This is the next installment in our monthly series on the portfolio of our macro analyst, Austin Rogers. Please note that our main focus will remain on the HYL Portfolios, but since many of you have expressed interest in knowing how Austin manages his portfolio, we are posting this to give you extra value.

As stock prices have rebounded somewhat and conspicuously good buying opportunities have become more limited, I've been thinking more lately about investing fundamentals.

More specifically, I've been pondering portfolio construction and whether I want to keep devoting such a large share of my portfolio to individual stocks.

Over 80% of active portfolio managers underperform their benchmark over 3-, 5-, and 10-year periods. If that's true of professional stock-pickers, why wouldn't it also be true of regular working folks who invest in their spare time?

I have ample experience with this myself.

Every quarter, I try to listen to the conference calls for each of my individual stock holdings. For some of them, I'm able to garner valuable insights or vibes that actually inform my thinking about the company. But for others, listening to the conference call is a reminder of my lack of informational edge or ability to foresee potential problems or growth opportunities.

Why did I sell Vistra (VST) in the $30s only to watch it soar to $160? Because I lacked the expertise in the company and its industry to understand that power-hungry AI would soon make VST's unregulated power plants a lot more valuable.

In contrast, I've had most success over the years investing in REITs and other hard asset stocks with business models similar to that of real estate. Why? Probably because my own work background is in real estate, first residential and then commercial. I understand leases and tenant credit and how interest rates affect CRE. And now, as part of my work for High Yield Landlord, I write quarterly updates on every sector of CRE.

In short, my expertise is in real estate, and that's where I've been most successful investing.

To be sure, I've had my share of stinker REIT picks, such as Alexandria Real Estate Equities (ARE) and Rexford Industrial (REXR). But about 2/3rds of my REIT picks have done well and outperformed their peers while growing their dividends nicely. (I don't think it's reasonable to expect to bat a thousand.)

The model I've settled on in my investing journey is a hybrid approach between ETFs and individual stocks. I think of it as a hub and spoke:

Imagine the "hub" as being big, while the spokes are small and relatively few.

In this model, the hub represents dividend growth ETFs like Schwab US Dividend Equity ETF (SCHD) and iShares Core Dividend Growth ETF (DGRO) that provide broad diversification and consistent dividend growth for a low management fee. Though this is not the case today, I'd like somewhere around half my portfolio to be invested in "hub" ETFs someday.

The longer I invest, the humbler I become about my ability to consistently pick winning stocks. Think of the hub as insurance against hubris.

The spokes in this model are individual dividend stocks about which I have high conviction based on my expertise or some informational edge. There are some stocks, like my largest holding, Agree Realty (ADC), about which I'm so confident that it wouldn't make sense not to hold in my portfolio.

The hub is the dependable core of the portfolio. If one of the spokes breaks, the wheel can still work as long as you've still got a sturdy hub.

Likewise, some of my individual stock picks can turn out to be bad (either sold at a loss or held for a while at an unrealized loss) without breaking the whole "wheel" of the portfolio.

The important thing is that the overall portfolio continues to grow its passive income stream at a steady pace. That's the ultimate goal.

By regularly investing my unspent labor income and reinvesting dividends, I believe I'll gradually achieve that ultimate goal and enjoy watching my dividend snowball grow along the way.

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