Author: James Roberts
Covestor models: Fortune’s Most Admired, StockDiagnostics, Best Ideas
Disclosure: Long BRK.B
I would like to have fewer transactions each month. There are several ways to accomplish that feat. One is to look at the account less often. Seriously, sometimes there is no additional benefit for juggling the account too often. Even if there is a benefit, which would require some rigorous analysis to ascertain, the benefit might not be worth the effort involved.
A person who managed a hedge fund in which I was invested had done such rigorous analysis. He discovered that the optimum amount of time between re-balancing (making switches based on some criteria) was around 30 days. Aside from re-balancing less often, one could designate certain holdings as core holdings.
I have designated Berkshire Hathaway (BRK.B) as a core holding. Since it is my largest holding, I have decided that I will generally not own any stocks in which BRK.B owns $1 billion or more. That information is available in the 2011 annual report.
That eliminates IBM (IBM), Wells Fargo (WFC), American Express (AXP), Kraft (KFT), Coca Cola (KO), Johnson & Johnson (JNJ) , Procter & Gamble (PG),Wal-Mart (WMT), and Conoco-Phillips (COP) from my consideration. The sale of Wells Fargo and American Express in the last 60 days was motivated by that consideration.
Buffett likes to have an economic moat that deters competition for his holdings. Ideally, I would like to have the same characteristics for my core holdings. In September, DirecTV (DTV) was sold from all but one of my models. In the Fortune’s Most Admired portfolio, more Comcast Class A (CMCSA)was added.
While someone might use either DirecTV or Comcast as his TV signal provider, Comcast has a definite edge in providing high speed internet access. I believe that Comcast has enough protection from competitors by virtue of the cable connection to millions of homes that I can designate it as a core holding.
In the Most Admired Companies portfolio, there are several other companies that could be core holdings. I am not saying that they are right now. Merck (MRK) is one such company.
Dividends might be a consideration in deciding whether a company merits the title of core holding. Oracle (ORCL) is another company with considerable latitude to raise its dividend. One might argue that Oracle has an economic moat by virtue of its installed base of the Oracle relational database software.
Larry Ellison, Oracle’s founder, has been very successful in picking out technology and software companies to acquire that might benefit from the synergies that Oracle offers in marketing. Chevron (CVX) is held in more than one account, which indicates that the company might be considered a core holding. Aflac (AFL) might be considered a core holding due to its imaginative use of the duck in its advertising. On the other hand, Aflac derives a bit too much of its revenue from Japan for me to designate it as a core holding.
Some investments discussed are held in client accounts as of September 26, 2012. These investments may or may not be currently held in client accounts.The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.
Also, some investments discussed in this presentation are for illustrative purposes only and there is no assurance that the adviser will make any investments with the same or similar characteristics as any investments presented. The investments are presented for discussion purposes only and are not a reliable indicator of the performance or investment profile of any composite or client account. Further, the reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
