Friday, October 5, 2012
What are core holdings? I honestly feel that most people including myself are better off buying ETFs first and build a solid base of several asset classes, commodities, consumer, technology etc. But eventually you will probably want to buy individual equities. Core holdings are stocks that you have done your research on. You hold them for years. You know the company and track its performance. I have watched Ford and Wal-Mart for years. Ford just has too much debt for me to hold that stock in any great measure, but every time I see a Mustang or an F150 truck on the road I salivate. At one point, Wal-Mart was a core holding for me; then I started reducing my position several years ago as established stores started selling less every year and in August 2011, started adding to that position again. How many core holdings should one have? I don't know. My core holding basket has a rule of a maximum of 12. I was up to eight at the start of the bull run, but have been profit taking as the value of a holding crossed over 20% increase and spent the money on CDs and Municipals. Right now I have three, Google ( GOOG), Apple (AAPL) and Berkshire Hathaway (BRK.A). If the market will keep from crashing on Monday, I will be down to two and that means really looking at my watch list. Berkshire Hathaway has been good, really good, but I am concerned that they are really dependent on Warren Buffet. The watch list concept When I was a boy, I used to take the Sunday paper and read the stock tables. I kept a paper portfolio. This is a watch list. Even before you have the money to invest, start trying to find the companies you want to partner with. Read about them, do business with them. If you have more disposable income, you can open up a small position and watch them rise and fall. Core holdings are stocks you want to hold for a very long time unless you think conditions are changing. One of these for me is Google (GOOG). I think Google has a moat. They do not just do search, they have the Android phone, they have Gmail, they have a tremendous amount of marketing information with location services and DoubleClick. If Google suddenly drops a lot, I am not going to panic, instead, I will look at my finances and see if I can add to my holdings. Of course things can change, but right now it looks like I will be holding Google a decade from now. I am not going to sell either equity for a mere 20% gain, I am just curious which one will cross the thousand dollar per share mark first. These days, my watch list is my mutual fund basket Ts. I have an online broker that charges less per trade than most and I trade a lot usually in $500.00 increments. The rules of that basket are: - The initial lead can come from any source - < debt to asset ratio of 20 - No big moves, $500.00 increments - If it doesn't look like it can become a core holding and it crosses 20% increase and it is past its one year birthday, sell it and buy a CD or municipal bond. This way I do not have a ton of skin in the game, but I lose money or gain money depending on how it performs. This helps me pay attention. If you are still working, consider not taking dividends in cash Also, try to find a system that will allow you to add to your investment commission-free, usually with a Dividend Reinvestment Plan (DRIP). The goal is to follow a few different companies that are in sectors that will be in demand, have healthy balance sheets and use these to comprise the core of your equity investment. My suggestion is to try to find at least eight equity sectors for diversity and find the solid companies that are likely to be around for a long time. Then, set Google Alerts for those companies. Do business with them, do whatever you can to know a little more about the companies you pick than the average Wall Street trader. When there are dips in the market, buy more of the companies you have grown to understand. Let me try to make this plain for you. Maybe you have heard Apple is a great stock and it has served many investors and investment clubs well. January 2011 - January 2012 it is up 22.35% and you have the iPhone 5 and iPad 3 still to come, so 2012 should be a good year for Apple. However, if you have a Windows PC, an Android phone and don't own an iPad, this is probably not a stock you want to own as a core holding. Without Steve Jobs, things may start to change and if you do not have your finger on the pulse, you may miss the change. UPDATE October 6, 2012: The maps thing really concerned me as does the purple tinge on the iPhone 5 camera. I will be keeping a close eye on Apple. But I am sure not going to bet against them in the current situation.