Last summer, I publicly built out what I dubbed "The World’s Greatest Retirement Portfolio." I put at least $4,000 of my own money into each of 10 stocks, and vowed an attempt to hold them all for at least three years.
Though I’m a little embarrassed by the outlandish title I gave it, the portfolio has continued to perform exceptionally well, returning 30% since the summer of 2011, and besting the S&P 500 by 20 percentage points.
Sadly, I announced last week that I was going to be breaking one of my goals. When trading rules allow, I will be selling shares of Activision Blizzard
The question then becomes, what company will replace Activision in the World’s Greatest Retirement Portfolio?
A word about what I’m looking for
My investing philosophy can be summed up as follows: I prefer to buy and hold companies that I'm proud to own, regardless of how they perform as investments. After that, I hope to buy at a fair price.
I would be proud to own all four of the companies that I considered for the last spot in my retirement portfolio. SodaStream
Though it would seem that this would make my decision difficult, there are other things I look for that made my decision between these four companies much easier. Specifically, because this is my retirement (and not my growth) portfolio, I’m looking for companies where I feel very confident they will be dominating their respective fields for years to come.
Solazyme is still in the ramping-up stages of its growth, and has yet to turn a profit. Westport Innovations is in much the same place, as its success is still highly dependent upon widespread adoption of natural gas vehicles and continued low commodity prices. Westport, as well, has yet to turn a profit. Because of this, these two companies fell out of consideration.
That leaves SodaStream and Baidu, both solid companies that have done exceptional jobs of executing on their business plans. To differentiate between the two, I took a step back and asked: "What would an investment in these companies really represent?"
In SodaStream, I believe it would represent a DIY movement to carbonated beverages that is friendlier to the Earth. An investment in Baidu would be based on the fact that the world’s most populous nation seems to be taking to the Internet, and Baidu is the most visited site among the country’s citizens.
Though I believe SodaStream’s cause is certainly worthy, when put in these terms, Baidu is the clear winner. That’s why the company will be joining my portfolio.
Baidu has grown revenue by 64% per year, and earnings by 74% per year for the last five years! The fact that the company is trading for just 28 times earnings makes it more than a fair price today.
Be comfortable with what you invest in
In the comments section for one of my articles about Baidu, some readers questioned whether investing in Baidu was an ethical bet.
Reader GregKS wrote, “Doesn't China track down dissidents by using the Internet, and censor search content? Isn't it difficult to obtain accurate financial information from Chinese businesses? How can you be relatively sure that Baidu does in fact have a solid business model?”
These are certainly fair points. Let’s first cover the company’s validity, business model, and financial statements. I am relying heavily on a visit our own Fool analysts took to Baidu headquarters last year, and their favorable impression coming away.
When it comes to the government, the situation definitely gets muddier. In the end, if the Chinese government were demanding information, my problem would be with the government, not Baidu itself. I’m not saying the situation is perfect; it’s definitely one that I’ll be monitoring.
In the end, though, the much bigger point is that you, as the director of your own portfolio, have to invest in things that you are comfortable with, and that match your philosophy. If Baidu’s practices bother you, then, by all means, I think it probably doesn’t belong in one’s portfolio.
If you’d like to dig deeper into Baidu -- far deeper than I’ve been able to in this piece -- pick up a copy of our premium research report on Baidu. Access to the report also entitles you to real-time updates throughout the year by our lead technology analyst, Andrew Tonner. Get your copy today!
Fool contributor Brian Stoffel owns shares of all the companies mentioned, though he will be selling his shares of Activision when trading rules allow. The Motley Fool owns shares of Westport Innovations, Baidu.com, Solazyme, and Sodastream. Motley Fool newsletter services have recommended buying shares of Westport Innovations, Sodastream, Baidu.com, and Activision Blizzard, and creating a synthetic long position in Activision Blizzard. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.