Every investor should have a solid core portfolio that can be relied on for solid and steady gains without wild fluctuations. Investors shouldnt have to monitor these equities on a daily or even weekly basis. Instead, a core portfolio should consist of stocks with healthy core businesses that are self-sustaining and can be trusted to produce even 10-20 years from now. A core portfolio can consist of anywhere from a couple to 15-20 investments, but should be kept simple enough to avoid becoming burdensome. I believe a quality core investment should consist of 5 key elements. First it should have strong historical performance, where management has shown they are capable of growing and expanding their business with predictability and consistency, and follow an under-promise, over-deliver motto. Second, the company should be able to innovate and evolve its core business or be able to expand to new markets if its core business begins to see a pattern of declining sales. Think Apple (NASDAQ:AAPL), not IBM Corp. (NYSE:IBM). Third, it should have a wide-business moat that prevents start-ups or new competitors from rapidly taking market share. By having high barriers to entry or industries that depend on their particular service or product, it gives a company great vision on what future revenue will be, and also gives the company time to mitigate threats or evolve before the competition catches up. Fourth, it should return value to shareholders through dividends or rapid capital appreciation. Its always favorable to have core investments pay dividends so investors can compound their earnings over a long time frame, but a stock without a dividend can be considered if capital appreciation is strong enough and offers the potential for dividends down the road. Lastly, the company should be a best-of-breed. If the company meets the previous four elements, its already likely to be considered a best-of-breed. Best-of-breed means the company has gained the market acceptance that it is the leading company in the industry, because it offers a superior product or service and has the track record to prove it. A best-of-breed company is also likely to have staying power, which is essential for a core investment.
Posted on: Thu, 13 Nov 2014 16:08:53 +0000
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