Bobby Edgerton is a HODL Portfolio Manager

March 8, 2021
Bobby Edgerton is Chief Investment Officer of Capital Investment Companies

Bobby Edgerton, Chief Investment Officer, Capital Investment Companies

Bobby Edgerton is a Co-Founder of the Capital Investment Companies and has served as an executive officer of the companies since 1984. He is also the firm’s Chief Investment Officer and has been in the financial services industry since 1979.

After winning the North Carolina State High School Golf Championship, Mr. Edgerton accepted both a basketball and golf scholarship from Wake Forest University and graduated with a B.A. in business and finance.

After graduation, he attained a rank of First Lieutenant in the U.S. Army Signal Corps, where he commanded a thousand-man training company at Fort Gordon, Georgia, during the Vietnam War. During his amateur golf career, Mr. Edgerton played in four United States Amateur Championships.

In this 3,889 word interview, exclusively in the Wall Street Transcript, Bobby Edgerton details his 2021 investment picks and his investing philosophy.

“My philosophy is that the essence of the stock market is twofold, very simple.

Every company, big and small, has two values. Number one is precisely to the penny what the stock market says a company is worth.

Walmart (NYSE:WMT) has 3 billion shares outstanding. The stock is right at $140, so the stock market says the company is worth exactly, say, $400 billion.

Coca-Cola (NYSE:KO) has 4 billion shares outstanding. The stock is around $50, so the stock market says the company is worth $200 billion.

There is no way Coke is worth half of Walmart. But what the stock market does is put an exact value on every stock, which you can’t do. It’s really a range.

So, the essence of the stock market is twofold. You have that first precise value, and then the second is, what are these companies really worth? Or what’s Apple really worth with their technology?

What’s Google really worth, Alphabet (NASDAQ:GOOG)? You can’t pin it down to an exact value.

It’s kind of a range that these companies fit into. And what one wants to do, is when one of these stocks gets oversold, and is selling at a low price for the year, the company is probably worth more than the market is valuing the company.

On the other hand, when a stock goes way up, and they’re at an all-time high, then you might think that some of these companies aren’t worth what they’re being valued at right now.

And I’m talking about the Zooms (NASDAQ:ZM), the Palantirs (NYSE:PLTR), the Oktas (NASDAQ:OKTA). Now, they’ve all gone public. A lot of them don’t have any cash flow or maybe minuscule cash flow. So that’s the essence of the stock market.

I have a five-point program for investing.

If one does these five things, they’re probably going to make money and most importantly, not lose much money.

Number one is you buy companies that have great balance sheets, and in many cases a lot of cash. Not much, if any, debt. And you buy the best companies in the world.

Maybe number one or number two, like Taiwan Semiconductor (NYSE:TSM) in chip manufacturing, or Coca-Cola in beverages, McDonald’s (NYSE:MCD) in fast food, things like that. So that’s the first thing you do. You buy nothing but good companies. You always buy when they’re down, not when they’re way up.

Number two is you never spend a dividend.

You always reinvest your dividends. The average good company like Coca-Cola and Walmart double their dividend every 10 years. Lockheed Martin (NYSE:LMT), the big defense company, quadrupled its dividend last year. If you need dividends to live on, that is another matter.

Number three is savings and premiums.

If you go through your life, or your business life, in your retirement plan constantly accumulating great companies, especially the ones that have sold off, you’re going to do well in the stock market. And so, that’s, kind of, savings.

Premium is something that you obligate yourself to do. Maybe you buy one good stock a month. In a year, you’re going to have 12, and in five years, you’re going to have 60. Even if you might not do well in the stock market, if you saved a lot of money, you’re probably going to be in good shape.

The fourth part of the five-point program is tax.

Obviously, in an ERISA account, where there are IRAs and 401(k)s and the like, you don’t pay any tax until you’re 72. And then you have to start taking out your required minimum distributions.

In a taxable account, if you make your gains, long-term gains, obviously, you pay a lot less tax than you do on short-term gains.

And then the fifth point of the five-point program, and probably the most important, is the two ways you make money in the stock market.

You buy good companies and you hold them forever. You hold them and don’t ever sell. You don’t pay any tax unless they change the rules on you and start having some kind of tax on it, which they don’t do now.

Someone who’s held Coca-Cola for 50 years, or Walmart for 25 years, or Apple, like I have, for 25 years. That’s a good way to make money.”

Bobby Edgerton has some top picks for 2021.

“My number-one turnaround would be Coca-Cola.

Coca-Cola is in the best shape they’ve ever been. James Quincey is, in my opinion, the best CEO they’ve ever had. They’ve had some tough guys back in the day. Doug Ivester was not a very popular guy. He was just a tough guy. But Quincey is a great guy.

I used to run a Coca-Cola bottling company’s retirement plan.

And the owner always told me that Coke did not belong in the bottling business. That’s a capital-intensive business. They should sell concentrate and all the other beverages.

Well, none of them ever did that until Quincey came along and did that. So, Coke, they own stock in their bottlers. Like Coca-Cola European Partners (NYSE:CCEP). But they’re essentially out of the bottling business which I think is a good move.

And Quincey — he just had a massive selling of the beverages that weren’t performing.

Pepsi (NASDAQ:PEP) is a big in-house company with Frito-Lay, where people stay home and they eat the munchies.

Coke is an external company where people get out and they mingle, they go to restaurants, which I think is going to come back. And when that happens and when the sports open back up, then Coke is going to be a big winner.

But it’s in the doghouse right now. And I like buying good companies when they’re in the doghouse.”

Get the other top picks from Bobby Edgerton by reading the entire 3,889 word interview, exclusively in the Wall Street Transcript.