I unveiled last week our 10-stock value portfolio for 2016. Ten securities, equally weighted, held for the entire year. No selling, except for any discovery of illegal activity or malfeasance.
Because the portfolio doesn't go into effect until the first trading day of 2016, it's fair game to make last minute refinements. I am doing just that by replacing one name with another.
A 10-stock portfolio is not by accident. During the weekend, I did a quick re-read of The Warren Buffett Portfolio by Robert Hagstrom. A central tenet of the book is the value of having a "focus" portfolio. Hagstrom contends that a stock portfolio consisting of a few stocks that are carefully selected is likely to outperform a large stock portfolio made up of stocks that have not been scrutinized.
Instead of turning a 10-stock portfolio into an 11-stock portfolio, I'm sticking with the focused approach and going with my 10 best.
Going on the list is Action Alerts PLUS charity portfolio holding Alphabet (GOOGL), (GOOG), which I will still affectionately refer to as Google. Ever since the discipline of value investing was developed, value investors and technology stocks are seen as water and oil. Part of the reason is that the most famous value investor, Warren Buffett, is known for avoiding tech stocks. Because of that, many self proclaimed value guys avoid tech stocks too.
Stock consideration ultimately should be about finding a business with a high probability of generating growing cash flows that provides a margin of safety. Many technology stocks, as Buffett correctly implies, don't offer that high probability. Google, however, is that one exception in my view. Google's bread and butter -- its search engine -- is the infrastructure of the internet world. Google essentially owns the majority of toll roads on the Internet. Any time one starts up a computer, odds are Google will collect a toll from an advertiser when that person conducts a search.
Alphabet likely will replace Delta Airlines (DAL). Airlines are complex entities and despite vast industry improvements over the past several years, 2015 may perhaps have been the better year to own an airline stock. Time will tell.