I think a well-constructed portfolio should resemble an onion. (Yes, to continue the analogy, it may make you cry in the short term, but the end result after cooking time is yummy.)
At the center of that onion is a core built of stocks with extremely high, risk-adjusted potential rates of return.
These stocks won’t deliver the kind of huge gains you can reap from investing in a risky bet–if everything turns out right for that company and its stock. But neither are they likely to crash and burn because something goes wrong at the company. These core portfolio stocks will drop if the market as a whole heads south, but they will drop less and recover faster.
These aren’t buy-and-forget, or hold-forever stocks. They can soar to unreasonable valuations at times and an active investor should take profits at some point of overvaluation. (I did a YouTube video recently (you can find it on any of my sites) on when to sell a very overvalued Nvidia, for example.) And they can trade at big discounts to fair value (which is, of course, when the steely-eyed among us will buy) because management has made a mistake or between the industry in which they do business is slumping, or because the market for the company’s goods and services has taken an unexpected direction. At that point, you’ll need to consider selling or adding to your positions depending on your analysis of how long the damage might last and how bad it is.
But the point of this core to your stock portfolio is that these are companies that will deliver index-beating results with relatively small risks. Which will enable you, the investor, to plan how to achieve your financial goals with relatively less worry and uncertainty.
This core should be surrounded by at least two other layers in the onion–the next layer would be stocks with higher returns and more risk–but still relatively sure things. (The key word there is “relatively.) And even further out from the core, would be a layer of still riskier bets with much bigger potential payoffs.
The relative weighting of these three layers of the onion depends on your age, your risk tolerance, and your investment goals (and the timing of those goals.)
And this stock “onion” should be considered along with investments in bonds and other assets that can lower risk and provide diversification for a portfolio.
(Which suggests to me that I should follow up this post on “10 Stocks for a Core Portfolio” with posts on 10 stocks for the middle layer of the onion and 10 stocks for the risky outer layer of the onion. I’ll see if I can follow that plan over the next few weeks–market volatility willing.”
As in my post on “10 Stocks for the AI Gold Rush,” you can read this list on social media and on the home page of my free JubakPicks.com site. But to get the full post with the reasons I picked each one of these stocks, you have to either sign on as a member (which is free but does require that you give us your email) on JubakPicks.com or subscribe to my paid site JubakAM.com. (Which you have already done if you’re reading this post on JubakAM.com.)
Now the list of 10 stocks for a core portfolio:
Microsoft (MSFT)
Alphabet (GOOG)
Adobe (ADBE)
Nvidia (NVDA)
Applied Materials (AMAT)
Zimmer Biomet (ZBH)
Johnson Controls (JCI)
Cummins (CMI)
Albemarle (ALB)
Southern Copper (SCCO)
