Market Commentary: The Perfect Portfolio Revealed

Picking stocks is hard enough but how do you decide what amount to allocate to each stock? Portfolio construction is an art unto itself. Done well, a portfolio can withstand economic storms. Done poorly, the results can be catastrophic.

For two contrasting perspectives, look no further than Berkshire Hathaway versus ARK Invest during 2022. Berkshire ended the year relatively flat while ARK Invest fell from around the $80 level to the $30 level, and that was after it had fallen from highs of over $150 per share in 2021.

The results weren’t entirely surprising. ARK Invest was comprised of high growth companies that had appealing narratives, but many of them had not generated profits and were trading with high multiples based on inflated expectations. Berkshire’s companies by contrast were proven entities like Coca Cola and American Express that had weathered the ups and downs of recessions and boom times for generations.

Perhaps one ingredient that Berkshire companies all possessed, and which few of the ARK Invest companies enjoyed, was a wide moat. And so if you’re building a perfect portfolio, it seems to make sense – if you plan to invest for the long-term – to build a collection of wide moat companies. How do you do that?

During our research, we found an investor named Michael Puzo, overseeing about $300 million, who might have done just that. Here’s his portfolio:

The Perfect Portfolio?

Puzo appears to have built a really interesting collection of wide moat stocks that includes not only Berkshire Hathaway, but a broad selection of other wide moat firms too.

Here it is unveiled with explanations of the respective moats:

• Apple: Strong brand recognition, loyal customer base, and innovative products.
• Mastercard: Extensive network of merchants and ability to process payments quickly and efficiently.
• Procter & Gamble: Leading brands, including Tide, Pampers, and Gillette.
• Microsoft: Dominance in the operating system and productivity software markets.
• Canadian National Railway: Extensive network of rail lines and ability to move goods efficiently across North America.
• Automatic Data Processing: Leader in the payroll processing market.
• Alphabet: Massive market leader in the online search and advertising markets.
• Analog Devices: Sustained high margins for decades.
• Johnson & Johnson: Top brands, including Tylenol, Band-Aid, and Neutrogena.
• Nestle: Brand leader, including Nescafe, KitKat, and Lean Cuisine.
• Danaher: Diversified business model, including businesses in the healthcare, industrial, and environmental markets.
• Fiserv: Financial technology market leader.
• Abbott Labs: Established brands, including Similac, Ensure, and FreeStyle Libre.
• AMD: Microprocessor market leader.
• AptarGroup: Packaging market positioning is very strong.
• Rockwell Automation: Dominant in the industrial automation market.
• Raytheon: Crucial to defense industry.
• Novartis: Pharmaceutical market leader.
• Chevron: Oil and gas industry leader.
• Home Depot & TJX: Strong brand recognition, loyal customer base, and extensive network of stores.
• Xylem: Leading position in the water infrastructure market.
• United Healthcare: Renowned leader in the health insurance market.
• Becton Dickinson: Established position in the medical devices market.

A key attribute of these wide moat companies is their ability to withstand hard times, sustain high margins, and grow regardless of market conditions. If you’re looking for the perfect portfolio, it may not exist, but Michael Puzo’s might be as close to the mark as it gets.