OT: Highest return

“It has been a long time since we have discussed any of the picks by Todd and Ted, the longer tail of smaller disclosed stock positions.
What are the best bets hiding in there?
Has anybody looked closely at any of these?”

I have not done a deep dive but I bought a small piece of ALLY. Certainly some risk given potential changing conditions. They receive my mortgage check as well. Bill Nygren is a fan and especially fond of their trend in buybacks which is 1.2B YTD (10.3B market cap).

FPE 4.3, ROE-16%, 3.7% dividend, 16% payout, 30% profit margins, 25B of debt, 40% off its 52 week high. Read a recent MF piece on it as well.

https://www.fool.com/investing/2022/08/04/warren-buffett-is-…

Excerpt:
“…But this is likely a bet the Oracle of Omaha and Berkshire view as favorable in terms of the risk-reward proposition, considering Ally’s cheap valuation. The stock trades at five times forward earnings and about 90% of its tangible book value, or net worth.

Ally’s management team has acknowledged the challenges, modeled a significant decline in used car prices, and still thinks they can generate a sustainable 16% to 18% or higher return on tangible common equity in the medium term. If they achieve this through more difficult economic conditions, the stock will certainly trade higher.

Furthermore, Ally has a strong track record of repurchasing a lot of stock and, at its current share price, has an annual dividend yield of 3.4%, two other things Buffett and Berkshire love.”

Curious if others here have taken a look or a bite as well?

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I think I’ll track this portfolio on Morningstar. Please make more suggestions (maybe from the “best companies” thread linked in this thread, or from Berkshire’s holdings, or wherever). We have room for eight more holdings to complete 20 holdings of 5% weighting each. Dividends will be reinvested. New holdings may be added at any time, or they may be deleted, added to or trimmed. The relative gains of the holdings will show up in the portfolio weightings as we go along. As of now the portfolio is as follows. After the market closes today I can adjust the weightings to exactly 5.00% each.

Symbol, weight

BABA, 4.99%
ALLY, 5.00%
GOOGL, 5.00%
AAPL, 4.99%
ASML, 5.00%
BRK.A. 5.02% (permanent holding)
BRK.B, 40.02% (to be sold for new holdings)
BLK, 4.99%
BAM, 4.99%
META, 5.00%
MSFT, 5.00%
PGR, 5.00%
SPY, 5.00% (as benchmark)
total, 100.00%

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Oops. I forgot KMX. I’ll add it and reduce BRK.B.

I have not done a deep dive but I bought a small piece of ALLY. Certainly some risk given potential changing conditions. They receive my mortgage check as well. Bill Nygren is a fan and especially fond of their trend in buybacks which is 1.2B YTD (10.3B market cap).

I’ve got a dink. I see it as an asymmetric bet. The nature of the risks is pretty evident, but the probability and severity of bad outcomes are hard to predict. Heck, the whole business might blow up. I think they could have 6 or 8 pretty good years in the next 10 and won’t go out of business in the other 2 or 4. On that basis, it looks cheap.

I would nominate Blackstone (BX), Constellation Software (CSU in Canada, CNSWF in the States because they are too cheap to list there) and Markel (MKL) as possible additions. BX and MKL are at reasonable entry points now. CNSWF was available under $1,500 three weeks ago, so I’m not sure I would enter at the current price, but it’s a solid long-term bet.

Cannabis stocks have been crushed over the past year, so the leading multi-state operators in the U.S. trade at very low multiples. If safe banking were to pass Congress this year, allowing them all to uplist from the pink sheets, picking the right one (or an ETF representing the group) might win the returns competition going away. I doubt any would meet the predictability test, however.

If you wanted to add a small cap in an attempt to juice returns, Clearfield (CLFD) is doing a smashing business in fiber installation products with a promising 5-10-year growth window ahead of it. The stock has soared recently on a Q2 beat, so perhaps not the most propitious moment to enter, but might be a little engine that could for a port like this.

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I still like all four MCK, UPS, Q and BLK. Q and BLK probably offer the best 5 year return, but with bigger swings tied to market’s moods. MCK and UPS, will offer less volatile returns. But all are dominant companies in their respective oligopolies not likely to be disrupted, trading at reasonable valuations.

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"We have room for eight more holdings"

COST. Charlie remains very bullish (something along the lines of “absolutely enormous” earlier this year) despite no longer being on the board. No overlap with BRK now that they have sold their stake (for opaque reasons, as near as I can tell). Bricks and mortar retail risky of course but we have no others on the list - plus, Costco’s internet presence is evolving annually. Difficult moat to reproduce successfully (see: Sam’s Club)

–sutton
owns it intermittently

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Another way to ask the question of the opening post, which may get more to the point, is: if you had to put your entire portfolio into one stock and could not touch it for a decade, what would you buy? This blends the prospects of higher growth with the judgment of certainty of those results. And with this method, one must take into consideration potentially very serious issues such as severe inflation, depressions, wars and the like.

For me, it’s a 3-way tie between Berkshire, Microsoft, and Constellation Software.

I’ve got about 20% each in actual portfolio, and I’ve instructed my wife to leave those allocations alone for a decade should I exit the scene prematurely, so for better or worse, not only am I putting my money where my mouth is, but also potentially my widow’s future. Indeed, given the potential of having her have to choose between indexing versus maintaining my picks, I’ve for the most part transitioned my investing to precisely the question I posed; in other words, for the vast majority of my portfolio going forward, I’m only investing in businesses that meet that condition of the question. Of course, I’m hoping to find more than one; currently have five that make the cut. And I’m leaving around ten percent or so for more active investing.

Interestingly, this approach overlaps quite a bit with the 20-punch card approach that both Buffett and Munger–despite the difficulty many here have had in the past accepting it–have said would literally produce the best results for the vast majority of investors that actively invest. (Given that Buffett spoke this initially to young business students and given my age, a 5-10 punch card would be more appropriate for myself).

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Error: had it in my head that CAM no longer on Costco BOD, but COST web site still has him there.

We went slightly over 20 holdings, so I changed the holdings to 4% each instead of 5%. We now have twenty one 4% positions, including SPY, and a 16% position in BRK., which is a placeholder for future purchases. I can add four more holdings by reducing BRK.B.

AAPL, ALLY, ASML, BABA, BAM, BLK, BRK.A (permanent position), BRK.B (16% of portfolio, to allow for more purchases), BX, CLFD, CNSWF, COST, GOOGL, KMX, KMX, MCK, META, MKL, MSFT, PGR, QCOM, SPY (benchmark) and UPS.

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“if you had to put your entire portfolio into one stock and could not touch it for a decade, what would you buy?.. this approach overlaps quite a bit with the 20-punch card approach”

Yes, that’s a good way to phrase it.

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“I still like the Dollar Stores for the long haul, but I’ll wait for the next inevitable dip to get back in.”

Say wen on DG and DLTR.

"I still like all four MCK, UPS, Q and BLK. "

Q is short for QCOM, right?

Yes, it should be QCOM, not Q.

Another one I like is BR, Broadridge financial, which has a near monopoly on shareholder communications and proxy voting. Virtually every major broker uses them. Usually valuation is very high, but this year it did fall into reasonable territory and I started a small position.

Another one of the great spinoffs, BR was spun off from ADP, which itself is an oligoply for payroll services.

“There won’t be a war over Taiwan”

It isn’t an absolute. It is an assessment of a probability. It simply can not be zero.

  1. A probability for an event may certainly be zero (even when the event isn’t impossible to happen).

  2. Talking about a “probability” for a non-repeatable event is largely meaningless. You can’t rewind history and try a 2nd, 3rd, 4th… time to determine the probability. The event either happens or it doesn’t. So in that sense, it IS an absolute. Of course, only one outcome (invasion) closes the door on the other outcome ever happening.

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As a lurker, and a BRK holder, I kind of hate to blow BRK and you all away, but I will. :slight_smile:

$1m in One stock only
Hold for 10 years
No trading


United Health is the one to hold.


https://stockcharts.com/freecharts/perf.php?BRK/A,UNH&n=…

Notice the dates. While the next decade may not look like the last decade … Berkies have no chance. (I can say that, I am a holder.)

-Dan, BRK holder and bigger UNH holder

if you had to put your entire portfolio into one stock and could not touch it for a decade, what would you buy

NO individual stock qualifies for me. I will go with SPY.

“Another one I like is BR, Broadridge financial”

OK

I’ll add UNH.

Two slots left, or I can leave 8% in BRK.B (in addition to 4% in BRK.A).

Is no one keen on Berkshire’s other big holdings like BAC, AXP, CVS, OXY or MCO? Or do they meet the predicable criterion, but not the high return criterion?

I think AMAT will do well, with dominant market share in semiconductor equipment other than lithography, 5-year average ROE of 42%, 3-yr revenue growth of 11% and trailing PE of 14, but I already have two picks in the portfolio, GOOGL and MSFT, so I won’t add another.

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Joining the party fashionably late…

Most of the names already mentioned I think are great picks.

Apple has been my best-performing investment ever, but the China/Taiwan risk noted by others has me questioning position sizing due to the potential for substantial impairment.

The predictability of Berkshire going forward I think is overestimated; when Berkshire no longer has Buffett we can’t assume the same returns or predictability as has been the case for the last few decades. I’m not selling my holding, but position sizing as a percentage of my portfolio is something I think about more than I have in the past.

Of all the stocks already mentioned in this discussion, Google is the one I’d single out. It has a very strong business model (specifically, the ad business), continues to grow and, despite wasting billions of dollars each year in R&D, has good margins.

I’ll add two more to the list.

Amazon. I feel it is inevitable that Amazon will have a substantially larger top line a decade from now. Added to that, the business mix is slowly shifting to divisions (e.g. AWS) that have much better margins than retail.

Salesforce. A track record of consistent top-line growth with a target to double revenues again over the next few years. The question is: what will the margins be when the cow starts producing cash?

  • David
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