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Berkshire Hathaway’s ( BRK.A )( BRK.B ) Charlie Munger believed strongly in the power of concentrated portfolios, holding only a few stocks outside of his BRK.A holdings, such as Alibaba ( BABA ) and Costco ( COST ). Personally, me I like to diversify beyond just a few holdings and generally keep about two dozen stocks in my portfolio at any given time, given that the strategy relies heavily on opportunistic recycling of capital rather than simply buying and holding stocks for decades to come. Still, there’s a lot to be said for Mr. Munger’s approach, as it simply requires making some really intelligent decisions and then having the discipline to let time and the power of complication do its work.
That being said, if I were to hold only three stocks for the next decade, they would be Enterprise Products Partners (EPD), Newmont Corporation (NEM).), and Virtu Financial (VIRTUE). Many investors may wonder why I would pick these three stocks, especially Virtu Financial and Newmont Corporation, which have both been relatively underperformers in recent years and have business models that don’t seem poised to deliver superior performance. significantly in the long term. That’s very true, and even Enterprise Products Partners has been a bit of an underperformer in recent years, with its stock price down almost 25% over the past decade.
My reasoning is that all three of these stocks look undervalued, have strong balance sheets, are projected to return meaningful capital to shareholders in the coming years, and especially when held together, offer some of the best macroeconomic hedges against what I I see as the main one. storms that could hit over the next decade.
#1. Stock EPD
If I could only hold one stock, it would be Enterprise Products Partners. EPD is the ultimate high-quality, high-yielding dividend growth stock with a very strong balance sheet (A- credit rating), low leverage ratio, substantial liquidity, high debt maturities and a business model protective and diverse throughout the midstream. the energy value chain. With ample scale, proven and well-aligned management, and an impressive track record of delivering double-digit returns on invested capital year after year through all types of energy and macroeconomic cycles, EPD also has a solid growth and cash profile. long term. flows.
It offers a very attractive current dividend yield of around 7.25%, which has grown at around 5% CAGR and should continue to do so for years to come. When you put all of this together, I see it as highly unlikely that EPD will not outperform the broader S&P 500 ( SPY ) over the next decade, and I believe it has a high chance of outperforming. Combined with its very low risk profile, it makes for a great core holding, especially for someone who values tax-deferred income like myself.
#2. Stock NEM
I would also hold Newmont Corporation despite its very poor performance recently. Newmont has a very strong balance sheet that is only expected to strengthen in the coming months as it sells off non-core assets and is poised to buy back several billion dollars of its own stock, which should serve as a second wind to the stock price. It has some of the best assets in the world in low geopolitical risk regions and one of the cheapest valuations in the sector, comparing favorably with other blue chips such as Agnico Eagle Mines (AEM).
Additionally, Newmont has significant exposure to gold and copper, two metals with high upside potential over the next decade. Copper could benefit from the electrification trend, while gold (GLD) should fare well if the global economy falters, given low deficit spending, a weakening US dollar and rising geopolitical risks. For example, if war were to break out in the Far East, gold would likely soar. China’s central bank gold purchases also serve as a major drag on gold prices over time, and Newmont, with its exposure to gold prices and location in low-risk geopolitical regions, could be a major beneficiary.
#3. Stock VIRT
Meanwhile, Virtu Financial is a market maker that has had its own periods of peak profitability in the wake of market crashes. Given my concerns about rising geopolitical risks, potential conflicts involving China that could plunge the world into a depression, and concerns about the high valuations of the current S&P 500 alongside weakening economic conditions in the United States, Virtu Financial may blossom into a major economic crash.
Virtu Financial is also buying back shares very aggressively, with the CEO loading up shares and paying a decent dividend. Lastly, it has exposure to Bitcoin (BTC-USD) as a market maker, and if the crypto trend, options trading and further digitization of assets continue to expand significantly over the next decade, Virtu Financial could be a beneficiary of big. Therefore, I see several viable paths for him to generate market-level or even market-beating returns, even if there are no major market crashes that increase his profitability. As a result, it adds significant risk mitigation and rounds out the risk reward of my portfolio, giving me an asymmetric position compared to the vast majority of equity investors who currently buy Magnificent 7 stocks or the broader S&P 500 with valuations very rich.
Investor Takeaway
As you can see, these three properties are unorthodox and probably not what you would expect in a concentrated portfolio for the next decade. However, given my relatively pessimistic outlook on global geopolitics and the state of US fiscal and economic affairs, it makes a lot of sense to position my portfolio this way. Even if the world remains at peace and the economy continues to roar, Enterprise Products Partners, Newmont Corporation and Virtu Financial are positioned to deliver very solid total returns, especially given their attractive current valuations and exposure to key long-term trends like the boom in continued infrastructure, attractive prospects for copper and increased digitization of assets.
Editor’s Note: This article discusses one or more securities that are not traded on a major U.S. stock exchange. Please be aware of the risks associated with these stocks.