One of the greatest strategies for investors is cultivating a watchlist. Personally, keeping a list of stocks under constant supervision has mitigated the probability that I'll overreact and execute trades on a whim, without investigating them adequately.
In all likelihood, some stocks may never make it off the list. For example, as much as I'm rooting for Tesla to succeed in reimagining the transportation landscape, the stock has remained on my radar for years -- never the subject of a buy order -- and I realize it may linger on said watchlist indefinitely.
Beyond that, there are numerous stocks, like Barrick Gold (GOLD 1.67%), BP (BP 0.68%), and Altria (MO -0.62%), which I'm certain will not only remain absent from my portfolio but from my watchlist as well. Here's why:
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Nothing more than fool's gold
I don't intend to add gold exposure to my portfolio anytime soon. But if the urge to rush into a gold stock surfaced, I'm sure that Barrick Gold would not receive the nod. The second-largest gold miner by market capitalization, Barrick certainly warrants respect for its position as an industry leader. But that's hardly a reason for it to earn a place among my holdings. Actually, I'm not too enthusiastic about gold miners in general, since they often underperform the overall market.
In Barrick's case, it hasn't only underperformed the S&P 500 over the past 10 years, it has failed to keep pace with the price of gold. And even though it has shored up its balance sheet -- reducing its total debt by $6.7 billion since the start of 2015 -- and maintains a pipeline of projects to spur future growth, I don't believe there are any catalysts on the horizon that will inspire the market to drive shares higher.
In time, maybe I will and maybe I won't decide to gain gold exposure. But I can say with absolute certainty that if I ever do, my go-to choices will be a gold ETF or a royalty and streaming company -- not Barrick.
Still in the doghouse
By no stretch of the imagination do I believe that any company is perfect. Upon close enough inspection, in fact, I'm confident I'd be able to find something objectionable about many businesses. Though this won't preclude me from investing in general, there is a limit. Take BP for example.
When we purchase shares of a stock, we become owners in the company. In the case of BP, the misgivings I would have about owning shares of the company that was found to be largely responsible for the Deepwater Horizon oil spill would be too great. Perhaps I'd feel differently if the company had taken large enough strides to compensate for the disaster -- if the company began to invest strongly in renewable energy, perhaps. This, however, hardly seems to be the case.
I understand that there are plenty of shareholders who don't agree with me. Investing is a personal issue, and I hardly begrudge anyone who invests in a given business. Most important, investors should be able to sleep soundly at night, knowing that they're investment decisions are not in conflict with their consciences. For me, I'd suffer too many restless nights knowing that BP was part of my portfolio.
Up in smoke
Undoubtedly, there's an argument to be made for investing in Altria, the parent company of Philip Morris USA. Offering investors an attractive dividend yield over 4.9%, Altria has also provided investors with impressive capital appreciation over the past 10 years. And while the S&P 500 has risen more than 115%, shares of Altria have climbed more than 181%. Additionally, management has demonstrated a commitment to shareholders by reducing its share count more than 8% over the past decade.
Like BP, however, the angel on my one shoulder speaks louder than the devil on the other. The market is replete with attractive investment opportunities out there, so eschewing a company that profits from tobacco sales -- a company that actually provides resources on its website to help its customers stop using its products -- suits me fine. Just as informed adults can choose to use Altria's products or not, informed investors can choose to invest in the company or not. Far be it from me to judge in either case.
Investor takeaway
For a variety of reasons, I know that Barrick Gold, BP, and Altria will never make it onto my watchlist, let alone into my portfolio. Barrick Gold, for some, may represent a glittering opportunity, but it's track record of underperforming the market doesn't seem very compelling, in my opinion. With BP and Altria, however, the reservations I have are founded on other grounds, which may seem negligible to some. And I can be reasonably certain that some of my holdings, conversely, will raise the eyebrows of other investors. In any case, the crucial thing to remember is that a sound investment is not solely based on a company's fundamentals, but whether investing in it allows you to sleep soundly at night.
