To learn more about our Million Dollar Portfolio Strategy, please watch the brief but insightful introductory video below…
Then simply scroll down to get a more in-depth look at everything from this strategy’s goals and objectives… to who this strategy is designed for… to the particular portfolio management process it incorporates. And, of course, the risks.
The MDP Strategy seeks to identify, buy, and hold great companies. For us, great companies have at least three of the following traits:
A clearly defined and compelling mission — not just making a substantial profit: Great companies are also out to reshape markets, deliver wonderful customer experiences, reward shareholders, and sometimes even improve the world.
Significant competitive advantages: Whether it’s valuable intellectual property, irreplaceable assets, economies of scale, high switching costs, or vast network effects, great companies have strong and durable competitive advantages.
Superior growth in revenue, cash flow, or dividends: Great companies can grow faster than inflation and the overall economy, using pricing power, operational efficiency, and smart capital allocation in positioning themselves to beat the market.
Capable, incentivized leaders with capital allocation chops: Well-run companies have managers with intrinsic and extrinsic incentives to run the business with shareholders in mind, and who can allocate capital to grow the business, enhance competitive advantages, and reward shareholders.
Large and growing market opportunities: Great companies own significant or increasing shares of large and growing markets and have substantial business optionality. A great company can become an especially great investment when its current market size is dwarfed by its addressable market.
Financial fortitude: A company can stay or become great only if it has the financial strength — a healthy balance sheet, sustainable cash flows, and/or easy access to cost-efficient capital — to invest and grow the business at high rates of return and, when appropriate, return capital to shareholders.
The MDP Strategy employs a balanced investment philosophy with respect to value and growth philosophies. In addition to the traits listed above, the portfolio managers require a valuation that is attractive relative to their assessment of future company performance, though their investment decisions are not dictated by the outputs of valuation modeling. We employ a long-term buy and hold approach, and the ideal holding period for an individual stock is at least several years — ideally compounding value for shareholders over long periods of time.
We also will not attempt to time the market, and we will seek to stay fully invested, which we define as a cash position of less than 5% of assets following the model.
The MDP Strategy is generally composed of at least 20 positions. To limit the risks associated with highly concentrated holdings, the MDP Strategy seeks to limit allocations to shares of any one company to no more than 10% of the model.
We’ll regularly review and adjust the MDP Strategy’s allocations to particular companies and sectors to maintain a diversified mix of investments that offer the best overall potential for long-term growth of capital. Companies will be sold if there are unfavorable developments affecting the company’s long-term prospects, if the value of the shares is no longer attractive, or if capital is needed to purchase a more compelling opportunity.
Positions at time of purchase will range in size from 2% to 5% of the model. The upper limit on the position size for shares in any individual company is 10% to allow room for successful investments to appreciate in value. We will assess positions that fall below 2% to determine whether to buy more, hold, or sell the position and reallocate the capital.
We’ll maintain target allocations for each stock in the MDP Strategy and monitor deviations of actual allocation from the target on a regular basis to ensure that desired exposures are maintained. The aim of managing exposures is balanced against the MDP Strategy’s long-term buy and hold philosophy, which includes us being mindful about minimizing unnecessary transactional costs.
The value of investments in the Million Dollar Portfolio Strategy may increase or decrease, which will cause the value of the investor's portfolio to increase or decrease. Investors may lose money on their investment and there can be no assurance that the strategy will achieve its investment objective and goals.
The principal risks inherent in this strategy are:
The stock of any company may not perform as well as expected, and may lose value, because of factors related to the company, including adverse developments regarding the company's business, poor management decisions, or changes in the company's industry or popularity of its goods and services. In the event a company becomes insolvent, stock holders will generally have lowest priority among owners of that company's obligations as to the distribution of the company's assets. Stocks may also be affected by general market and economic factors, even when their companies' respective business fundamentals are unchanged.
Please see Appendix A to our Investment Advisory Agreement for a discussion of additional risk associated with this strategy.
Each Personal Portfolio is subject to an account minimum, which varies based on the strategies included in the portfolio. Motley Fool Wealth Management retains the right to revise or modify portfolios and strategies if it believes such modifications would be in the best interests of its clients, and we may modify allocations within a client's account subject to the constraints of each client's current risk score and objective. Clients should be aware that their individual account results may not exactly match the performance of the Model Portfolios.