Overweight

I build my portfolio on solid ground.

I focus on quality companies that grow cash flow, have solid competitive advantages, and as a result have a long track record of annual dividend increases. I try to acquire those companies at good valuations. I also try to assemble a diverse group of those quality companies, in order to spread my risk. I also try to spread out my risk by building a position over time, but not risking more than a certain amount per position.

Once I acquire a good business, I sit back and receive a growing pile of dividends to allocate elsewhere, into the best ROI opportunities I have at the moment. I do not micromanage the businesses I own. That being said, I do have an exit criteria set in place, before I invest in a company. Those criteria are increasingly selling after a dividend cut or if a company is acquired (I have no choice in this regard).

I start out very diversified, but let the portfolio concentrate on its own, based on merit. This is consistent with the coffee can approach to investing. I find a few blue chips and neatly tuck them into my safety deposit box for decades (or more than a few in my case plus now we have brokerage accounts online, though I do believe bad behavior as investors would be reduced if we still received paper stock certificates)

That way, a few companies end up really winning, but having a large allocation to the portfolio. The ones that do not do as well, end up being cut due to dividend cuts or just become mere footnotes. In other words, the portfolio would likely be driven by a few outliers, while a few would fail, and a happy medium would provide respectable though decent results. Hence, the portfolio would end up being more lopsided in the future, due to the immense impact of a few large winners that started out small, but had generous returns.

The goal of the investor is to try and avoid mistakes of commission (selling a big winner waay too early, and failing to realize its full potential) and avoid mistakes of omission (not buying that big winner due to “reasons”).

In my case, I have noticed that I have tended to sell too early, and thus I am trying to be as inactive as possible. Or as passive as possible when it comes to holding. Hence, I “never sell”. I audited my results and noticed that selling on average was a mistake, as I ended up cutting my winners short, and buying into mediocre situations on a relative basis.

That being said, I am also trying to be able to capture those winners, but that is not very easy of course. It simply means in my case to take my signals to buy, even if that means that I have a large portfolio with a lot of holdings.

Either way, a coffee can portfolio can result in a disproportionate allocate to a few companies over time. Letting your winners is fun, as they keep on winning.

I currently have one such winner in the DGI portfolio newsletter..