Today, we’ll share some feedback, questions, and comments from our readers. If you recently submitted a question, read on. And if you’d like me to tackle a topic in a future mailbag edition, please write to me at: feedback@widemoatresearch.com.

Losing the Barn

Brad, we’re neighbors of sorts. I live on Hwy 110. I awoke around 6:00 am on Friday, September 27, with the brunt of Helene sitting right on top of me. I consider myself a bit of a “prepper” and went to bed Thursday night after referencing Helene’s projected path and felt that we would be fine. Man, did the prognosticators get it wrong!

All in all, we (my daughter and I) came out unscathed. I did lose my barn, but my home only suffered minor damage, and all of my beasts (horses) are fine. It’s Wednesday, October 2, as I type this, and we are still without power. One of the power poles in front of my home is still down, and I doubt Duke will get to it soon.

We suffered minimally compared to those in North Carolina, which you referenced in your last communication, but the damage in the area that you referenced is severe. I have a college buddy who had an investment property in Chimney Rock that he says is gone. Probably sitting at the bottom of Lake Lure.

I appreciate you drawing attention to the devastation in your last communication. It really is surreal. On a more positive note, I smoke a really good Texas-style brisket. So, if you ever have a gathering in Spartanburg of your members, I’d love to contribute a tasty brisket. Hope you and your crew are okay, and hopefully you have power by now.

–David

David, thanks so much for writing in with your story. I’m happy to hear that you and your family (not to mention the horses) came through alright. I’m sorry to hear about the barn, though.

You’re absolutely right. It’s difficult to put into words the scale of destruction down here. As I wrote on Tuesday, and you no doubt know as well, it’s going to be a while before this area is fully back on its feet. And my heart goes out to all the residents who lost loved ones, homes, or businesses.

I came through alright. I lost power (everybody did) and I’m still bouncing around coffee shops in order to get an internet connection to publish our Wide Moat issues. My local mall parking lot has turned into a small city. It seems like everybody – utility crews, emergency response crews, etc. – are all camped out there. I can’t imagine what it must be like in North Carolina.

I think a lot of people have a negative perception of “preppers” or those with prepper tendencies. If this ordeal has taught us anything, though, it’s that catastrophic events like this don’t happen often… but they do happen. Why wouldn’t you want to be prepared for it?

At the very least, a small generator and a supply of water and non-perishable foods is never a bad idea. Perhaps you’ll never need them. But if you ever do, you’ll be glad to have them.

Thanks again for writing in, David.

Baby Steps

Countless thanks are due for the work everybody puts in so the information gets to my inbox. I’m glad to share that, while slow on acting on the information from July 10 to September 10, my small portfolio is up 10.5%.

The majority of my portfolio is REITs, as I have all of them on the list except Regency. A few other mentions include MNST, NKE, and MO.

Now that I’ve gotten my feet wet, a big question has come to mind. What do I do in order to increase the portfolio size?

Meaning if I have $10k cash, should I only ever have $2k in stocks to diversify?

The goal would be to own stocks to a degree where dividends can add up to four figures.

Apart from following the buy and sell alerts, what are the next steps to become a better and more profitable SWAN investor?

–Brendan D.

Brendan, I’m happy to hear you’ve been finding value with your membership to The Wide Moat Letter.

As a publisher, I can’t offer personalized advice. And the answers to your questions will depend on factors like risk tolerance, investing time horizon, and whatever non-investment income you have. So, a financial advisor would probably be a good resource for more specific advice.

But having said all that, there are a few general observations I could make.

To start, we generally recommend that investors allocate a pre-determined amount of capital to the portfolio. That number will be different for everybody. For some subscribers, it might be $1 million-plus. For others, it might only be a few thousand dollars.

But it has to be right for you, and it shouldn’t be causing you unnecessary angst. Here at Wide Moat, we firmly believe in SWAN (sleep well at night) investing. If we ever find ourselves tossing and turning at night, worrying about the stocks we own, chances are good that we allocated too much to something or maybe shouldn’t own it at all.

Once we determine a figure we can breathe easily with – whatever that may be – we do offer allocation recommendations for each position. At the bottom of each issue, I’ll say something like “allocate no more than 5% of your portfolio” to a single stock.

You mentioned you hold many of our real estate investment trust (REIT) recommendations. While I have confidence in every single portfolio position, my general guidance is to not allocate more than 25% of a portfolio to REITs.

This is entirely for diversification reasons. Our portfolio positions span a wide array of industries and businesses. And by diversifying, it means we’re never overly exposed to one industry or one business in the event something goes wrong.

Because something going wrong is always a possibility. In markets – as in life – risk can only ever be managed, not eliminated.

Another thing we often recommend is to not sell our holdings unnecessarily. Oftentimes, investors will see a large return and feel they “must” take profits. It’s ultimately each reader’s decision which investments they buy and sell. And as they say, nobody ever went broke taking profits.

But so long as our investment thesis remains intact and the business remains strong, we’re usually inclined to hold on. A simple example would be a company like Lowe’s (LOW).

We recommended the stock in March 2020, which turned out to be great timing. It’s returned 295% as I write to you. After such a run, we might think that LOW is “expensive.” But that’s not necessarily the case.

The nominal share price might be up, but Lowe’s has earned that return with great financial performance. Relative to its earnings, LOW is trading near the middle of its historical range. It was a great business when we recommended it, and it’s still a great business.

You know what they say: If it ain’t broke…

That isn’t to say we’ll never take profits. Just last month, we closed out several positions for approximate returns of 54.1%, 74.1%, 3.4%, and 73.1%. And we’ll especially consider selling if a stock becomes extremely overvalued, threatening the gains we’ve made.

But as a general rule, we’re usually happy to let great businesses be great businesses. As investors, we like to sit back, collect dividends we believe are reliable and likely to rise, and let compounding do its work.

It really is that simple, but that doesn’t mean it’s easy. Building a world-class, income-generating portfolio takes patience and process. It may not be easy, but it can be done.

I hope that helps, Brendan.

Thanks again to all the readers who sent in feedback. And if you have a question for a future edition, feel free to send it to feedback@widemoatresearch.com.

Regards,

Brad Thomas
Editor, Wide Moat Daily