Sketching the Model Portfolio
What follows is a very rough sketch of what the final model portfolio will look like. Many of these stocks need more work. I want to present this sketch so we can follow the portfolio for the first half of 2023. I think we can learn something by watching the performance relative to the market. It will also be interesting to see how the sketch compares to the final portfolio.
I think I will settle for a 20 stock portfolio, but maybe it will go as high as 25. Academic evidence shows that most of the “unsystematic risk” is diversified away after 15-18 stocks. If you wanted to run a 15 stock portfolio, I would not argue with you. You could also go as high 30 stocks, but I think 40 is too many. I believe the old paper on this subject was by Evans and Archer.
EVRG - Evergy - with a recession very possible, let’s own 2 utilities
ETR - Entergy - potential rate base growth from gas processing
RUTH - Ruth’s Hospitality - a steady grower at only 12x
NG - Novagold - every portfolio should be 10% gold until Congress stops spending the grandchildren’s money
RGLD - Royal Gold - lots of interesting royalty interests
BC - just in case we are wrong on the economy, let’s own one cyclical
OMC - Omnicom - advertisng is a misunderstood industry, maybe too cyclical?
SMG - Scott’s Miracle-Gro - solid fertilizer + marijuana play
RRR - Red Rock Resorts - the best “locals” casino
KEX - Kirby - barge shipping for petrochemicals
RHHBY - Roche Holding AG - in a perfect world we will not own these big cap names, but as a place holder lets go 5% health care.
GLW - Corning - this has always been my favorite “chicken” technology name, buying back lotEnergys of stock, still spending on R&D
INTC - Intel - just too cheap near book value, let’s be 10% technology
TAP - Molson/Coors - strong distribution wins in the long run
WBA - Walgreens - just too cheap, good real estate will survive
ELAN - Elanco Animal Health - spinoff of Lily, hurt by avian flu
MTRX - Matrix Service - rebuilding petrochemicals, small cap
VVI - Viad - unique play on high end travel and corporate events
VST -Vistra Corp. - merchant power producer, buying back lots of stock
FWRG -First Watch - has good food and a reasonable growth plan
Maybe I will make some changes before January 1st. In the long run I would prefer too have more small cap names, and maybe nothing more than $5 billion in market cap.