When I first started, I figured I’d end up with a portfolio of 20-30 stocks. Part of this was because I was busy working around 50 hours per week in the auto industry. So I just didn’t think I’d have a lot of time to really manage more stocks than that, and I had just naturally assumed that managing a portfolio any larger than that would be too time consuming. In addition, I knew that I could achieve diversification across most sectors that represent the economy with just that many stocks.
However, once I passed 20 stocks and neared 30 stocks, I realized that there were still a number of high-quality companies out there that I didn’t own a piece of, yet I really wanted to. So I asked myself if it was necessary to limit myself to some arbitrary portfolio size, which would then mean there would be a host of great companies that I would never own a piece of.
And I decided that it just didn’t make sense to limit myself like that.
Now, I’ve already discussed why I want to own such a large portfolio, and that’s based around dividend income diversification. So I won’t be touching on that again. Rather, I want to discuss why it’s not really burdensome or time consuming to manage such a large portfolio, if done correctly. I have some experience in this arena, as I currently own equity in 52 different companies.
Focus On The Blue Chips
If you look at my portfolio, you’ll notice that the majority of the companies I’m invested in are blue-chip companies. These are large and stable businesses that have fairly lengthy track records of operational excellence.
My top five holdings, by dollar weight are:
- Johnson & Johnson (JNJ)
- Philip Morris International (PM)
- Norfolk Southern Corp. (NSC)
- PepsiCo, Inc. (PEP)
- Kinder Morgan Inc. (KMI)
Approximately 23% of my portfolio is allocated to these five companies. And most of the rest of the portfolio is allocated to companies of similar size and quality.
Look, I don’t need to worry about what the $304 billion company Johnson & Johnson is up to. I’m not looking over the CEO’s shoulder, concerned about the drug pipeline, quarterly medical device sales, or distribution of Listerine. Johnson & Johnson will do just fine without me worrying about them, which is one of the main reasons I’m invested in them in the first place.
Same goes for most of the rest of the companies I’m invested in. It’s fairly easy to run a portfolio of this size because there’s really no input necessary from me, and extremely limited personal involvement. That’s a big reason why it’s not only easy to run such a large portfolio, but also why I prefer investing in stocks to, say, rental properties. Pepsi isn’t going to call me if a production line has an issue. Philip Morris isn’t going to send me an email about input on e-cigarettes. I just don’t need to worry about day-to-day operations.
When constructing a portfolio, I tend to invest in companies that just don’t require a lot of babysitting. I have better things to do. And this is why you’ll notice that I avoid complicated businesses that are subject to rather quick and/or radical change, or businesses that I don’t understand, which would require a lot of my attention to keep up on. I also try to avoid companies with either poor track records or no track records at all. Thus, I find little interest in technology, IPOs, and mREITs.
By allocating the majority of my portfolio to these high-quality blue-chip companies, this allows me space and time necessary to take on the occasional interesting opportunity that might require a bit more attention, like the tiny food company, Armanino Foods of Distinction Inc. (AMNF). In addition, I have plenty of time available for when the odd issue occurs, like what happened recently with the accounting scandal at American Realty Capital Properties Inc. (ARCP).
Focus On The Long Term
When I invest in a company, I’m thinking about where they might be 20 or 30 years down the road. Thus, worrying about what happens over the next few quarters after I invest has very little impact on my decision as to whether or not to remain a shareholder.
I think too often investors pay too much attention to quarterly results or even what happens from year to year. Business cycles, interest rates, commodity demand, and politics are just a few issues that can cloud a company’s performance over the short term. Worrying about one or two bad quarters is just not productive, in my view, especially when my intended holding period is the rest of my life. Constantly reassessing your investment thesis is what can be unnecessarily time consuming. It’s like performing an analysis on a company over and over again.
In addition, worrying too much about those aforementioned macroeconomic events will cloud your judgement. Worrying about where interest rates are going is just a complete waste of time, in my view. I’ve had numerous people stop by the blog over the years and question certain investments because “interest rates are surely going to rise shortly” or “the Fed is printing too much money”. I remember the fiscal cliff was a big deal not long ago, and investors were freaking out. Now, we don’t even talk about it. Interest rates were all the talk back in the early 80s, but when’s the last time someone mentioned Paul Volcker?
Focusing on the long term allows you to clear your mind. I can invest in over 50 companies with little worry because I just don’t worry about macroeconomic trends. I worry about company-specific fundamentals, competitive advantages, and qualitative aspects. I concern myself with buying high-quality stocks at a fair or better value. These concerns are easier for me to control and require much less time and worry to focus on.
Focus On Technology
I just recently pointed out how technology has made achieving financial independence easier than ever. However, it also allows managing a large portfolio easier than ever.
For instance, I have personally signed up for Seeking Alpha’s email alerts. Any time one of the companies I’m invested in announces earnings, declares a dividend, makes any changes or announcements, or are otherwise featured in the investment news in some way, I receive an email. These emails are fantastic, because they typically condense the information down to what I need to know. Quarterly report emails include revenue and EPS, as well as any pertinent information like volumes, guidance, or notes from management. These literally take 10 seconds to scan.
Most of the time I spend looking at a company is done at the outset when I initially analyze a company for investment worthiness and value. Other than reviewing numbers every so often for purposes of quality control, I also occasionally recheck stocks in the portfolio for valuation so as to know if there might be an opportunity to up my equity stake(s). It takes practice to know the numbers off the top of your head, but this doesn’t take long at all in reality once you’re used to it. Furthermore, since most of the companies I’m invested in are those aforementioned blue chips, most major professional analysis firms like Morningstar track and value these stocks on an ongoing basis, which means a quick check on value is just one mouse click away. Technology makes it amazingly easy and efficient to run a quick valuation check which may or may not confirm what I already think about a particular company’s stock. If I’m interested in adding to a position, then there might be more time involved to recheck the numbers and go back over their prospects, but it won’t be anywhere near the time required during the initial analysis. Furthermore, this process would be just as time consuming whether you own 10 stocks or 50. The key is that the overall management isn’t much different.
Focus On The Fun
One last point, which might actually be the most important, is that this is just plain fun for me! Even if managing this large of a portfolio was time consuming, I’d still do it.
I love analyzing stocks, valuing companies, and reading annual reports. Like some guys might love power tools or leather recliners, I love stocks. And the more the merrier, to a degree.
It’s enthralling to know that I can be a miniature railroad baron by owning a chunk of Norfolk Southern; or a real estate tycoon by owning a chunk of Realty Income Corp. (O) and its commercial properties; or a retail icon by owning some of the best retailers in all the land, in Wal-Mart Stores, Inc. (WMT) and Target Corporation (TGT). To limit myself to certain companies in certain industries because I might go over some predetermined number of stocks would be silly to me.
To point out the supposed time consumption in managing a large portfolio of high-quality dividend growth stocks would be like pointing out how much time it takes to restore a 1969 Camaro to someone who loves to work on classic cars. You could go out and buy a fully restored 1969 Camaro just like you could manage a portfolio of just 10 or 20 stocks. But if you thoroughly enjoy it, it doesn’t really matter how much time it may or may not require. We all have to spend our time on something, and that something should be enjoyable and hopefully a passion of sorts. That’s one of the main reasons of reaching for financial independence – to spend your time on things you enjoy. To avoid something that you enjoy because of time consumption (especially when it’s not even time consuming, as I’m pointing out in this article) is completely missing the point.
This is like a hobby that happens to pay me really well. And one day this hobby of mine is going to pay for all of my expenses, thus rendering me financially independent and able to do go about my day without regard as to how I’m going to get by. And it’ll require even less time at that point because I’ll likely be accumulating assets at a much slower pace, or possibly not at all. Sure, there will still be the occasional checkups here and there to make sure things are humming along, which is just part of the fun.
I’m not trying to talk anyone out there into running a portfolio of similar size to my own. You’ll have to find your own comfort zone for something like that. However, what I did want to accomplish with this article is to dispel any notion that managing a portfolio with 50 or more positions is somehow extremely time consuming or unwieldy. I was managing this portfolio all the way through my career in the auto industry; so I was working 50 or more hours at the dealership, writing here on the blog, and then also managing a large portfolio all at the same time. If running a portfolio of this size was as time consuming as some might make it out to be, I wouldn’t have even had time to sleep.
Now that I’m writing full-time, I have even more time to manage things. However, the portfolio just doesn’t require much of my time. I’d be very surprised if I spend more than five hours per week with active portfolio management, although the picture is a bit clouded for me because my way of life is now intermingled with investing.
I would only hope that you don’t place an artificial ceiling on yourself because of any misplaced fear that a large portfolio will become unmanageable. It’s just not that way at all, especially with modern technology. I can think of at least 20 high-quality companies right now off the top of my head that I still want to invest in but haven’t yet, and I simply won’t limit myself because of some supposed number of stocks that’s just the right number to own. There is no right number. The number of stocks you may end up owning is completely up to you. Just make sure your portfolio doesn’t stray from your investing goals simply for the sake of owning more stocks. I’m not out to own any more stocks than anyone else, because more isn’t necessarily better, and will only own a piece of those companies that fit within my investment criteria. But if there’s a high-quality company out there that pays and grows dividends and is selling a piece of itself for less than its intrinsic value, I’m probably going to open my checkbook. That’s regardless of whether I already own the stock or not. Simple as that.
Finally, this is just plain fun! I love owning a chunk of 52 wonderful businesses and I love collecting approximately 200 dividend checks every year. I can’t believe that something so fun can be so financially rewarding. Some people may find owning that many stocks burdensome, but I think it’s actually completely the opposite. Cutting the grass and cleaning the house? That’s burdensome to me. Enjoying business partnerships with dozens of great companies that pay me a portion of rising profits? Not so much.
Full Disclosure: Long JNJ, PM, NSC, KMI, PEP, AMNF, ARCP, O, WMT, and TGT.
What about you? How many stocks do you manage? Find it burdensome or time consuming?
Thanks for reading.
Photo Credit: Kittikun Atsawintarangkul/FreeDigitalPhotos.net
Edit: Corrected “put” to “pay”.