Amazon is taking over the world one acquisition at a time.   On Friday Amazon announced its buying Whole Foods.  Whole Foods will join Audible, The Washington Post and Zappos as Amazon subsidiaries.  As an Austinite I can hardly wait to order miniature empanadas from my Prime account and have them delivered by a drone.

Amazon isn’t the first company to pursue world domination.   Sears Roebuck was one of the first companies to dominate the corporate landscape.  At one point, Sears was the largest retailer in the world while owning the tallest building in the world.  Sears owned Craftsman, Kenmore, Dean Witter, Discover Card, Coldwell Banker and Allstate Insurance.   The Sears Catalog was the early version of the internet.  A shopper could purchase almost anything from the catalog including a home.  Sears was the bluest of the blue chips and a fixed member of the Dow Jones Industrial Average.    Sears Holdings is a skeleton of its former self and they’ve sold most of their iconic holdings including the Sears Tower.   A $10,000 investment in Sears Holding in April of 2003 is now worth $7,680 delivering an average annual loss of 1.85% per year for the shareholder.[1]

Berkshire Hathaway is the opposite of Sears Roebuck.  Berkshire Hathaway, led by Warren Buffett and Charlie Munger, is a financial behemoth owning notable companies like Geico, See’s Candy, Benjamin Moore & Co., Fruit of the Loom, Justin Brands and Kraft Heinz.  A $10,000 investment in Berkshire in May of 1990 is now worth $346,500.[2]   A $1,000 investment in Berkshire Hathaway in 1964 is worth $13 million today![3]

I’m rooting for Mr. Bezos to succeed.  So far, so good.  A $10,000 investment in Amazon in May of 2007 is now worth $5 million.

How can you find the next Mr. Buffett or Mr. Bezos?  An investor trying to find one or two companies to last a life time is difficult.  A better alternative for most individuals is to own a portfolio of low cost mutual funds.

The Dimensional Funds listed below consist of large, small, international, and real estate companies.  It also contains a bond fund.  The funds in the portfolio had a wide range of returns.   The DFA US Small Cap portfolio returned 42.21% in 2013 while the Emerging Market Fund lost 14.85% in 2015.   Despite the wide range of returns in the individual funds the portfolio averaged 9.79% over the past five years.  The combined portfolio generated a 19.5% return in 2013 and lost 0.80% in 2015.[4]

• DFA US Core Equity I (DFEOX)
• DFA International Core (DFIEX)
• DFA US Small Cap (DFSTX)
• DFA Real Estate (DFREX)
• DFA Emerging Market (DFCEX)
• DFA Investment Grade (DFAPX)

It’d be nice to find an early stage Amazon or Berkshire that grows into a multi-national corporation generating market crushing returns for generations, however, this may not be possible.   I’d recommend allocating 5% to 10% of your portfolio if you’re going to try and find the diamond in the rough.   The remaining 90% to 95% of your account should be invested in a diversified basket of low cost mutual funds to be held for the long haul.

Happy shopping!

Let us not become weary in doing good, for at the proper time we will reap a harvest if we do not give up.  ~ Galatians 6:9

Bill Parrott is the President and CEO of Parrott Wealth Management.   For more information on financial planning and investment management, please visit www.parrottwealth.com.

Note:  Past performance is not a guarantee of future performance.  Your returns may differ from those listed in this blog.

June 18, 2017

 

[1] Morningstar Hypothetical Tool.

[2] Ibid.

[3] http://www.businessinsider.com/warren-buffett-berkshire-hathaway-historical-returns-2017-5, Andy Kiersz, May 5, 2017.

[4] Dimensional Fund Advisors Returns Web.