Man, today I looked at AAPL and AMZN... it made me want to look for the next 5-bagger and bet my entire portfolio. If it doubled, I'd be pretty set. How do you guys stay focused on diversification and income? Or are there some more aggressive investors reading along (such as that one reader who was using extreme leverage)?
Tech stocks making me greedy
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DividendGuy
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I'm pretty risk-averse. I've got a plan and I stick with it. I could find the next runaway stock just as likely as I could find the next loser. I invest a large majority of my money in dividend growth stocks, but I also find that putting a small amount of money into risky undervalued growth stocks gives me a little potential for some juice.
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Robert Muir
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Robert, thanks. INTC has a market cap of 120 billion so while it may be a performer, I'd normally consider it too big to double or triple... but that's also what I said about AAPL a few years ago.
My question was more aimed at how people keep disciplined, but also to flesh out what percentage of people (of any) on here are swinging for the fences.
My question was more aimed at how people keep disciplined, but also to flesh out what percentage of people (of any) on here are swinging for the fences.
dragoncar - I put a little of my portfolio (5%) on AAPL and PNRA (we like eating there) earlier in the year, sort of like my speculative portion. It won't bankrupt me if I lose it, but it's made me happy to see it go up the past few months.
Otherwise, I'm a good little dividend growth investor (Roth IRA) or target fund (401(k)).
Otherwise, I'm a good little dividend growth investor (Roth IRA) or target fund (401(k)).
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George the original one
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@dragoncar - I keep focused on the dividend growth stocks because I can consistently pick stocks that will increase dividends by 50%-100% within 5 years. Which means my investment income is rising much more rapidly than inflation.
Also, as I get closer to retirement, I'd prefer to have consistent income streams, so taking the risk on a huge win means diverting resources from a strategy that will definitely get me there.
Swinging for the fences, for me, is a lot harder. I've never figured out how to reliably predict humongous share price growth.
The AMZN story, for instance, doesn't make a lot of sense to me. The only thing going for them so far is the ability to get market share. They're not a particularly profitable company and they're mostly just a retailer in another guise; few retailers really succeed fabuously in the long run (e.g. WMT).
AAPL has fits & starts depending on whether it can crank out superior technology. At least they've built a bread & butter business around iTunes and other locked-in businesses.
NASDAQ has been the index leader this year, particularly in the second half.
Also, as I get closer to retirement, I'd prefer to have consistent income streams, so taking the risk on a huge win means diverting resources from a strategy that will definitely get me there.
Swinging for the fences, for me, is a lot harder. I've never figured out how to reliably predict humongous share price growth.
The AMZN story, for instance, doesn't make a lot of sense to me. The only thing going for them so far is the ability to get market share. They're not a particularly profitable company and they're mostly just a retailer in another guise; few retailers really succeed fabuously in the long run (e.g. WMT).
AAPL has fits & starts depending on whether it can crank out superior technology. At least they've built a bread & butter business around iTunes and other locked-in businesses.
NASDAQ has been the index leader this year, particularly in the second half.
@dragoncar
WRT the discipline aspect, one approach I like is the 80%/20% (or 90%/10%) concept used by some Permanent Portfolio folks. In other words, they have 80 or 90% of their assets in the conservative PP 4-fold allocation, and the remainder is a Variable Portfolio that can be more speculative. If the VP tanks, it won't tear down the house so to speak.
Taleb in Black Swan suggests a similar approach, with 95% in long bonds for safety and 5% on some outrageously risky investment that has the potential to mushroom.
Anyway, I think you get the idea. The discipline is in fencing off a majority of your assets and only risking a small portion on the high-flying, 5-bagger speculative investment.
WRT the discipline aspect, one approach I like is the 80%/20% (or 90%/10%) concept used by some Permanent Portfolio folks. In other words, they have 80 or 90% of their assets in the conservative PP 4-fold allocation, and the remainder is a Variable Portfolio that can be more speculative. If the VP tanks, it won't tear down the house so to speak.
Taleb in Black Swan suggests a similar approach, with 95% in long bonds for safety and 5% on some outrageously risky investment that has the potential to mushroom.
Anyway, I think you get the idea. The discipline is in fencing off a majority of your assets and only risking a small portion on the high-flying, 5-bagger speculative investment.
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Robert Muir
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dragoncar, when you find a double or triple opportunity, you let us know. That kind of thinking is get-rich-quick thinking and will lead to not getting wealthy at all. I shoot for solid companies that seem to be at a low value for one reason or another. As I said, the best bet there currently is in the financial sector.
My portfolio is divided between income-producing and small caps. As you pointed out, it's easier for a small cap to double than a large one. Something I look for when evaluating a small cap is "digestibility"... could this be an acquisition target? There has been lots of acquisition activity in the tech industry in the past 10 years, and many of those companies would qualify as solid investments on their own merits (low debt, high margins). Basically the entire business intelligence sector was bought out: Cognos, Hyperion, and Business Objects. If you understand tech, you can find buyout candidates. If you don't understand tech, it's easy to get burned; not every small tech company will be eaten by Oracle or IBM. And the ones that don't may well get squashed.
In my 7 years as an investor, I've had 4 doubles, and all have been small caps. One was a buyout, one was a fluke, and the other two are solid independent companies that are buyout candidates. Unfortunately, my doubles are off a small base, so I was not catapulted into instant FI. My plan is to stick with it, but not bet the farm.
In my 7 years as an investor, I've had 4 doubles, and all have been small caps. One was a buyout, one was a fluke, and the other two are solid independent companies that are buyout candidates. Unfortunately, my doubles are off a small base, so I was not catapulted into instant FI. My plan is to stick with it, but not bet the farm.
I don't know enough yet to find winners completely on my own but I have done very well by reading value investing blogs and buying what they recommend. I figure they are smarter than me and it has proven to be true. I bought TAIT 2 weeks ago after the Barel Karsan blog recommended it and it's up 27%, 11% just today! I made a couple thousand on their RIMM recommendation a while back too.
I work in the semiconductor business so to avoid having my income and investments correlated I don't invest heavily in tech companies. However Lam Research (LRCX) is a customer of ours and when they embraced a product I helped design I bought some of their stock. It is up 40% since then. Too bad I only bought $1000 worth!
I work in the semiconductor business so to avoid having my income and investments correlated I don't invest heavily in tech companies. However Lam Research (LRCX) is a customer of ours and when they embraced a product I helped design I bought some of their stock. It is up 40% since then. Too bad I only bought $1000 worth!
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DividendGuy
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George the original one
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Dang those ethical laws! When I worked for the federal government, I'd gotten myself into a position where I was controlling funds... what they call "a trusted public official", so I couldn't trade shares in anything we purchased or recommended (at least that's how I interpreted the rules to avoid a conflict of interest). Really felt hamstrung in my investing (invest in what you know), so was glad to move to a job in local government where they weren't so fussy.
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George the original one
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@dragoncar -
> And if you don't bet the farm, then what's the point?
> I.e. a 1% position with 10% upside vs. a 10% position
> with 1% upside.
This tells me you're thinking about one-time gains and not purchasing income streams.
So if you're thinking in these terms then you could make more (or lose more) by working naked puts/calls rather than dealing directly with the shares. You'd have nearly infinite leverage, but the risks are also proportionally higher. If I could consistently call one-time gains within a specified timeframe, this is how I'd do it.
> And if you don't bet the farm, then what's the point?
> I.e. a 1% position with 10% upside vs. a 10% position
> with 1% upside.
This tells me you're thinking about one-time gains and not purchasing income streams.
So if you're thinking in these terms then you could make more (or lose more) by working naked puts/calls rather than dealing directly with the shares. You'd have nearly infinite leverage, but the risks are also proportionally higher. If I could consistently call one-time gains within a specified timeframe, this is how I'd do it.
I know what you are talking about, dragoncar. And I don't really have good advice for you, as I myself have done best by picking a few random stocks and then watching them double/triple, &c.
AAPL, for example, has been a VERY nice run for me as well over the past several years (if only I had bought in 2000), but i'm thinking that its time may come in the next couple years. I'll wait for a couple failed product launches/more Jobsian autocratic platform control first, though
AAPL, for example, has been a VERY nice run for me as well over the past several years (if only I had bought in 2000), but i'm thinking that its time may come in the next couple years. I'll wait for a couple failed product launches/more Jobsian autocratic platform control first, though
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jacob
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I've noticed that I play a lot more mental games of "if only I had put all my money into this position" with my winners than with my losers.
These days I focus mostly on "staples" and "utilities". I tell you that transforming my portfolio from growth to income has been a big pain in the ... as I chose to wait for my growth positions to hit a sell condition rather than just take the capital gains hit/loss all at once. If I could do it all over again, I would focus on income from the very beginning.
[I note that many investors like companies with growing dividends. I don't necessarily agree with that. Growth is often priced into the share price and mathematically it exhibits a hefty leverage. This means that all else being the same a company with 10% growth will cost a lot more than a company with 0% growth. If the former turns out to have 8% growth, the share price will get slammed. I've seen that happen to me a couple of times: WAG and GE. Since people tend to be over-optimistic and thus overvalue growth, I prefer to stay away from this kind of investing. It relies too much on greater fools; not that doing this can't be rewarding. If a company doesn't grow beyond inflation, then that's one variable less I have to estimate.]
These days I focus mostly on "staples" and "utilities". I tell you that transforming my portfolio from growth to income has been a big pain in the ... as I chose to wait for my growth positions to hit a sell condition rather than just take the capital gains hit/loss all at once. If I could do it all over again, I would focus on income from the very beginning.
[I note that many investors like companies with growing dividends. I don't necessarily agree with that. Growth is often priced into the share price and mathematically it exhibits a hefty leverage. This means that all else being the same a company with 10% growth will cost a lot more than a company with 0% growth. If the former turns out to have 8% growth, the share price will get slammed. I've seen that happen to me a couple of times: WAG and GE. Since people tend to be over-optimistic and thus overvalue growth, I prefer to stay away from this kind of investing. It relies too much on greater fools; not that doing this can't be rewarding. If a company doesn't grow beyond inflation, then that's one variable less I have to estimate.]