How do you build a great list of stocks to watch and own if you do not really care much about trading or watching the markets?
The easiest way I know is with 8 to 80 companies which I would explain as follows:
When the ‘markets are in turmoil’ this list of companies should be where I go to shop. When the markets are trending up and seem easy, these companies are the ones I am glad I own.
The idea of 8 to 80 came over time as I had to quickly explain my strategy for stocks I own when on stage, talking to the media and people on the streams. The first posts on my blog about this were here and here.
A few days ago I saw this chart from Bloomberg and it really blew my mind:
Only 14 stocks have created 20% percent of all stock market wealth since 1924
— Peter Brandt (@PeterLBrandt) Feb. 2 at 03:35 PM
These are all 8 to 80 companies/brands. They are also profitable, have huge moats, are generally addictive and possibly evil.
Over the last year I have been tinkering with the group of companies in my list and it has evolved. I am working through hundreds of models to see how I would allocate percentages to the list and institutionalize the list as a product.
The list as of today includes the following companies:
Johnson and Johnson
I own Apple, Visa, Google, Nike, Amazon, Tencent and Match at the moment but all are true 8 to 80 companies and brands.
I am thinking through cyber security (I own $CHKP at the moment), Saas (Maybe it’s just Google and Microsoft) as well as automation and robots (Google, Tesla and iRobot).
There are two stocks I have dropped from my original list last year – UnderArmor and Tesla. I own UnderArmor but can’t put in the same category as the companies above. I dropped Tesla recently because they still remain unprofitable.
I have added a few stocks to the list over the last year – Tencent and Match Group
Tencent is just so dominant in China in mobile and payments.
Match Group is edgy. The Company has not been public very long, but they control the online dating world.
No index or list is perfect…and mine will keep evolving. The secret sauce over time is not so much the list itself, but the ability to adjust, allocate and manage risk as you go.
Also published on Medium.