Every Investment Portfolio Needs Its Anchor Investments
Investors often chase the next big thing, focusing on the latest headlines and quarterly earnings beats. But the most resilient portfolios—the ones that weather market shocks and grow meaningfully over decades—aren’t built on speculation. They’re built on conviction.
At the core of these portfolios lies what may be best described as “anchor investments,” which are a small handful of high-conviction stocks that act as the ballast of a long-term investment strategy. An anchor investment isn’t just a company you happen to like. It’s a stock you understand deeply, believe in fundamentally, and would be comfortable holding through several periods of volatility and uncertainty.
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Think of a company like IBM, which has been all but forgotten about since the coining of the term “Magnificent 7,” but the stock hasn’t suffered a down year since 2020. Anchor investments are the names you build around, not the ones you chase when they're already hot. And what makes this approach powerful is the clarity it provides. You simply identify five or so businesses that you have an unwavering belief in and make them central to your strategy.
In the process of identifying your anchor investments, it helps to begin with sectors or industries where you already have a level of familiarity or professional insight. This approach not only reduces the learning curve but also enhances your confidence in assessing a company’s prospects over time. If you work in tech, for example, you may have a natural advantage in evaluating cloud software providers or semiconductor companies.
Such familiarity can also bestow you with a sharper lens through which to view quarterly earnings reports and industry developments. With a basis of earned expertise to work from, you are more likely to decipher the nuance in techspeak and less likely to be swayed by noise or sensational headlines.
Another characteristic to consider when identifying anchor investments is dividend consistency and growth over time. Companies that have a record of raising their dividends year after year—for at least 25 consecutive years—are known as “Dividend Aristocrats.” This group spans sectors, from consumer staples like Procter & Gamble and Coca-Cola to tech giants like Microsoft and Broadcom. And what they share is the ability to generate reliable cash flow in both bull and bear markets.
It is unrealistic to expect any stock to remain a permanent part of a person’s portfolio. Unless something materially changes, such as a shift in regulatory policy or a formidable new competitor entering the marketplace, these investments should rarely be sold. As new developments emerge, you would ideally review them and decide whether the story that initially led you to invest in the company still holds true.
Ironically, it’s during broad market selloffs where anchor investments especially shine. When panic leads to indiscriminate selling across the board, your anchor stocks are where you should look to take action. Rather than guess which beaten-down tech name might bounce back fastest, you should increase your position in the names you already trust.
Counterintuitive as it may seem, one of the most lucrative investing strategies is to sell your losers and continue to add to your winners. Behavioral finance research backs this up. From small-dollar retail investors to professional mutual fund managers, many are guilty of holding on to losing stocks hoping they’ll recover and trimming their winners too soon.
Numerous studies have found that individual investors are significantly more likely to sell stocks that have increased in value than those that have declined, even though winning stocks tend to outperform losing ones after they’ve appreciated. Known as the “disposition effect,” this tendency harms performance and reinforces the false idea that the best strategy is to “wait it out” on poor-performing stocks while cashing in early on those doing well.
This is where the discipline of identifying and nurturing a core set of anchor investments becomes an overarching investing philosophy. These are the names that should act as your North Star during periods of extreme uncertainty, even when the headlines might suggest otherwise. Without this set of core companies, a portfolio can quickly become a fragmented collection of ideas and hunches rather than a cohesive, well-thought-out strategy.
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Malcolm Ethridge is the Managing Partner at Capital Area Planning Group, based in Washington, D.C. His areas of expertise include retirement planning, investment portfolio development, tax planning, insurance, equity compensation and other executive benefits.
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Disclosures:
The information provided is for educational and informational purposes only, does not constitute investment advice, and should not be relied upon as such. Be sure to consult with your legal advisors before taking any action that could have tax and legal consequences.
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