The Bigfoot Portfolio
Jon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There is some evidence that Bigfoot exists. The Bigfoot Field Researchers Organization (yes, that is a real thing) submits several pieces of evidence on their website. People see Bigfoot, and descriptions are always the same. People of European descent have been sighting the creature in North America for over 400 years. And Native American legends go back as far as...well, legends.
Despite many pieces of evidence that support the existence of Bigfoot, there is one glaring missing piece of evidence: Bigfoot. He has never been captured, never been shot, pictures are always blurry, his corpse isn't around, and his home base has never been breached. Comedian Mitch Hedberg offered a possible explanation to this problem. "...Bigfoot is blurry, that's the problem. It's not the photographer's fault. Bigfoot is blurry. And that's extra scary to me, because there's a large, out-of-focus monster roaming the countryside..." However, the more probable explanation is this: he doesn't exist.
It is very likely that some people will spend an extraordinary amount of time searching for something that they will never find. That's not in reference to Bigfoot hunters; I'm talking about DIY portfolio builders. Many of us are on the lookout for the perfect stock. Wouldn't that be nice? Sadly, I don't think any of us will find "that" stock.
Perhaps rather than searching for the perfect stock that doesn't exist, we could instead search for good stocks that do exist. There's plenty of good options out there. But you'll look right past them when looking for Bigfoot.
Growth With No Debt
In a recent article of mine, I found a couple high caliber growth stories that carry zero debt. I had known about Chipotle Mexican Grill's no-debt situation for awhile, but I did not know prior to researching for that article that BJ's Restaurants (NASDAQ: BJRI) and Buffalo Wild Wings also have no debt. Without saddling themselves with the burdensome debt that money other companies have, these guys have managed to pull of killer net income growth for the last several years.
You could let yourself get disappointed that none of these stocks offer dividends. You might be worrying that rising food prices will eat into future profits, as has been the case at Buffalo Wild Wings. You may be unsure of the effect that Yum! Brands' Taco Bell will have on Chipotle. You may have even heard that BJ's growth is slowing. BJ's latest report missed estimates. Revenue only grew 16% (I say that tongue in cheek), which wasn't what the Street had hoped for. In fact, some fools (small f) see little reason to invest in BJ's now. Whatever the case may be, these stocks aren't perfect. But if debt ratio and net income are any indication at all, they are really good investment choices.
Dividends, and more specifically reinvested dividends, are perhaps the most quickly overlooked way to grow your portfolio over the long term. Consider this example: Let's say you have $10,000 to invest (don't we all just have that stuffed under a mattress somewhere?). If you invest that in a stock that goes nowhere for 30 years then you have...still just $10,000. But, instead you invest in a dividend stock that averages just a 4% return and reinvest those dividends. Assuming the stock price goes nowhere, you will double your money in 18 years. There are several companies out there with a stable 4% dividend.
AT&T has been able to offer a steady dividend for years. With their total communications services and current market share, it's fairly safe to assume that this dividend will stick around. ConocoPhillips of course is an oil play. Last I checked, the world was still pretty addicted to the black goo. Both of these companies have what it takes to double your investment in 18 years. It's a long time to wait, but this long-term disciplined investing approach can reap you rewards you may never see when you are trying to hit the home run.
But you don't have to settle for 4% dividend yields. If you were feeling a little bit adventurous, you could go with the granddaddy of all dividend plays and invest in BP Prudhoe Bay (NYSE: BPT). This trust pays out around a 10% dividend. That'll double your investment in approximately 7 years. But, with the fantastic dividend comes a price: this stock has a limited shelf-life. Some seem to think that this trust is currently overpriced given the proven oil reserves. Others make the argument that they still have plenty of untapped potential.
Again, these a great dividend plays, but each investment carries some risk with it. What of AT&T's high P/E ratio? What if the price of crude oil falls? What if the North Slope goes south? If you're looking for Bigfoot, these question marks may keep you from investing in some great companies.
Wide Business Moats
For companies to stay in business and stay profitable, they need to have a wide business moat. What I mean is, they need to derive their income from a variety of places and sectors, and be able to do it in a way that competitor's can't. Disney (NYSE: DIS) is the poster child for a wide moat. They get money from movies, television networks, advertising, merchandise, and theme parks. And their moat continues to widen. Perhaps the best move Disney made this decade was buying Marvel outright for $4 billion a couple of years back. But they continue to widen their moat, as the purchase of LucasFilm just demonstrated.
Coca-Cola (NYSE: KO) also has some great moat action going on. This company has been in business over 120 years, sells its products in 200 countries, and owns fifteen $1 billion brands. The average human consumes 92 Coca-Cola products a year. In the United States alone, they make money off of 90 different products. This company will continue to make money for the foreseeable future. Compare that with Monster Beverage (NASDAQ: MNST). Monster gets over 90% of their income from energy drinks. That's not a moat, that's a narrow channel. If our new Congress decides to legislate against energy drinks, it could put a serious damper on Monster's style.
Bull arguments are never the complete picture. Anytime someone makes an argument for a stock, there is another person making a bear case for the same company. The reason I say this is because you are never going to find a stock that is all good. A stock without at least one lingering question isn't out there. If we devote all our attention to finding something that doesn't exist, we will miss out on the great opportunities that do exist.
Personally, I hope that one day Bigfoot is found somewhere among the forests of the Pacific Northwest--but I'm not holding my breath. With investing, I'll always keep my eye open for the perfect stock. But I'm not going to let my ideas of perfection rob me of something really good.
thequast has no positions in the stocks mentioned above. The Motley Fool owns shares of BJ's Restaurants and Walt Disney. Motley Fool newsletter services recommend BJ's Restaurants, Walt Disney, The Coca-Cola Company, and Monster Beverage. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!