How Many Stocks, Is Too Many Stocks?

Phone-a-friend Gremlin here to discuss my portfolio size.  There have been numerous articles posted on websites as to how big a portfolio should be, along with talking heads on TV stating that X number of stocks should be the maximum.  Some people on the internet claim that a portfolio of five (5) stocks is sufficient to make one diversified.  Others state 10, 15, or 20 as their numbers.  These hosts include professionals and amateur internet enthusiasts who are all about making wise long term OR extremely speculative short term investments.  My answer is, that their advice is best for themselves, but it is dated.

Currently my portfolio contains 58 stock positions across my taxable, Roth, and IRA accounts.  They run the gambit of industries, with multiple names in most sectors.  It is as if I am building my own personal index fund, which pays me a higher yield than an index.  Portfolio management is minimal, I rarely sell a stock, and my expected holding period is for as long as possible.  Considering my view point, versus that of others, why am I happy to hold many positions?

My answer is threefold.  First, the elephant in the room that modern professional advisers try to brush off is the internet.  The fact is I could have 200 stocks in my portfolio, and as long as I keep my apps on my phone up to date, I would never miss a news piece, dividend issuance or anything else (if I chose to be that plugged in).  The press release happens and within minutes the notice hits my email.  This was not possible 20 years ago.  So to borrow a phrase from a large investment adviser, I don't need anybody to 'make sense of investing' for me.  I can do it faster than they can, reading the same things that most of them do (sure some in high finance have special access, but the information gap small and closing all the time).  So tracking my 58 positions is pretty easy.

Second, I don't chase momentum or yield.  Those kind of plays require constant attention, tracking daily changes even, or risky bets on companies that are always dancing near a cliff.  By focusing on quality stocks that will maintain or increase their dividends with or above inflation, I eliminate the need to buy and sell (aka feed the brokerage).  So having a bigger portfolio does not increase my handling of it all, unlike some more streamlined portfolios that aggressive chase returns upfront.

Third, and most important to me, is that I memorize stuff rather quickly.  So when I research a company I can quickly understand what they do.  After that I can analyze if the company would be a good investment for me at the moment.  For a long time many educators (I know a lot of people are in teaching...) told me that memorization is not as powerful of a skill as understanding and critical thinking.  I find that argument to be a fool's errand, as they are each powerful in their own right for different things.  Specifically, by memorizing facts I can create short cuts - in terms of finding and accessing the right information.  It also helps me track a company over time, as a stock is easier to track the more familiar you are with it.  Knowledge is cumulative, so the

So in the end, how big should a portfolio be?  My answer is as big as you want it to.  Sure not every stock will be a home run, but home runs aren't the only way to score points.  Consistency is the key to making my portfolio become my personal index fund, which reports to me.

- Gremlin

Recent Buy Part 2, September 2018

Back to back to back Gremlin here to discuss another buy.  Over the past three months, including September, I have managed a buy in my taxable account each month.  This is pushing up my taxable dividend income at a rate that is more rapid than ever before.  This is thanks to three things: a special dividend from DPS merger with Keurig to KDP, the fact my brokerage is moving to E*Trade so my partial shares were all sold, dividends accrued, and the fact that my wife returned to work (which means we are back to being a two income household again).  I am unsure if this rate of growth can be sustained as eliminating debt payments might supersede equity growth priorites.  Additionally, my wife is only paid 11 months of the year.  Still, the rate of growth gives me a lot of confidence that I can get our passive income to a place I want it to be sooner rather than later.

Today, I added to a new position by purchasing shares of Cardinal Health (CAH) in my taxable account.  I bought 20 shares, with a total cost of $1,069.35 ($53.12 / share, plus commission).  The current yield is 3.6%. For a detailed summary of their history, etc. please visit: CAH's Seeking Alpha Profile.

CAH is a major distributor of medical goods, especially pharmaceuticals; I will borrow the Seeking Alpha description:

"Cardinal Health, Inc. engages in the provision of pharmaceutical and medical products. It operates through the Pharmaceutical and Medical segments. The Pharmaceutical segment distributes branded and generic pharmaceutical, specialty pharmaceutical, and over-the-counter healthcare and consumer products in the United States. The Medical segment manufactures, sources and distributes Cardinal Health branded medical, surgical and laboratory products, which are sold in the United States, Canada, Europe, Asia and other markets. The company was founded by Robert D. Walter in 1971 and is headquartered in Dublin, OH. "

CAH has been battered this year.  One horrible quarter coupled with intense political / public pressure on their industry (due to opioids) and the Amazon (AMZN) scare are definitely the biggest causes, but not the only reasons.  They operate in a thin margin industry, but it is one of an long term oligopoly.  The distribution industry is something that takes time to build.  Its low margins means those thinking about joining the industry, such as AMZN, would probably look to other parts of that food chain for better margins (they did buy an online pharmacy).  For this reason, along with the long term trends of better availability and necessity of medications, it is clear that CAH and the industry will be around for a long time competing primarily among themsevles.

That is the 800 lb gorilla in the room.  CAH also sports a comfortable payout ratio and still has a steady Medical segment arm.  This gives me exposure to multiple sides of the healthcare sector, which is always appreciated.

This purchase will add around $38 to my forward 12 month dividend income.

I will update my portfolio page at the end of the month.

What do you think of CAH?

- Gremlin
- Long CAH, KDP

Recent Buy, September 2018

Grab Your Popcorn Gremlin here to discuss my most recent buy.  Also why the popcorn?  Well tonight the NFL season starts.  Though I am not the biggest or best fan by any means, my team is still coming off their first championship win and they start the season tonight.  So go Eagles!  This should be a good season, though if past experience serves my memory right they will probably tank.  Almost no one has their division in back to back years, though I want to see myself proven wrong.

Otherwise, I added to my Roth account today.  I have been mostly neglecting my Roth account due to our former single income set up, and because my focus is now heavily on the taxable income positions that I want to build.  Still today is my Roth's day.

Today, I added to a new position by purchasing shares of Broadcom Inc (AVGO) in my Roth account.  I bought 5 shares, with a total cost of $1,091.04 ($216.82 / share, includes commission).  The current yield is 2.29%. For a detailed summary of their history, etc. please visit: AVGO's Seeking Alpha Profile.

AVGO is a major producer of semiconductors and other technological components; I will borrow the Seeking Alpha description:

"Broadcom, Inc., is a holding company, which engages in the design, development and supply of analog and digital semiconductor connectivity solutions. It serves four primary end markets: wired infrastructure, wireless communications, enterprise storage and industrial & other. Its products include data center networking, home connectivity, broadband access, telecommunications equipment, smartphones and base stations, data center servers and storage, factory automation, power generation and alternative energy systems, and displays. In April, 2018, Broadcom redomiciled from Singapore to the United States. The company was founded in 1961 and is headquartered in San Jose, CA. "

AVGO has been growing its dividend at a massive clip for the last 8 years.  In addition, the payout ratio is super low and the stock is clearly undervalued at this point.  However, what is most exciting is that they are a direct supplier to something that will definitely only become more important over time - technology.  I already own MSFT and AAPL, but this perspective is one of the physical needs that drive technology production and efforts.  Sure having a smartphone is a necessity for life, but it is clear that people find it harder and harder to separate themselves from technology.  I try to get away from it all the time, but it is nearly impossible to avoid it - even when you work hard to do that.  So in the meantime AVGO and similar companies will make the chips and materials that feed the tech beast.

This purchase will add $35 to my forward 12 month dividend income.

I will update my portfolio page at the end of the month.

What do you think of AVGO?

- Gremlin
- Long AVGO, AAPL, MSFT