Sunday, May 28, 2017

10 stocks to last the decade

In August 2000, Fortune ran an article titled “10 Stocks to Last the Decade.” The author’s intention was clear, as captured in a short description preceding the article: “A few major trends will likely shape the next 10 years. Here's a buy-and-forget portfolio to capitalize on them.”

Well, we have more than 15 years behind us. Let’s look back and see how the picks held up over time. Let’s also see if we can spot any trends that should have caught the reader’s eye.

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The 10 stocks are Nokia, Nortel, Enron, Oracle, Broadcom, Viacom, Unvision, Charles Schwab, Morgan Stanley, Genentech.

Here's the conclusion of the article:

After 15 years, here’s the final result: a handful of winners, a handful of laggards and some serious disasters. You lost most – if not all – of your investment on half of the positions. By comparison, the S&P 500 has increased by ~65% (cumulative) since the article was written.

What’s most interesting to me is what we can learn from the losers: Without fail, these were the companies that were part of the “sweeping trends that have the potential to transform the economy.” They had grown like crazy in recent years; analysts and investors expected the good times to continue in perpetuity. Their valuations required perfection – and in some cases, even more. The author stepped to the plate in search of riches. In reaching for home runs, investors ended up with a number of devastating strikeouts. The subsequent experience of investors in these 10 companies – especially those with the potential to transform the economy and the world as we know it – offers an important lesson that shouldn’t be forgotten.

[see also Ten Stocks for the Next Ten Years]

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What about my top 10?  Well, I didn't have exactly have a top 10, but I had a 20 Punch Portfolio that I wrote up in August 2004.  I wonder how they have done since.  That's about 13 years ago, but for convenience, I'll just use Morningstar's 10 and 15 year returns.  For comparison, the S&P 500 has returned 7.06% and 7.67%.

1.  BRK.B  8.51%   8.18%
2.  WSC    bought out by Berkshire Hathaway
3.  MKL    7.07%  10.86%
4.  DHR   11.60%  12.80%
5.  WMT    7.16%   3.75%
6.  COST  13.95%  11.88%
7.  KSS   -4.12%  -3.03%
8.  BBBY  -1.39%   0.04%
9.  ORLY  21.10%  20.04%
10. HD    16.05%   9.58%
11. LOW   10.57%   9.05%
12. FAST   9.29%  11.52%
13. EBAY   8.32%  11.43%
14. RPM   10.85%   9.58%
15. CSL    9.71%  12.40%
16. ACS   bought out by Xerox (-8.27%, -0.96%)
17. DELL  went private
18. APPB  went private
19. EAT    3.97%   5.17%
20. JNJ    9.13%   6.47%

I still own 15 out of the 20.  Gone are WSC, CSL, ACS, DELL, APPB.  The only one I actually sold was CSL (mistake).  Out of those 15, 10 have outperformed the S&P for 15 years.

What about my other top holdings?  Let's see, stocks not listed above that are currently in my top 20 are MSFT, AAPL, UNH, ROST, CSCO, WBA, ORCL, AMZN, PG, PYPL, CHKP, INTC, BABA.   (The Punch stocks that are in my current top 20 are BRK.B (and A), MKL, COST, ORLY, HD, LOW, JNJ.  And I guess you could sort of count EBAY since it split up into EBAY and PYPL.  DHR would be there too, but it spun off FTV.)  How have they done?

MSFT   9.97%  7.89%
AAPL  25.97% 35.13% (sheesh)
UNH   13.12% 15.29%
ROST  23.24% 18.54%
CSCO   3.44%  5.27%
WBA    7.26%  6.06%
ORCL   9.73% 12.04%
AMZN  30.68% 29.99% (another sheesh)
PG     5.64%  6.40%
PYPL    N/A    N/A
CHKP  16.91% 12.91%
INTC   7.15%  3.12%
GOOGL 12.40%   N/A
BABA    N/A    N/A

Out of the 11 stocks above that have a track record, 7 have beaten the S&P 500.  Out of the top 10 stocks in my portfolio (BRK, MSFT, AAPL, UNH, JNJ, HD, ROST, CSCO, MKL, LOW), 2 have underperformed the market (JNJ and CSCO).  I don't have any plans to sell out any of my top 20 stocks, though I might trim here and there.  Of those remaining on my 20 Punch list, KSS is the shakiest.

(Alphabet would replace BABA in my top 20, if you combine the A and C shares.  So I revised the list above.)

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