Too Much Turkey? Try Some SWANs

“It’s about figuring out what something is worth, and then paying a lot less for it”.

Summary

  • A SWAN is quite simply a BLUE CHIP stock that is generally a high-quality stock that’s known to weather downturns and operate profitably in the face of adverse economic conditions.
  • While I see more and more folks trying to “chase yield”, I often remind investors, “Don’t Be Too Cute”.
  • They could end up with the same thing that Ebenezer Scrooge gave Bob Cratchit - not even a single lump of coal.
  • “It’s about figuring out what something is worth, and then paying a lot less for it”. -Professor Joel Greenblatt.

Yesterday, I spent most of the day with my family, sitting around the table eating - you guessed it - tons of turkey.

What else so you do on Thanksgiving Day?

Well, I am sure you can go shopping, or stand in line to win $500 worth of coupons at J.C. Penney (JCP) or go see a movie (I did that two days ago).

I have better things to do than go shopping, I must finish my monthly newsletter (Forbes Real Estate Investor), and as my loyal subscribers know, it takes time to write 30+ pages of content every 30 days.

The December edition is going to be special, because I am featuring one of most popular REITs, Tanger Factory Outlet Centers (SKT). My staff and I have been working on this research report for a few months, and I am excited to get this in the hands of my subscribers.

However, I am also including a year-end “sleep well at night” special.

Many of you know that one of my prized REIT portfolios, known as the Durable Income Portfolio, has an overweight composition of SWANs (stand for sleep well at night), and by tactically modeling the portfolio around blue chip performance, the portfolio has lived up to the hype - my six largest holdings (33.9% overall) in the Durable Income Portfolio has returned an average of over 15% per year (since August 2013).

A SWAN is quite simply a BLUE CHIP stock that is generally a high-quality stock that’s known to weather downturns and operate profitably in the face of adverse economic conditions.

Essentially, blue chips offer the most elite value proposition in the form of durability - a demonstrated track record of stable income and predictable growth. Accordingly, most blue-chip companies have long-term records as explained by Chuck Carnevale:

“…many of the most recognized blue-chip dividend paying stocks have been in business for many decades, and in some cases for a century or more. In this respect, they have endured and even prospered throughout almost every stock market or economic crisis of modern times.”

Some may consider Blue Chip stocks expensive, however, there’s simply a misconception, even though my core SWAN holdings have outperformed, there are a number of blue chips that are attractively priced today (some are even cheap).

While I do own a number of non-SWANs, seemingly riskier due to their volatility, there are other risk considerations that should be taken into account when you are evaluating blue-chip growth stocks. These investment attributes include but are not limited to the following (Source: Investing in REITs by Ralph Block):

  • Outstanding proven management
  • Access to capital to fund growth
  • Balance sheet strength
  • Sector and geographical focus
  • Low payout ratio
  • Absence of conflicts of interest
  • Dividend history

I have found good success in owning a large majority of SWANs, and I am hoping to transition my portfolio into a larger percentage of “sleep well at night” REITs.

While I see more and more folks trying to “chase yield”, I often remind investors, “Don’t Be Too Cute”.

I am fearful that investors are becoming a bit too cute in their decision-making, and by chasing yield, they could end up with the same thing that Ebenezer Scrooge gave Bob Cratchit - not even a single lump of coal.

The "SWAN" Recipe

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