - my ideas (my weight %)

Materials - 6% - Nutrien (5%)

Consumer Staples - 4% - Tyson, Treehouse Foods (10%)

Healthcare - 6% - Revvity, Royalty Pharma (10%)

Energy - 8% - Halliburton (5%)

Utilities - 3% - Kinder Morgan (5%)

Real Estate - 6% - Rayonier (5%)

Communications Services - 2% - Nexstar (5%)

Technology - 10% - none

Industrials - 18% - Chart Industries, Titan International, Middleby (15%)

Consumer Cyclical - 14% - Brunswick, Red Rock Resorts, Jack in the Box (15%)

Financial - 23% - FirstCash (5%)

Special Situations - Corteva, Royalty Gold, HF Sinclair, Darling (20%)

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I think my approach above is the best, but let’s think about another.

Below is the “keep it simple” value portfolio. This is 20 stocks that are very easy to understand:

1. 2 restaurants - Jack in the Box, Bloomin Brands (Outback Steakhouse)

2. 2 retail and apparel - Oxford Industries (Tommy Bahama), Columbia Sportswear

3. 2 consumer cyclical - Brunswick (boats) and Thor (RVs)

4. 2 food and beverage - ConAgra (frozen dinners), MGP Ingredients (liquor)

5. 2 consumer non-durable - Hasbro (video games), Yeti (coolers)

6. 2 media and entertainment - Nexstar (TV stations), Red Rock Resorts (casinos)

7. 2 healthcare - Henry Schein (dental supplies) , Smith & Nephew (hips and knees)

8. 2 utilities - AES Corp (electricity producer), Essential Utilities (water utility)

9. 2 real estate - Rayonier (timber), Alexandria Real Estate (healthcare REIT)

10. 2 financial - First Cash (pawn shops), MidWestOne Financial (small, safe, local Iowa bank)

This portfolio has no industrials, no energy, and no technology. Every single company is easy to understand. There are no wild cyclicals, just straightforward ideas that require no specialized knowledge.

If you enjoy sleeping at night, you might prefer this portfolio.

This should be called the Tim portfolio in honor of the author of the Substack blog Investing 501.