25% Plus YTD Return Portfolio

Does stock picking beat passive investing? Probably not! But is it fun to do with some of your capital? Yes, for some. And, perhaps there are times with good research, good discipline and some solid timing, one could see a double digit return. In general I go for the plain old vanilla index fund investing. What we affectionately call VANGUARD 101 INVESTING. But, it is fun to create side portfolios with actively chosen stocks. For me, this is a way to learn about the world. I learn so much about the economy and society by studying what great companies do. In this article I will share my side portfolio that has returned approximately 20% this year. It mainly consists of large strong dividend players, but there are a few other interesting companies in the mix.

Warren Buffett’s passive investing bet

In 2008, Warren Buffett challenged several actively managed hedge funds. He claimed that over a 9 year period a passive simple low cost index fund would on average beat the returns of the actively traded and managed hedge funds. Did the Oracle of Omaha find some great, bargain-priced stocks? Did he make the deal of the century by finding an emerging tech company? Nope. He simply said that by investing in a boring, low-cost stock index fund like those at Vanguard would outperform most hedge funds over the past decade. He made no new investments and didn’t time the 2008 market crash. He just stayed put in an index fund. How clever is that? Well, it requires no investing skill, although when you do the math, it’s brilliant. In a big way he was challenging the exorbitant fees that fancy advisors and hedge funds charge their clients to “manage” their money.

7.1% vs. 2.2%

Buffett’s low cost index fund returned an average 7.1% return each year. Using the rule of 72, this would double someones money every 10 years. The fancy pants hedge fund guys averaged 2.2%, not even on par with a boring old CD from your credit union. The bottom line is that boring old low cost index investing is the way to go.

SEE RELATED: Vanguard Investing 101

The Active Portfolio

On the flip side, we do like to actively invest and trade with about 10-15% of our portfolios. Therefore, here are some of the side portfolio positions I have built over the last couple of years. My main goal for this portfolio is dividend income and capital preservation/appreciation. But it has done surprisingly well over the last year. Whereas the SPY 500 YTD return have been about 20%, my portfolio of chosen stocks has performed slightly better, but not by much.

1. BRK-B (Berkshire Hathaway) (flat one year return, but did not lose money)

We are clearly fans of Warren Buffett and his value style of investing. He trys to find good strong companies with depressed share prices and buy them on sale. My only complaint is that this is not a dividend payer. But, I believe the holding company will thrive for decades to come. I admire the company (BRK-B) and the stock for how it adds value to my portfolio. Sure, it may not return the stellar returns we have seen forever, but it is still a strong collection of assets that will return value over the long run. As we discuss here at The Money Vikings, in order to build wealth, one will need to generally acquire assets and reduce liabilities. In terms of acquiring assets, one of the best asset classes over the years has been investing consistently in high quality stocks as part of a diversified index fund. There are many ways to do this through Vanguard or others. Another way we enjoy is by following the lead of Berkshire and buying either class B shares or shares of some of the companies Berkshire is heavily invested in.

2. Qualcomm (17% one year return)

  • Qualcomm (Ticker: QCOM) Well positioned for upcoming 5G. Well positioned for the future world of massive technology growth.
  • Growth in Internet of Things market and strong intellectual property profits.
  • Stock has fluctuated between $60-80/share for 6 years. It pays a 3.5% dividend yield.
  • QCOM recently hiked their per share dividend 9% to .62/share.
You know that supercomputer you carry around with you all the time? You know the device you can’t live without and are looking at all the time? The one that humanity will now always be addicted too, even when we become an interplanetary species. A company from Southern California called Qualcomm designs and invents many of the technologies that make that thing work. If you use Verizon or Sprint, then your phone uses the Qualcomm version of what is known as Code Division Multiple Access radio system, CDMA, that basically lets multiple devices use the same band of frequencies to communicate. Qualcomm makes massive amounts of money off its intellectual property, some of which has been stolen and used by China.

3. Guggenheim Global Water ETF (CGW) (15% one year return)

Water is always going to be in fashion, not sure what else to say. I like to look for ways to invest in things that will be around forever. Another way to invest in water is through various water utilities such as Aqua America (Ticker: WTR) which has returned an eye watering 😉 24% this year!

4. Disney (16% one year return)

  • Disney appears to be a good long term stock to own, it is a media and entertainment giant that owns amazing amounts of intellectual property that sells all over the world.
  • They should be increasing their modest dividend in the near term.
  • They are preparing for the future with strategic moves with on demand entertainment at home and major acquisition actions such as Fox.
  • Ticker DIS trades at about $130/share. The P/E ratio is about 14. Dividend is .86 per share, pays semi-annually, 1.5% yield

5. Kinder Morgan (KMI) (15% one year return)

Pipelines of Money! Dividend Snapshot – Kinder Morgan Inc.(KMI) & Enterprise Product Partners (EPD)
  • The “mid stream” industry has endured a challenging few years, but perhaps things are about to turn around.

  • Companies like KMI and EPD seem well positioned to benifit from massive $800 billion in growth.

  • Analysts view KMI as a good value dividend stock.

KMI operates and maintains pipelines and terminals that transport natural gas, gasoline, oil, carbon dioxide (C02) and other products. They also handle ethanol, coal and steel. In general, there is huge demand for new pipelines in North America to handle growing supplies of natural gas, etc. The modern world around us is based on natural gas and other materials that go into millions of products. We would be blown away to walk around our modern homes and point out the hundreds of items that are all composed of natural gas and oil. Kinder Morgan is the largest energy infrastructure company in North America. They basically own all the “freeways” that deliver the materials to points of distribution and consumption. In fact, they own about 85,000 miles of pipeline “freeways”! This is commonly known as midstream infrastructure. KMI is on track to increase their dividend yield in 2020. They hiked the dividend by 60% earlier this year. I like this dividend stock because the price is relatively low at $18/share and pays a 2.77% dividend yield. Yes, the economy will go up and down, but energy infrastructure is quite valuable in terms of building and maintaining the modern world. All this said, there are also risks to these companies. They have taken in debt to expand and this could be an issue in the next recession. All investments have some kind of risk. Enterprise Product Partners (EPD) EPD is very similar to KMI and another dividend play to consider in the same sector and business. Again, the modern world is built on the product that flows through EPD and KMI infrastructure. Somehow the product needs to be transported efficiently, cleanly and safely. EPD trades at $29/share and boasts a 6.29% dividend yield at .43 per share.

6. STORE Capital (Ticker: STOR) (37% one year return)

.35/share dividend 4% dividend yield Fitness clubs, daycare centers, urgent care facilities, pet boarding and other service oriented businesses. They all require real estate in some form. But who owns and operates that real estate? Anyone who owns a home/property or has in the past understands how much is involved. A property requires constant management and attention. There are things to fix, maintain and manicure to keep the property in tip top shape. These investments preserve the value and utility of the asset. There is also another big thing about owning property, the capital required to acquire the asset and then maintain it over time. Businesses have to make decisions about real estate. In other words, businesses are no different and almost all businesses require real estate in some form or fashion. Real estate is either needed as a factory, wharehouse, storefront, administrative office space, etc.

Enter STORE (Single Tenant Operational Real Estate)

STORE not only provides the real estate for a business, they also help the tenant/business evaluate and operate the business for positive cash flow. This becomes a win/win relationship where STORE acts as a kind of landlord and business partner/consultant.

Businesses have a choice to make: Do they own or lease the real estate they require to do business?

Sometimes in business (and life) leasing is the better and most economical option. It requires less capital to rent, less maintenance responsibilities and frees up time and capital to focus on other things. This is because capital that would have been used to finance, acquire and manage real estate, can be freed up to invest back into the core business.

STORE Real Estate Investment Trust (REIT)

Store Capital is a highly regarded REIT investment. Warren Buffett’s Berkshire Hathaway is a large shareholder of STORE ticker “STOR”. And with the S&P 500 projected to have a bummer decade ahead, many investors are looking for alternative yet mainstream investments to diversify their portfolios. Essentially, STORE Capital helps a business determine if leasing or owning is in their best interest. If leasing is optimal, then the company can help that business acquire use of the real estate they need to successfully run their business. STORE owns and operates the real estate, charges rent of course, and returns the majority of profits back to shareholders in the form of dividends.

7. Microsoft (MSFT) (28% one year return)


A deep dive into the tools Microsoft Azure provide and the benefits for developers seems to be a glimpse into Microsofts future. Azure is Microsoft’s flagship Machine Learning studio. Microsoft recently acquired GitHub, a web based software development platform. Most recently Microsoft achieved a major acceleration in growth in its commercial business – with bookings rising by 22%. Commercial is now close to 70% of revenues.

Microsoft’s success is well known. It can be difficult to evolve a venerable and iconic institution such as Microsoft. The company appears to be pulling off a strategic pivot not yet captured in its valuation. One area of interest is the Azure machine learning software and tools which displays some exciting future capabilities. Most software companies talk about their transformation and their ability to survive in the new cloud based/subscription-based word. Microsoft is actually executing the pivot. The company is growing and generating cash!

DIVIDENDS As you may have noticed, most of these equities provide a dividend. I think this is very important for a couple of reasons. No one really knows what particular stock prices are going to do. They typically go up over the long run, but sometimes they go down. When they inevitably go down it is very nice to continue to derive value from your investment.

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