Summary

• I take a look at unexpected performances, both positive and negative, thankful that I was diversified.
• I believe it is important to own several companies within a given industry; why try to pick a winner when you don’t have to?
• Buffett versus Socrates: understanding yourself and your own limitations.

Several weeks ago I wrote an article here on Seeking Alpha discussing my portfolio’s performance in 2014, which happened to be the first full year that I managed by own portfolio. I noted that I while I was generally pleased with my results, I obviously still have a lot to learn and I was planning on sharing my reflections with you. This pro-diversification piece is the second in My DGI Journeys series, and I am happy to share my results, both good and bad, to support my position of diversification.

Diversification is a funny thing. The premise exists solely in the eye of the beholder. Someone might look at a portfolio comprised of domestic, large cap, dividend aristocrats and say that diversification is largely lacking; there isn’t exposure to medium and small cap growth, fixed income, international equities, precious metals, or any of the other alternative investment funds. However, someone else might look at the same large cap dividend aristocrat portfolio and say that it is plenty diverse, spread across different sectors and industries, and even within industries; for instance, holding both Coca-cola (NYSE:KO ) and Pepsico (NYSE:PEP ) might be considered adequate diversification to some.

As shown below, I own a fairly balanced mix of companies across the stock sectors. I am under weight in some, over weight in others. This is largely do to confidence in several individual companies and the industries that they operate in. You can also see that I am spread rather evenly across the large cap spectrum of Value, Growth, and Core holdings. When managing my portfolio I don’t pay a whole lot of attention to these figures as bench marks, but I do enjoy looking at them from time to time to make sure that I am not totally missing out on exposure to a certain corner of the market. You may notice that I don’t own many international equities. This is partly due to dividend tax codes, but mainly because of accounting fears involving companies that aren’t traded and regulated within the US markets. I feel as though I have addressed this lack of international exposure issue by owning domestic multinationals whose financial reporting I can trust.

This inter-industry diversification that I discussed above in relation to KO and PEP is something that I adhere to. Usually I am bullish on an industry, but I don’t necessary know which company within will come out on top. How could one profess to know who will out perform between two wonderful companies like KO and PEP, or like Visa (NYSE:V ) and Mastercard (NYSE:MA ), over the long-haul? We might have a hunch, but if all things are equal from a valuation standpoint, why not give yourself exposure to both sides of a competition? Especially when both sides are respectable?

Here are several examples of my inter-industry exposure:

Nonalcoholic Beverages:

Coca-Cola

PepsiCo

Starbucks (NASDAQ:SBUX )

J.M. Smucker (NYSE:SJM )