Two Model Portfolios for 2009

My previous article focused on alternative ways to hedge a portfolio. It discussed two principal alternatives: using index ETFs to hedge out volatility, or constructing a portfolio in which the stocks have minimal correlation with each other. Because the market is already down severely this year, I believe it will be more prudent to focus on the latter option.

The key takeaway here is the word "model." While I feel strongly about the long-term performance of the following names, the idea of creating a model portfolio is to not give investors a firm list of securities to go out and buy. Instead, the goal is twofold:

1. To give you sources of ideas to pursue further on your own.
2. More importantly, to demonstrate how you should be thinking when building or altering your portfolio.

Please read the following two goals again before taking a look at the suggested portfolios. Some of these businesses I've written extensively about on RealMoney, so you can go back and get a more thorough look at their merits. If you're taking time off for the holidays, this is the perfect time to examine a good list of ideas and dig deeper.

Looking at the first portfolio below, one striking distinction that should jump off the page is the extreme diversification coming from a basket of just 10 securities. For instance, a significant move in the price of oil doesn't send the entire portfolio for a ride.

Nearly all of these companies can be profitable even if 2009 is recessionary. Names such as Johnson & Johnson (JNJ - commentary - Cramer's Take) and AutoZone (AZO - commentary - Cramer's Take) make money in any environment. Target (TGT - commentary - Cramer's Take) is a best-of-breed retailer that benefits from the trade-down effect taking place from the luxury consumer. NVR (NVR - commentary - Cramer's Take) is one of the most well-run homebuilders, and its balance sheet is conservative relative to its industry.

The second portfolio incorporates a little more uncertainty with names like Eagle Bulk Shipping (EGLE - commentary - Cramer's Take), Goldman Sachs (GS - commentary - Cramer's Take) and Whole Foods (WFMI - commentary - Cramer's Take). The markets hate uncertainty, and the result can be fantastic returns over a period of years.

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At the time of publication, Gad had no positions in stocks mentioned, although positions may change at any time.

Sham Gad is the managing partner of the Gad Partners Fund and the Gad Partners Offshore fund, value-centric investment partnerships based in Athens, Georgia. Gad has written extensively for the Motley Fool and was a securities analyst for UAS Asset Management, a small, value-focused fund in New York City in 2007. Previously, Gad managed assets for the Gad Investment Group. For additional information, please visit www.gadcapital.com.

Gad also runs a value-investing blog inspired by the teachings of Benjamin Graham and Warren Buffett. Additionally, he is currently working on a value investing book to be published by John Wiley & Sons in the fall of 2009. Gad earned his BBA and MBA at the University of Georgia. Send Sham Gad an email. You can reach Gad at [e-mail].