Master Stock List Revisited

Two months into being impacted by the COVID-19 quarantine, it was only a matter of time before I revised my Master Stock List. I’m a buy and hold investor so the lens I use for stocks might be different than others. Nobody envisioned a potential worldwide shutdown, but this will change stock investing forever. My stock selections need to consider this factor going forward. And the scary part is that this shutdown may have just been the first phase.

We are still early in this virus-related economic destruction but there are some things I’m already seeing. And what I’m seeing now might be different than what I might see if this virus continues its destruction for another year or two.

It seems like we are going more primal now. Basics are more important than discretionary items. We’re reminded that food, water, and shelter are actually more important that Mickey Mouse or the next Hollywood release. Just like the Great Depression changed an entire generation of people’s behaviors, this virus (whenever it ends) will do the same.

My 2 Basic Stock Expectations

During good times, it’s easy to lose sight of fundamental stock ownership requirements. I mean absolute low-level needs if you are going to purchase individual stocks. This is especially true for near and current retirees. These expectations might read as overly simplistic but investors continue to lose sight.

First, I need my stocks to survive in a severe economic downturn or evolutionary business change. This means quality, both in balance sheet and product. This might sound like a very low bar to set but it will eliminate a lot of stocks.

Hang on because I’m about to say something unAmerican. I love Disney and Boeing but these don’t make my list. Over half of Disney’s revenue comes from their parks and entertainment. The virus is destroying this business and it may never be the same. Boeing has their own problems. Who needs a bunch of airplanes when travel has been decimated? Both will likely survive but their business models are currently under attack and results will suffer.

Even Berkshire Hathaway doesn’t fit my model. For starters, they aren’t paying a dividend. Most of their portfolio is banks and technology companies, which mimics much of the S&P 500. If I wanted that then I’d just buy an S&P 500 fund.

Second, I need my stock dividends to to survive. Growing dividends is great but stable is critical during bad times like these. Nobody wants to see their dividends cut. We thought Royal Dutch Shell, which hadn’t had a dividend cut since WWII, was solid. A 66% cut this past week was punishing for those retirees that live on a fixed income. It was my first dividend cut and it reduced my forward income by over $500 annually.

Repeatable and Essential

In December 2019 and March 2020, I wrote articles that started me on the path to simplifying my approach. I wrote about owning companies that produce products that need to be purchased repeatedly and have a good brand. But more importantly, I wrote about owning sectors that lend themselves to this type of stock.

And that brings us to our newest investing word, brought to you by the coronavirus – Essential. This means a company or product is “absolutely necessary; extremely important.” Everyone has their own list but here’s a few of my essentials that used to be taken for granted:

• Home internet, WiFi, and cell phones
• Food
• Utilities – electric, water, gas
• Cleaning materials – wipes, hand sanitizer, Lysol
• Paper products – toilet paper and paper towels
• Medicine and medical products
• Trash service

Though companies that produce these products/services aren’t guaranteed to be successful, buying industry leaders at a good price is important. So I’ve made some changes to my Watch List to make sure there is a focus on company and dividend survival. Again, it’s not a guarantee but it’s better than buying airlines, hotels, restaurants, and many other discretionary service companies.

I might have removed the likes of Disney, Boeing and Berkshire Hathaway, but adding some utilities, trash service, consumer goods, and healthcare should calm my nerves. Volatility is something I’d like to keep to a minimum too. That doesn’t mean the stocks on the list won’t go down but they should survive (and I’d like to hope the dividends do too).

Summary

Trust me, it was difficult to remove Disney from my Watch List. It’s not a judgement on it’s quality or brand. It’s just suddenly become expendable as part of daily life. And to shun Berkshire Hathaway might stun the investing world but I’m looking to build a portfolio based on my needs.

Becoming non-essential in today’s world is like being branded a witch in the 1600’s.

Mr. TLR (I just made this up)

The company I work at has some very important and essential parts to it’s business. The other parts are important when people are fully employed and a virus isn’t shutting down a world economy. I’m curious as to how the company will respond over the next several months. How far will they cut expenses in the non-essential parts of our business? Will those businesses survive if the virus continues crushing the world economy in 2021 and beyond?

You might look at my Watch List and think it’s boring and filled with mature, old sectors. You might even think I’m an idiot to avoid Disney, Boeing, and Berkshire Hathaway (plus many other fine companies). But my list is built for me … someone 5 years away from retirement that needs companies and dividends to survive.

I see the list and feel good that it’s stable, consistent, and reliable. If I was younger, I’d still want stocks from the Watch List but I might sprinkle in some more growth-oriented stocks too. Know your goals and build your own list of companies. Just don’t become a trader or buy junk … be an investor.

Thanks for reading!

Mr. TLR