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In December of 2017, the world's most perfect granddaughter was born in Chicago, thereby making me (if we go by the age my wife usually accuses me of acting) the youngest grandfather in the history of the world.
It was probably the only time I was happy about flying from Florida to the snow and ice along Lake Michigan, but it was hard not to burst into song as the plane came in over the frozen city that day. Thankfully I resisted that urge, as my voice is so bad it could easily be labeled as a threat to public health and result in me being in jail instead of holding my first grandchild.
Recently, someone asked me how I thought I would position the investment portfolio that would help pay for her college and start in life 20 years or so from now. Naturally, her parents and I have already had this discussion, and we have begun to position the "granddaughter portfolio" to help not only with college but her entire lifetime.
You may have a kid or grandkid, or you may just want to know how to secure a comfortable financial future.
Well, if this advice is good enough for the precious baby in my life, it's good enough for you…
The 5 Main Divisions of the "Granddaughter Portfolio"
The first thing you have to understand is that we are not in any big hurry to put the money in. We have a lot of time to get this right, and this is not the greatest time to be throwing money at the stock market. Forward returns from these levels in stock and bonds are probably going to be crappy at best and horrid at worst.
The screens I run every week do not show a lot of long-term bargain opportunities, so we are willing to be patient and wait for an extraordinary opportunity.
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In the meantime, I can talk about the five general guidelines that we will be using as we put the money to work on her behalf:
"Skin in the Game"
First, I am a huge fan of robust enterprises with the ability to survive that have high ownership by officers and directors. I am particularly fond of them when lousy market conditions create an opportunity to buy them at ridiculously great prices. A portfolio of dividend-paying stocks with high insider ownership trading below the asset value of the company stocks, purchased near the 2009 market bottom and held since, has turned every $100 into $607 compared to just $380 in the S&P 500. A third of the companies identified by this method have been taken over in the past nine years. High insider ownership often means a family-controlled company, and the only exit strategy for these folks is to sell the whole company. When that happens, we make as much as they do.
Private Equity Ownership
At some point, we will also be buyers of the publicly traded private equity firms. These firms are the very best investors, and we get to share in the results in two ways. First, they earn incentive fees on the profits they make for their investors, and these show up as earnings and dividend growth that help drive the share price higher over time. Second, they all invest alongside the funds they manage, so the growth of these balance-sheet investments will increase the asset value and the share price of the publicly traded private equity firms over time.
She will own a lot of real estate by the time she comes of age and becomes the first female starting pitcher in the Major Leagues. I am often asked why I invest in boring old REITs when there are so much more exciting things to buy.
About the Author
Tim Melvin is an unlikely investment expert by any measure. Raised in the "projects" of Baltimore by a single mother, he never attended college and started out as a door-to-door vacuum salesman. But he knew the real money was in the stock market, so he set sights on investing - and by sheer force of determination, he eventually became a financial advisor to millionaires. Today, after 30 years of managing money for some of the wealthiest people in the world, he draws on his experience to help investors find "unreasonably good" bargain stocks, multiply profits, and build their nest eggs. Tim tirelessly works to find overlooked "hidden gems" in the stock market, drawing on the research of legendary investors like Benjamin Graham, Walter Schloss, and Marty Whitman. He has written and lectured extensively on the markets, with work appearing on Benzinga, Real Money, Daily Speculations, and more. He has published several books in the "Little Book of" Investment Series and a "Junior Chamber Course" geared towards young adults that teaches Graham's principles and techniques to a new generation of investors. Today, he serves as the Special Situations Strategist at Money Morning and the editor of "Max Wealth" and Heatseekers.