So far, the fund has bought mutual funds and ETFs, but no stocks.  This is in part to minimize transaction costs and management complexity, and to benefit from the relative diversity offered by holding low numbers of mutual funds relative to low numbers of stocks.

While it’s tempting to buy unloved stocks such as Netflix or Blackberry hoping they’ll break out, or buy Apple based on its historic market leadership and low price/earnings ratio, building a stock portfolio can be perilous.  Many investors buy “hot” stocks once they’ve become hot, often capturing the common fall back to Earth rather than further price appreciation.  Investors who do not research stocks full-time also often hold too few stocks to build a portfolio having tolerable volatility, and tend to not dedicate the weekly time needed to follow each stock (much less to scout for potential new purchases).

I’ve recently started tracking a stock portfolio based on long-term performance of undervalued stocks selected by formula, proposed by Morningstar and said to return 17% on average.  The new stock portfolio tracks 20 stocks Morningstar estimates to have the best price/fair value estimate, and that have a “wide moat”, or significant barrier to competition.  The portfolio started the year with $500,000, equally distributed among the following stocks, and will re-evaluate quarterly:

AMGN AMZN AMAT BK BRK-B CHRW CMP EXC EXPD ESRX FB GD INTC JW-A MLM MSFT NOV POT WTW WU