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I was recently asked which blue chip stocks I would recommend in order to better balance a tech-heavy portfolio. As always, thank you for the question! Please keep them coming by submitting a question here.
First and foremost, I prioritize balancing a portfolio much lower than most do. Balancing a portfolio is typically a macro hedge against a downturn; but I put my energy into picking winning individual stocks, then selling them after they become overvalued.
I see the value in balancing a portfolio though. And I would even recommend it from time to time, although at much lesser intervals than others recommend. Instead of seeking safety from balance, I seek safety by picking undervalued stocks. Three major influences brought me to this approach:
- My father and his family started, grew, and continue to run a “Main St” business (it isn’t mom-and-pop, but it isn’t Wall St either) that is founded on value. Everything is measured in terms of value. Growing up in this environment, I naturally took to the endless lessons on what is value, how do you identify it, how do you capitalize on it, and honestly the value of value.
- Coincidentally, I also had countless conversations with my grandfather, who truly believed in the amazing American Industrial Revolution, about both stocks and industry. As part of The Greatest Generation, he was positioned well to take large, long-term positions on American companies reaping the rewards of this amazing economic environment that kept building upon itself and increasing its own might.
- Benjamin Graham and Warren Buffet seek a margin of safety via assessing value, and if it’s good enough for him it’s good enough for me!
For Industrial Revolution-structured companies there are many, many metrics by which to measure, analyze, and ultimately afix a value to a business. And enormous swaths of the economy are devoted to the standards that arose during America’s great business prosperity, whether banking, accounting, investing, taxing, operating, and so on. To be honest, it seems as if all players in the American shareholder game built themselves in the image of the Industrial Revolution. It obviously made sense to leverage the business environment that existed; that is to say, it made sense to participate.
The Industrial Revolution (IR) lives on, and that is a beautiful thing, but a new age has emerged as well: The Information Age.
To cut to the chase quite quickly here, I believe it is imperative to have both IR skillsets and Info Age skillsets. What are the Info Age skillsets? Well, they are developing as we speak just as the IR skillsets developed in the early days (and there were and continue to be plenty of missteps at all levels when participating).
One thing is clear though: measuring value has changed. I will elaborate on this as time goes by, but a simple example of how measuring a company’s value has changed is Book Value (BV). With an Info Age company, you can no longer add up the Property, Plants, and Equipment (PP&E) to assess if a stock price has the company valued below its “liquidation value.” 20 people in a room coding and operating an Info Age operation just isn’t the same as a factory in middle America building widgets. So BV measured traditionally is largely out as a useful metric for Info Age companies. And if traditional BV is out, what is in? Growth. Now IR skillsetted investors would protest and say that growth investing is an entire approach unto itself. And to that I would say that for IR companies they are right, but for Info companies growth is a metric of value. I can elaborate extensively on that in the future.
Growth is now a margin of safety for an investor of an Info Age company. However, I caution that this has its limits and is not foolproof. But BV wasn’t foolproof either. They are just useful when deciding where to invest. No one thing paints a complete enough picture to invest one’s money, but through a disciplined approach one can paint a complete enough picture to do well most of the time – and be net positive interval after interval, quarter after quarter, year after year. Easier said than done. But I digress.
So are IR stocks out? Absolutely not. The IR is alive and well with globalization! So the traditional skillsets we have developed as an economy, and as investors, are still valid. They just need to be applied appropriately. So when I am asked for non-tech blue chip recommendations, I return to my original skillset.
What stocks do I recommend right now as good non-tech blue chip plays? Well, before I answer that I will add that I did not purely pick stocks that look good eventually… I picked stocks that I think will make gains sooner rather than later. I mean, picking a winning stock is good; but picking a winning stock that performs well over a relatively short timeline is ideal in a growth portfolio. If those companies continue to be undervalued even as the stock goes up (because they add value to their business) then I buy more and more as it goes up – as long as it is still undervalued. Some stocks are so good, and I got into them so early, that it may be 10, 20, 50 years before I sell. Who knows! We shall see. But I digress again.
Enough’s enough – here’s what I recommend right now for non-tech blue chip stocks I expect to make gains in less than a year (in no particular order):
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