When it comes to investing, the conventional wisdom says to ‘diversify’ to make money over the long term. Diversification is said to work because it limits your exposure to the ‘big’ loss, as well as offering the ability to make money at any given moment because most investments tend to perform/under perform in cycles.
My thought for this weekend is make the case against diversification to the extreme: owning just one investment. And I don’t mean buying a huge mutual fund such as an S&P500 index fund, or that even bigger total stock market fund that has hundreds of investments in one, the so called total stock market fund. I mean just one individual investment, like a company stock.
What The Fed Chairmen Have Picked
The last two U.S Federal Reserve Chairmen both have inadvertently offered up their wisdom on owning just one investment. The former chair Alan Greenspan only owned investment: U.S Treasury Bonds. He has since changed his investments subsequent to his retirement, but the reason that he offered for owning just Treasuries was to avoid any conflict of interest.
As a practical matter, owning just Treasuries isn’t that easy. Because interest rates are changing over time, it is difficult to generate a consistent income stream off of them. The best option would be to have so many bonds such that you could deal with the variability, in other words, very rich.
The current Fed chairman, Ben Bernacke, listed his only stock investment as Altria (MO), which we own in the Income Portfolio. If you owned this company at the time he made this disclosure (2005), you would now own (3) companies due to a breakup: Kraft (KFT), Altria (MO), and Philip Morris (PM).
This choice as a single investment was previously identified as the best performing S&P500 stock by economist Jeremy Siegel over the past 50 years. So, not that bad of a bet, because even though this is thought to be a mature company, Altria easy beat the stock market over the last 10 years as well.
My Choice For The ‘One Investment’
If I had to pick just one investment, I would want a company that has demonstrated consistently that looking out for the shareholder interest is the first priority. Sure other attributes are important, but given that economic cycles are inevitable, you need to have confidence that the company is looking out for your interests. So, from this point of view, I would pick one of these two companies:
- Realty Income (O)
- Phillip Morris (PM)
These companies have great management and a proven track record of creating shareholder value.
What would your choice be?