Editor’s note: “7 One-Stock Portfolios for Passive Investors” was previously published in June 2019. It has since been updated to include the most relevant information available.
Are you looking for a portfolio of stocks to buy but don’t want to buy a broad-market index ETF?
If so, Robert Kirby’s idea of the Coffee Can portfolio should do the trick.
Robert Kirby was a portfolio manager based in Los Angeles who spent most of his working life with the Capital Group, one of the world’s largest and oldest investment management companies.
In 1984, Kirby wrote an article for the Journal of Portfolio Management entitled The Coffee Can Portfolio, an article in which he makes a case for buying a 50 quality stocks and holding them indefinitely. He looked at this concept as actively passive investing.
While he admitted that this wouldn’t make active managers very rich because they’d have to charge such a low fee given how little work was involved, he believed that someone should come along to offer such a service.
These seven stocks to buy that should get the job done over the long haul.
Berkshire Hathaway (BRK.A, BRK.B)
By comparison, if you buy 100 shares of Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), you’ll pay the commissions for any shares you purchase, and that’s it. If you hold them indefinitely, your annual fee over 10 years would be almost non-existent, certainly making it attractive to passive investors.
There are plenty of experts out there who would suggest that with Warren Buffett approaching 90 years of age, now is not the time to recommend Berkshire stock. That’s for the simple reason that BRK’s share price will get hit when the Oracle of Omaha finally passes.
However, many others feel that Berkshire stock would rise upon his death, including Buffett himself.
At the end of the day, buying this particular one-stock portfolio gives you a small part of $739 billion in diversified assets spread across the Globe. BRK stock will do just fine after Buffett’s gone.
And you can’t beat the fees.
Brookfield Asset Management (BAM)If you don’t mind investing in a company that’s based in Canada, Brookfield Asset Management (NYSE:BAM) is an excellent way to own a diversified portfolio of infrastructure, private equity, and real estate assets.
In addition to those assets, it also owns a portfolio of 216 stocks worth $23.8 billion as of its most recent 13F summary page. Its largest holding is a 79% ownership stake in GrafTech International (NYSE:EAF) worth $2.9 billion.
One of its other large holdings is a $549 million investment in SPY, which I spoke about in the Berkshire section. Like everyone else, it pays 0.09% to own that ETF, which works out to a little less than $495,000 in annual fees.
Thought to be the leading bidder for Genesee & Wyoming (NYSE:GWR), an operator of short-line railroads in the U.S., you will never be bored following all the wheeling and dealing that CEO Bruce Flatt and his management do to deliver above-average shareholder returns.
Although Brookfield is an asset manager and is paid fees to manage the assets, it also puts a significant amount of its own capital into these deals, providing shareholders with the assurance that their interests are aligned with Brookfield’s.
Compass Diversified Holdings (CODI)
Compass Diversified Holdings (NYSE:CODI) is a holding company that buys middle-market businesses that are profitable and growing. It first came to my attention in 2011. Since then, I’ve recommended it from time to time.
The latest being July 2017. At the time it was trading around $17.30. Today, it’s up around $19, an average 10% return over the past two years.
“Like Brookfield, CODI is part private equity firm, part strategic acquirer, and part asset manager. Set up as a grantor trust and publicly traded partnership, it is neither a business development company (BDC) nor a REIT, and is not required to distribute a minimum amount of cash flow to shareholders,” I wrote at the time.
“The company’s business model allows it to take the long-term view with all of its investments.”
CODI gained some notoriety earlier this year when it sold one of its portfolio companies — Manitoba Harvest is a maker of hemp-based foods sold across the U.S. and Canada — to Tilray (NASDAQ:TLRY) for CAD $419 million, a move that got the cannabis company into one of the industry’s biggest areas of growth.
If you buy CODI whenever it trades below $15, you will make money in the long run.
Loews Corporation (L)
Although the holding company run by New York’s Tisch family has had a rough go of it in recent years, I never doubted that Loews (NYSE:L) stock would one day turn the corner and deliver a strong year on the markets.
Year to date, L is up 13.1% year-to-date through June 25, the best annual performance in many years.
Why the big move?
Well, for starters, in the quarter ended March 31, Loews increased its net income by 34% to $394 million. On a per-share basis, it grew net income by 43% due to fewer shares outstanding. On the top line, Loews grew its revenues by 4.9%, to $3.76 billion from $3.58 billion a year earlier.
Although in its latest quarter, it appears to have returned to previous levels.
The company continues to use its excess cash flow to buy back its shares. In the first quarter, it repurchased 6.8 million shares at an average price of $47.35 a share. In the same period a year earlier, it bought back 9.9 million of its shares for $497 million.
If you look at its 10-Q, you’ll see that CNA Financial (NYSE:CNA), its 89%-owned subsidiary, generated 77% of the company’s net income in the quarter. Like Berkshire, insurance is a critical holding in the Loews empire.
In 1974, Loews acquired 56% of CNA for $2.50 a share on a split-adjusted basis. Those shares today are worth approximately $26 a share, a return of almost 6% annually, not including the gains on the additional shares it’s acquired over the years along with the income it’s received from its ownership.
It’s the foundation of Loews.
Fairfax Financial Holdings (FRFHF)
This is the second of three Canadian one-stock portfolios I’m recommending.
Fairfax Financial Holdings (OTCMKTS:FRFHF) is sometimes called the Berkshire Hathaway of Canada. Founded in Toronto in 1985 by Indian-born investment manager Prem Watsa, the company’s book value per share has grown by 18.7% over the past 34 years from $1.52 in 1985 to $432.46 in 2018.
After a couple of bad years in the markets, Fairfax stock is up 14.2% year to date (including dividends) through June 25, returning the stock to its usual double-digit annual returns.
Like Berkshire, Fairfax’s business is built on an insurance foundation.
In the first quarter ended March 31, the company’s insurance operations had an operating income of $246.7 million, 3.8% higher than a year earlier. Unfortunately, its non-insurance business saw operating income drop by 46.4% in the quarter. However, it did manage to deliver net gains on its investments of $723.9 million, bringing its net income to $769.2 million, 12.4% higher than a year ago.
If you like conservatively financed businesses, Fairfax is the one stock to buy, with total debt to total capital of just 29.2%. During the quarter, FRFHF repurchased $172.3 million of its stock at an average price of $468.21 a share.
Outside the company’s insurance business, its investments in India and Africa and the retail industry hold out the most promise for the future.
Bernard Arnault went over the $100-billion mark June 20, making the CEO of luxury goods conglomerate LVMH (OTCMKTS:LVMUY), the third wealthiest person in the world behind Jeff Bezos and Bill Gates, but ahead of Warren Buffett.
Arnault, who owns 46% of LVMH, has seen his wealth increase dramatically in 2019, due to a 44.1% increase in the company’s stock year to date through June 25.
While investors have heard of many of its luxury brands: Louis Vuitton, Fendi, Christian Dior, Moet & Chandon, Glenmorangie, Guerlain, Tag Heuer, and Sephora, the story of how Arnault gained control of this incredible group of businesses is what makes LVMHY so attractive as an investment.
In 1984, Arnault bought a bankrupt French textile company that happened to also own Christian Dior with $15 million from his family and the rest financed with debt. Quickly, he went to work buying up fashion houses in Europe and turning them into profitable businesses that generate vast amounts of cash.
Today, it generates almost $53 billion in annual sales from 70 different brands. Arnault is quite possibly the best capital allocator in the world, better than even Warren Buffett.
Power Corporation (PWCDF)
The final of my three Canadian one-stock portfolios to buy is Montreal-based Power Corporation (OTCMKTS:PWCDF), a holding company controlled by the Desmarais family through a dual-class share structure that gives them 59% of the votes but much less of the actual equity.
In turn, the labyrinth-like organizational structure gives it control over both insurance company Great-West Lifeco (OTCMKTS:GWLIF) and asset manager IGM Financial (OTCMKTS:IGIFF) through its 65.5% ownership in Power Financial (OTCMKTS:POFNF).
While Great-West Lifeco and IGM Financial are large organizations, it is Power Corporation’s investments in fintech companies that are most appealing in terms of future growth.
One of them is Toronto-based robo advisor Wealthsimple, which operates in Canada, the U.S., and the UK, managing more than $3.4 billion in assets under management for over 100,000 customers. Power owns 89% of Wealthsimple.
While Power’s stock continues to underperform relative to both the S&P/TSX Composite Index and S&P 500, the long-term potential of its fintech investments can’t be overlooked.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.