The hardest part of building a solid, diversified stock portfolio in a long-term bull market is finding value. This means I’ve got to be a patient investor. A critical part of the investing journey is developing your process and being patient enough to execute on your plan.
Part of my process is not overpaying for quality companies. Most large companies are not growing fast. They’ve reached some level of maturity and now have brands that are icons. Knowing that you will own a mature company makes the price you pay for this company significant. And overpaying sets us up for a drop in portfolio value, which is not cool.
There are thousands of stocks to choose from throughout the world, which is why I created a Watch List. The list continues to grow as I find solid companies. And with so many stocks to choose from, it’s easy to get lost in the sea of choices.
That’s why it’s important to develop a process that enables clarity and a chance to achieve long-term total returns. This process is helping me know which new positions I’ll likely start in 2020.
Note – This doesn’t mean I won’t add to my current positions or buy something that isn’t one of the 10 stocks I’m going to mention in this article.
Top 10 Stocks in 2020
This isn’t some fancy Top 10 list showing which sectors will be hot this year. I’m a long-term investor and I’ve identified dozens of stocks I’d like to own. The only problem is that many are currently overpriced right now.
This list is the Top 10 stocks that I’m watching that are the closest to the price I’d being willing to buy. Here’s the tricky part – the price I’m willing to pay for a stock will constantly change. A company can raise their dividend or generate improved earnings. If this happens, I’d have to reconsider the price I might be willing to pay.
So my 10 stocks are based on what I know today. It’s very likely that some stocks on my list I’ll never own in the next 5 years. But with patience, it’s possible in 10-15 years I’ll get the opportunity to own most of them at my price. Process and patience is the key.
Usually, I’m not one to say which stocks I’m likely to buy because I let them come to me. I identify the stocks and what I’m willing to pay for the stock and then I wait.
What this list really means is that as of today, these are the closest stocks I have on my watch list that are nearest the price I’d be willing to pay. In no specific order, those 10 stocks are:
- Johnson & Johnson (JNJ) – Healthcare
- 3M (MMM) – Industrial
- Chevron (CVX) – Energy
- Cisco (CSCO) – Technology
- Brown-Forman (BF-A) – Consumer Goods
- Pepsico (PEP) – Consumer Goods
- Nestle (NSRGY) – Consumer Goods
- Unilever (UL) – Consumer Goods
- Dunkin’ Brand (DNKN) – Services
- Walt Disney (DIS) – Services
Bonus Pick – I’m also considering IBM but have to do some more research. If I do include them on my watch list, I would suspect they would be my 11th pick.
Summary
Now seems right to introduce the Serenity Prayer written by American theologian Reinhold Niebuhr. Whether you are religious or not, this passage seems appropriate in this article.
“God, grant me the Serenity to accept the things I cannot change, Courage to change the things I can, And Wisdom to know the difference.”
Reinhold Niebuhr
You cannot change or control the stock market but you can change what and when you buy a company. It takes courage to buy individual stocks, especially those that are being hit with headlines or certain events. Creating a process to identify stocks (like my Watch List) and your entry price strengthen your courage. You’ll use many factors (i.e. PE ratio or dividend yield) in determining your price but you’ll know your price.
Keep updating your buy price because things change. Companies can have better earnings, which would lower their PE. They might increase their dividend, which would raise their yield. Companies may have a sudden headline event that could lower their price for a short time period.
The best thing you can do is let the market provide you with opportunities. When it does, you’ll be ready to action those opportunities because you were patient and had cash at the ready. Doing this will give you wisdom (and make you wealthy).
Thanks for reading!
Mr. TLR