To make a long story short, due to my investing style I have very little large cap exposure in my portfolio. To take advantage of the swings in capitalization popularity, I think it would be beneficial to have at least a few large caps to help even out returns. Furthermore, I want to do a minimum amount of homework on anything in the large cap arena. My small caps require a tremendous amount of study. Additionally, a shot at market beating returns would be nice. My thought is two or three large caps that I could just set and forget, except for buying dips and selling rips to rebalance several times a year.
While talking in the Buz chat room several nights ago, we started to discuss Carlos "Slim" Helu. He was interviewed by Maria "Botox lips"oromo that afternoon. We were discussing that he was a lot like Warren Buffet, a reputation for investment savvy and a creator of shareholder value. Suddenly, bells, whistles, and sirens went off in my head. I wondered what kind of return you could have gotten had you invested in a portfolio of BRK.B(Buffet), and AMX(Slim). I immediately realized that this probably was too concentrated. So I decided to look at BAM, a company run by Bruce Flatt. Flatt, though less well known, has a reputation similar to the other two. Cramer once called him 'the Canadian Buffet.' I also read interviews with the Fairholme Fund portfolio managers where similar comments were made.(Fairholme is a Buffet investing style mutual fund with market beating historical returns.)
I input the three tickers into Yahoo Finance and looked at their charts. If you had invested in the three companies in equal portions in late January of 2009, you would have netted roughly a 75% return. And remember, that's almost two months before the bottom of the bear market! That's compared to approximately a 57% return for the S&P 500 index. The only one of the three that lagged the index was, surprisingly, BRK.B at a nearly 40% return. Was this a fluke? Or would a longer period of time prove that Buffet hadn't lost his touch? Buffet is often quoted saying that over the short term the market is a popularity contest. It is over longer periods of time where shareholders are fairly rewarded or punished for a company's business performance. So I looked at how they all performed from late January of 2006. I was not disappointed by what I found. The combined portfolio netted over a 50% return for the time period while the S&P 500 returned a net zero! Even investing near the top of a bull market and holding them through the depths of the worst bear market in the past 70 some odd years, could not destroy their returns. AMX was the winner with a return above 70%. BRK.B and BAM both returned roughly 40%. For the record BAM returned over 800% from mid 1996, and BRK.B returned over 200% over the same period. The index returned about 100% over that time frame. AMX started trading in February of 2001. In the ten years of trading it has returned about 800%.
What can be gleaned from this data? Well, I can say with confidence that all three managers have shown a knack for navigating through a variety of equity market and business environments. Also though it increases volatility, it helps to have significant emerging market exposure. AMX is almost exclusively an emerging market company with most of it's business exposure in Latin America. BAM is a truly global company with significant BRIC exposure. While both Carlos "Slim" and Bruce Flatt have handily beat Warren Buffet's returns in the past 10-15 years, they have done so with considerably more volatility in stock price. BRK is a much larger company than either BAM or AMX. Their combined market cap is over 40% smaller than BRK's. BRK's net tangible assets are nearly 10 times larger than BAM and AMX combined. Due to the size of BRK, Buffet is at a considerable disadvantage. Acquisitions and investments must be much larger in order increase revenues and earnings at all. Despite this, Buffet has continued to attain market beating returns. In my opinion, this is a testament to his genius.
So what's the catch? Outside of the normal risk factors, like sector and geographical risks, the one foreseeable risk is death or retirement! Buffet, more than likely, will retire in the next five years. He certainly will not be at the helm of BRK ten years from now. Buffet, however, is as good a judge of managers as he is a judge of companies. I feel pretty confident that his replacement(s) will achieve success and beat the market over the long term. Will he find a manager or managers that can match his success over the last half century? Probably not, there is only one Warren Buffet.
So here it is. My idea for a large cap, buy and hold portfolio. If given an opportunity I will begin to initiate positions in all three stocks.
Comments
Some related information:
Fairholme Fund is selling their stake in General Growth Properties to BAM for BAM shares. Told ya they liked Flatt. lol
If this concept intrigues you, but you're looking for dividend income as well. You can substitute the BAM position for a third position in BAM, BIP, and BPO each. BIP and BPO both have good divvies and are spin offs of BAM.
Barron's also published a report today that BRK-A/B may start paying a dividend in the next 12-18 months. Just rumor at this point in my opinion.