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POSTED BY ON December 24, 2010 6:46 pm COMMENTS (12)
If you were to select 5 (maximum of 5) stocks to put money in right now and forget for 30 years, which ones would you select?
Also, please provide the expected return (either yearly or CAGR) that you think will come from your “retirement portfolio”.
Thanks,
Ram.
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Ankur,
Thanks for your inputs. Just one question about Nestle…do you believe there is still more to come? I somehow feel it’s a company that has gone well beyond maturity now. Your thoughts?
Also you mentioned ITC in the other post. What are your thoughts on ITC for the future now?
Thanks,
Ram.
Ram,
Nestle owns great brands. Branded & packaged food is still not highly penetrated category. There is increasing trend towards use of branded / packaged food driven by increased awareness towards hazards of “milawat” in unbranded food items, increased disposable incomes, increased brand pull on children and increasing tendency of spending less time in food preparation. Nestle is well poised to ride this trend and I think there is still decades before this category becomes saturated in urban & rural India.
ITC has great tobaco businees. However, it invests cash flow of tobaco in commodity type businesses like paper & hotels which carries significantly lower returns on capital compared to FMCG type business.
In portfolio of 5 stocks, I decided to keep one slot for FMCG companies. There was choice of Nestle, ITC, Godrej consumer, Pidilite etc. I selected Nestle based on above mentioned advantages.
Ram,
Question you asked is really good. I believe the best answer is to put your money in a diversified mutual fund scheme or in index fund. However, since your question is regarding direct stock selection, I would try to answer my level best.
Assuming that we are not going to churn portfolio for 30 years horizon, criteria of selecion is well established companies with long history of operations in essential businesses with good track record of performance. Below is my list of five such stocks where I tried to diversify as well, to the extent possible:
1. Nestle
2. Castrol
3. GSK pharma
4. HDFC bank
5. Titan industries
As for return expectations, I would expect this portfolio to earn some percentages above index. Since average index return in last 30 years is about 17%, this portfolio can return above 20%, assuming you are reinvesting dividends.
Value-investing and Buy-and-hold are entirely different things.
For me, “value-investing” means buying good companies at reasonably cheap valuations. For that, the company should have a good growth prospect and should be available for a price, which is much less than the intrinsic value (=margin of safety).
Buy-and-hold does not mean INACTIVITY. Regular assessment of the company is still required. If the underlying reasons for which you bought a company are intact, you continue holding the stock. If not, you sell! If there is still a large margin of safety, you buy more! = You accumulate.
Warren Buffett has held a lot of his stocks for very very long terms. That does not mean he does not review those stocks! He buys companies at very reasonable prices (in different ways) after putting a lot of effort in identifying a good company.
Just buying a Reliance industries (which by the way appears a good value as well as growth stock today) and not reviewing it for 30 years is not a good strategy.
What is “India Growth Story”? It is just a “media” label. Do you remember that story had gone for a toss 2 years ago!! There was an “India shining” story too 6 year ago too. Do not fall for these labels. These stories were not floated Before the bull-market which are actually the time to accumulate. These are only in the Later Phases.
If I buy a company, I will review it periodically every year. Unless I do it, I would refrain from buying it at the first place.
Hope this helps.
Ramesh
Ramesh,
I understand what you are saying but sometime it helps not to review portfolio every year. Ask anyone who is holding ITC since last 30 years or for that matter stocks like Bajaj auto, RIL, many of MNCs etc. So, it is quite OK to buy some great companies and sleep for long period.
Ramesh,
At no point did I suggest “inactivity” as you stated. If you revisit my post I’ve written that it is ok to monitor your portfolio. I’m stating the same thing as you said about “reviewing” the portfolio and ensuring that things are in shape.
However, you cannot state that you do not have confidence in ANY stock at all for 30 years. A value stock is one that will need to be monitored but the fact is that at the current moment of review it should show all the signs of being that 30-year stock.
You mentioned Warren Buffett. He’s a serious believer in the Rip-Van-Winkle method. He’s held Washington Post stocks since 1973. That’s well over 30 years. Coca-cola since 1988. There are stocks that Berkshire Hathaway has held since ages and never sold. Sure, they might review from time to time and they should. The point is, that the US market could have several stocks which people could hold long-term and the Indian market doesn’t have even 5?
Lastly, about the “India Growth Story”. I was using it exactly as what you said…a media label. However, the underlying belief is that I have faith in the India Growth Story…the emerging market of India, the cost-benefits we offer to the world, the clearly evident shifting of powers from the last 5 years, the companies that have come up in India, the growing employment, the thriving economy that warrants foreign investment, and so on. If you don’t believe in the same then you shouldn’t be invested in Indian stocks. I’m sure you do believe this “India Growth Story” and that’s why you’re following Indian markets. Hence, the media tag was just used as a quoteworthy word. The underlying belief is the same…that we both believe in India as a good investment destination.
Regards,
Ram.
I have been following and investing in the Indian markets because of the following factors:
1. I do not have “easy” access to invest internationally, hence at present I have my entire portfolio in Indian markets! Slowly, I plan to diversify into international equities (Atleast one-third of my portfolio in due time). That is not to say that India does not have high growth potential. But, India is not the only country/market with high growth potential.
2. In my limited knowledge, I think it is better to invest in Unilever or Nestle in their respective countries, if I have the choice rather than their Indian arms. Better value as well as better growth with advantage of global diversification!
3. The currency conversion factors and taxation factors are also an important consideration.
4. Whether the FII come in India or not doesnt affect me.
5. Any alternative investment avenue is less attractive than the equity markets.
Most of our corporations are family-owned or government owned. Not the best way forward for a free market economy (US is far far better than us).
Regarding the Indian companies with wide moat. At present, I see
1. Opto circuits
2. ONGC
3. Reliance Industries
4. Hindustan Unilever
5. Asian Paints
6. L&T/Jaihind Projects
7. Blue Dart
8. Tata Chemicals
9. SBI/HDFC
10. Venky India Ltd.
I cannot assess / analyse whether the stocks of these companies are good at current valuations!! I do not have the necessary expertise.
Having less than 15-20 stocks in a portfolio is too much of a risk.
“One of finance’s ironies is that concentrating your portfolio is the best way to become very rich; it is also the best way to become poor.” – W.J.Bernstein
Regards,
Ramesh
And to add to that…one cannot be a believer in the “India Growth Story” and then say that there is no company that I will hold for 30 years. The belief is contradicting the actions then.
Thanks for your inputs. Overall from at least the 3 responses here it almost throws the whole concept of value investing for the really long-term for a toss.
I mean, you would monitor your portfolio. But the whole point of value investing is to hold on to stocks for the really long-term by which time the dividends alone would be a very big chunk leave aside the net value of your portfolio.
Any comments from other forum members?
You need to review your portfolio from time to time. Do NOT trust any company for such a long time. Learn the lesson from Satyam scam. It’s better to invest partly in equity diversified mutual funds, where your portfolio is being managed by professional fund manager and partly in bluechip stocks like Reliance Industries, Infosys, HDFC Bank etc. But still, monitor the growth of these companies regularly.
Hope it will help you.
InvestmentKit.com
Hi Ram,
One cannot invest in stocks now and forget for next 30 years. One needs to monitor the portfolio from time to time. There is no thumb rule but 3-4 years is sufficient time to get good returns and book profits.
Regards
Atul
My view for max 5 stocks + forget + 30 years = zero!! Do not expect anything!!
My expected return from my “retirement portfolio” = 2% over and above the benchmark!! And god help my benchmark. (Current benchmark = CNX 500). 🙂
Ramesh