As we close the books on 2016 and enter 2017, I hope we as investors all reflect on what worked and what didn't. Most of all, investors should leave 2016 a bit smarter and wiser going into 2017.
In putting together the 2017 Gad Winning Value Portfolio, we recognize several important considerations. First, we are entering the ninth year of a bull market in U.S stocks. Importantly, this advance in stock prices was perhaps due to historically low interest rates more than any other factors, although I do believe fundamentals played a role. We also enter 2017 with a new president and administration for the first time in eight years. Indeed, when President Obama assumed office, the stock market was in the midst of a very painful episode in its history.
A little smarter and wiser, our 2017 portfolio still maintains its ultimate goal: long-term capital preservation and an objective of outperforming the market indices by at least three percentage points. Mutual fund legend John Bogle, founder of the Vanguard family of funds, has observed that more than 85% of active money managers fail to beat Mr. Market by three points or more.
A quick recap of our fund rules for those who have been hiding under a rock for the past five years that we have been running this portfolio:
- The portfolio consists of 10 securities, equally weighted.
- The main selection criterion is value -- the portfolio can consist of any security that we deem is attractive.
- The 10 securities are held for the entire year without any trading. This rule means annual expenses will be ridiculously low.
- Only if we uncover any type of corporate malfeasance will we exit a position during the year.
Not surprising, the class of 2017 will contain members of the class of 2016 that we feel still represent good investment opportunities. Today, we reveal the first group of five securities, with the final five tomorrow. As has been our approach in years past, we will list the securities today and look at them in more detail at the beginning of year.
Our first five securities for the Gad Value Investment Fund are:
- General Motors (GM) Class B warrants
- Southwest Airlines (LUV)
- Berkshire Hathaway Class B shares (BRK.B)
- TowneBank (TOWN)
- Apple (AAPL)
Both GM warrants and TowneBank are coming back from 2016. GM warrants were also in the 2015 portfolio. After years of being a darling growth stock, Apple -- which is part of Jim Cramer's Action Alerts PLUS charitable trust -- now finds itself a high-quality classic value play. Berkshire is simply a collection of wonderful businesses that offers a stable, steady investment in an uncertain year.
Finally, as always, we can modify these picks any time before year end. After all, a huge price advance could lessen the attractiveness. Tomorrow, we reveal the final group.