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In a previous article I outlined the difficulties I am having in allocating new cash to my portfolio. However, I mentioned that I am comfortable holding the companies I own. This is because I believe that the companies in my dividend portfolio have excellent business prospects, and also have favorable business economics.

I have spent thousands of hours poring through annual reports, press releases, analyst reports, looking at financial trends, and trying to understanding each respective business. As a result I am relatively familiar with the companies I own. While I monitor positions frequently, I am not pulling the sell trigger unless there is a dividend cut. I do reserve the right to sell if other activities happen, that could cause me to question the business prospects for the company.

For example, I have sold companies before, when I found comparable securities at much better valuations. In those occasions, I have traded up either by obtaining better growth prospects, or better yields.

Of course, if the securities I sold became attractive again, I would purchase them at the lower valuations. Unfortunately, great securities are typically close to being fairly valued, and quite often stay overvalued for extended periods of time. As a result, it is fairly rare to find comparable securities with similar business characteristics, while selling at better valuations.

This exercise helped me reach a Eureka moment: My best ideas are already in my portfolio. It’s  true that some of them are overvalued, and not worth adding to at current prices. However, I am perfectly fine holding on to these stocks and doing nothing for 20 – 30 years. My second “a-ha” moment was that for many of the companies I do not own, but would consider to be “best ideas”, I am already familiar with them.

For many of the companies I own, I would welcome the next recession as a buying opportunity. Other than that, the problem I would be facing is that fresh capital will be accumulating whether I contribute money or not. As a result, I would have to find more uses for the capital. Luckily, I am well-versed in the components of the Dividend Champion and Dividend Achiever lists. I keep scanning them for opportunity, and learning about each business that I find appealing. For me, an appealing business is one that I expect to be around in 10 -20 and even more than 30 years.

For example, I believe that Hershey (HSY) will be around for the next 30 years (and beyond), while delivering a product that customers associate with quality that they are willing to pay a rising price for. This pricing power will deliver rising profits and dividends for the company’s shareholders.

Unfortunately, while holding on to this cash machine could be a smart long-term strategy for existing investors, the stock is overvalued at 25.70 times forward earnings for new investors. However, I would keep monitoring the company, and would love to initiate a position at the next hiccup of the enterprise or during the next recession.

I also believe that the products of Brown-Forman (BF.B) will be around for at least 30 years from now. The stock price is overvalued at the moment at 23 times forward earnings. However, I am not seeing a comparable alternative that is substantially cheaper, to make it worthwhile my time and effort to replace Brown-Forman with it. The other company needs to be comparable from a quality perspective, but from a valuation perspective needs to be both cheaper and also meet my entry criteria.

A few companies I already own, which I find attractively priced today include:


Article printed from InvestorPlace Media, http://investorplace.com/2013/08/your-best-ideas-might-already-be-in-your-circle-of-competence/.

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