Winning. Consistency Matters, Especially in Your Portfolio.April 14th, 2016 by Scott Spiering
As you may be aware, last night was a great night if you are a basketball fan! I watched as Kobe said goodbye in a memorable way by scoring 60 points in his last NBA game. It was a fitting end to a great career. My attention was also on Steph Curry and the Golden State Warriors as they made history by winning their 73rd regular season NBA game. This incredible feat surpassed the ‘95-‘96 Chicago Bulls’ record of 72 wins. As the Warriors look to ride this momentum to a second straight NBA championship, it is yet to be determined if this monumental team will turn into a dynasty like the Bulls of the ‘90’s. Winning consistently is what separates short-lived excitement from a tradition of excellence. As with basketball, this concept also applies to building a core investment portfolio.
During research on my first book “The Frugal Investor’, I came to realize that great companies like Coke, Pepsi, Johnson and Johnson, Proctor and Gamble, Colgate Palmolive and Kraft Heinz are easy for investors to understand. These companies succeed because people consume their products in all economic conditions. They may not be the most exciting pick of the moment, but they win consistently. By minimizing surprises and participating in steady growth, investors can build significant wealth through various market environments, and over time, consistency will outpace a short-lived hot streak. Take the following chart for example:
There is nothing wrong with investing in new technology and growth, but owning companies that are consistently the best in their field produce results that your long-term financial goals can count on. I include companies like these as part of a core portfolio that I refer to as a “Refrigerator Portfolio.” The idea is that you are buying what you know, or what you see when you walk around your house or open your refrigerator. Investing in these companies comes with every intention of holding them for the long-term. Consider this graphic showing the consistency of Coca-Cola:
Strong household names like Coke, consistently meet expectations because their market strengths, or sales channels, are not only domestic but international. The global marketplace has reinforced the value of strong brands making the case that these consumer staples will continue to thrive in the future.
“Buy what you know” was the mantra of the famed Fidelity Investments fund manager Peter Lynch, and similar sentiments have come from Warren Buffet that buying great companies and holding them for the long-term are a solid part of a core portfolio. To effectively include similar names in your portfolio, you might have to have patience and acquire them on market dips. Some people call this process a contrarian point of view, and that’s exactly what it is. However, buying these names when they are out of favor is how you build wealth. So, do your research and look for bargains when there are opportunities. The payoff will come over time. From 1996 until now, the time that The Bulls win record was on the books, Consumer Staples has had the largest dividend growth rate versus other asset classes. Remember, in your portfolio, as with other things, it’s about consistency.
For more information on building a solid portfolio, check out our Fundamentals of Investing Guide.