Core Portfolio Holdings

You often hear analysts talk about “core holdings” but what exactly is a core holding? Well according to investorwords.com:

“A core holding is bought with the express purpose of being held for a very long time, and is often a high-quality security with a history of fairly steady performance.”

I thought that in this time of market turbulence it would be refreshing to go over a model portfolio of companies that I would consider core holdings.

CANADIAN:
TRP, ENB (pick 1)
RY, TD, CM (pick 1)
BNS
GWO, SLF, MFC (pick 1)
POW, PWF (pick 1)
BCE, T, RCI.B (pick 1)
REI.UN, XRE (pick 1)
CNR, CP (pick 1)
FTS, EMA, EP.UN (pick 1)
TLM, PCA, ECA, CNQ (pick 1)
COS.UN, SU (pick 1)
L, WN, EMP.A (pick 1)
BAM.A

U.S:
JNJ
C, BAC, JPM (pick 1)
GE, UTX (pick 1)
PG, CL (pick 1)
FDX, UPS (pick 1)
WMT
Large International Drug Company (PFE, TEVA etc…)

What do you consider your core holdings?

How Much Does It Cost To Beat the Market?

I was recently reading the New York Times and came across a very interesting article by Mark Hulbert. In his article he outlines the results of a recent study that attempted to quantity the collective cost of Americans trying to beat the market. The study entitled “The Cost of Active Investing” found that collectively it is costing Americans roughly $100 billion annually to try and beat the market. The study “took into account the fees and expenses of domestic equity mutual funds (both open- and closed-end, including exchange-traded funds), the investment management costs paid by institutions (both public and private), the fees paid to hedge funds, and the transactions costs paid by all traders (including commissions and bid-asked spreads). If a fund or institution was only partly allocated to the domestic equity market, he counted only that portion in computing its investment costs.

Professor French then deducted what domestic equity investors collectively would have paid if they instead had simply bought and held an index fund benchmarked to the overall stock market, like the Vanguard Total Stock Market Index fund, whose retail version currently has an annual expense ratio of 0.19 percent. The difference between those amounts, Professor French says, is what investors as a group pay to try to beat the market.”

The results of this study imply that there are really only 2 strategies that investors should stick with:

1. Buy and hold a diversified portfolio.
2. Play the market through low cost ETFs.

To view the entire article please follow this link.

Global Credit Crunch

The credit crunch caused by the mortgage fiasco in the United States is now truly a global phenomenon. The Bank of Canada announced yesterday that they will be injecting $4 billion in an attempt to ease some of the liquidity issues caused by the mess south of the border. During the same period a credit infusion will also be offered by the Federal Reserve, the Bank of England, the European Central Bank and the Swiss National Bank. It may be too little too late however at this stage in the game what other reasonable options are there? The bottom line is more liquidity is required to allow financial institutions to continue doing business. At this point the only other alternative would be to force the financial sector to liquidate its rotten assets and wipe out the leverage which would cause many of them to go bankrupt. That would be a lose-lose for everyone.

Stock Selection Process

Here is the general process I use to evaluate a stock.

1. Are their products/services in a growing or stable industry?
-for me this would exclude companies such as newspapers, tobacco etc. Basically, I look for companies that I think will still be around in 50 years.

2. Do they have a competitive advantage or are there large barriers to entry?
-for example companies like TRP and CNR have huge barriers to entry. Other than the billions of dollars that would be required to build the infrastructure it would takes year and years to get the proper approvals.

3. Do they have a history of returning value to shareholders?
-for example, JNJ has raised their dividend for the last 44 years. MMM has paid a dividend since 1916. A history of share buy backs would also be a plus.

4. Are they trading at a reasonable price?
- I use my fair value calculation when appropriate.

To calculate fair value I use a modified discounted cash flow model. Basically, I calculate the present value of the future dividend income and the present value of the future estimated EPS (multiplied by the PE ratio that I think the company SHOULD be trading at) and the sum of those two numbers is the fair value

My stock selection process has evolved over the years and I find it effective to select companies for my particular investing style. However, for other strategies or investing styles my selection process would be very ineffective. I’d also just like to note that the formula I use to calculate fair market value is not valid for all types of companies. For example, it’s not effective for many REIT’s or resource companies as their share prices are generally based on NAV, FFO, or reserves which are not included in my formula.

New Billionaire on Top

There’s been a little shuffling at the top of the billionaire list this year. Warren Buffet is now officially the world’s richest man. His net worth is now an estimated $62 billion up from $52 billion last year. His 10 billion dollar ride has ended the 13 year reign of his longtime friend Bill Gates who was been bumped down two notches to the world 3rd richest man. But come on...once you hit a few hundred million does it really matter anymore? Regardless here is a list of the top 20 richest people in the world.

1. Warren Buffett
2. Carlos Slim Helu
3. William Gates III
4. Lakshmi Mittal
5. Mukesh Ambani
6. Anil Ambani
7. Ingvar Kamprad
8. KP Singh
9. Oleg Deripaska
10. Karl Albrecht
11. Li Ka-shing
12. Sheldon Adelson
13. Bernard Arnault
14. Lawrence Ellison
15. Roman Abramovich
16. Theo Albrecht
17. Liliane Bettencourt
18. Alexei Mordashov
19. Prince Alwaleed
20. Mikhail Fridman

U.S. Recession?

The talking head on business networks like BNN and CNBC have been debating the issue now for months, “is the U.S going into recession?”. Some economists are saying yes, while others are saying no. Well Warren Buffet has an answer for us…yes the U.S is in a recession.

Based on the technical definition of a recession (two consecutive quarters of negative GDP growth) we haven’t yet entered a recession. However, Mr.Buffet was recently quoted as saying “I would say, by any commonsense definition, we are in a recession”. That’s good enough for me. If the world most successful investor says we’re in a recession I believe him.

Portfolio Update as of Feb 28, 2008

-no change from last month
-up 0% in 2008
-CDN 66.2%
-U.S. 30.4%
-International 3.4%

TRP - 4.46%
CSH.UN - 4.19%
GWO - 4.31%
PFE - 4.72%
POW - 3.76%
WAG - 3.30%
L - 2.39%
UNS - 2.27%
GZ - 2.50%
TD - 12.74%
EIT.UN - 2.65%
JNJ - 5.31%
MMM - 3.41%
C - 3.39%
ATD.B - 3.05%
BCE - 5.31%
IIC - 2.80%
O'Shaughnessy’s Global Fund - 3.38%
American Growth Fund - 0.84%
CDN Value Fund - 2.96%
Small Cap Growth Fund - 4.02%
Chou Associates Fund - 9.48%
Money Market Fund - 8.78%

The only change in my portfolio over the last month was that I added a quarter position to my Citibank holding.