Last week, I wrote about the importance of market sentiment in investing.
Specifically, I discussed how I use “extreme fear” – as measured by the CNN Fear & Greed Index – to add to my “never sell” portfolio positions.
The idea of a “never sell” portfolio caught the attention of many readers.
So today I want to expand on that idea a bit… and share how you can apply this approach to your own investing.
My “Never Sell” Portfolio
My “never sell” portfolio is a group of stocks that I treat differently from my other investments.
Over the years, I have watched the prices of these stocks move sharply in response to the market’s mood swings.
Yet it did not bother me the slightest bit when they tumbled in response to the latest crisis of the day. Any sustained pullback simply allows me to add to my positions at lower prices.
So, what enabled me to achieve this calm, Zen-like state in the face of relentlessly negative headlines?
I am deeply convinced of the long-term business models of these companies. I am confident in holding them through thick and thin.
So What Stocks Do I Invest In?
The obvious question arises: What are the stocks in my “never sell” portfolio?
Alas, I’m not going to reveal those for reasons I outline below, but here’s what I can tell you about them.
First, you’d recognize every name. There is no “secret stock” driving the performance.
Second, the companies have several things in common…
- Each has a wide “moat” and dominates its market with little or no competition.
- Each makes a product or offers a service I use almost every day.
- Each is growing steadily, reliably and predictably.
- I expect them to be around forever – or at least as long as I am.
Third, I feel comfortable holding significant positions in any of these companies. In fact, I get regular “warnings” from my various brokerages that I am not sufficiently diversified.
I don’t care. I’m happy with having a few eggs in my basket – and pretty much ignoring that basket.
Fourth, there is the issue of taxes.
I’ve held these stocks in some taxable accounts for many years. So if I ever do get scared out of them, I’ll be giving up a big chunk of my profits to Uncle Sam in capital gains taxes.
Why I’m Keeping My Cards Close to My Vest
Here’s why I won’t reveal the specifics of my own “never sell” portfolio…
(Take my word for it, it’s for your own good.)
My list of “never sell” stocks will differ from yours.
Yes, you might find some of the stocks on my list compelling. You may already hold some of them yourself.
But your opinion on some of the holdings might be very different. You may think, “Vardy is nuts! I would never hold these stocks! X is lagging the market. Y is overvalued. Z is just too boring.”
Let’s look at it another way.
Say you invest in my portfolio of “never sell” stocks. All would be well as long as the stocks were going up. But ask yourself… Could you endure a 20% pullback in any of the stocks without selling, based on my recommendation alone?
Perhaps you could. But what about a 50% pullback?
That’s a much harder case. You’d probably blame me for recommending such a lousy stock in the first place.
For example, I can tell you that one of my “never sell” stocks suffered a 50% drawdown during last year’s coronavirus crash. Yet I never even thought about selling it.
Why? Because I’m so convinced of its merit as a long-term business.
I was happy not only to hold it through the crash… I was happy to add to my positions while most investors were heading for the exit.
Setting Up Your “Never Sell” Portfolio
So how can you apply these lessons to your own investing?
Start by investing in a small group of “never sell” stocks that you believe you can hold through thick and thin. Welcome any pullbacks because they allow you to buy shares of them on sale.
Whatever your “never sell” portfolio is, I’m 100% certain it will differ from mine. The stocks you invest in will reflect your personal preferences and beliefs.
Sure, I can help you think about how to approach setting up this portfolio… But the ultimate decisions and responsibility lie with you.
Whatever stocks you invest in, I urge you to set up your own “never sell” portfolio sooner rather than later.
You’ll thank me in the long run.