The smart portfolio is a diversified portfolio
Investing is a tough business. Most people tend to float around with average gains of the stock market – influenced by the leading indicators – because they buy mutual funds and exchange traded funds (ETFs). Those that buck the greater system, choose individual stocks, and don’t diversify their portfolios run the risk of losing it all – making it a game of chance.
Previously, I wrote about how you must have a certain amount of money in an investment account before you can make smart decisions. When you only have about $1000, as I do, there’s little that can be invested well; plus, the trading fees eat up any minor gains (or increase losses). Nowhere is the trite cliche of “it takes money to make money” more vital than the stock market.
Take a risk, play it straight, or go with what I know?
Because of the financial situation I’m in, I do not really have the privilege of a well-diversified and balanced portfolio. Moreover, I wish I could take it out and pay off $1000 in student loans (that are receiving active interest at 6.8%). But the money is caught up in an IRA with painful tax and growth implications if I withdraw it now. It’s easier to put this money to good use in the market.
I was invested in a lot of tiny ETF positions in my Vanguard Roth IRA, in an abysmal attempt to diversify. Mostly, it was working. The money was slowly adding up, but I found moral complications in some of the holdings within these ETFs. I honestly didn’t agree with some of the companies business decisions, and I felt complicit in supporting these practices.
That left me sort of in the lurch. Where should I make the most of my money with a company I support? One company stood out in my mind because I agreed with their business practices and supported their vision. Also, as a tech geek, I felt like I could conceptualize the mission.
Hello, Google. I own you.
The only company that made sense to me was Google. Trading around $1050 per share, this was an expensive stock (~30x EPS). Investors were suggesting that this was a growth stock that’d be going places beyond search advertising revenue. But I had recommended the GOOG monster to someone a little while back, and completely missed a rise from $800. Something told me the run wasn’t done.
On December 4th, 2013, I purchased one share at $1051.37. Now, my entire portfolio was condensed into one bet, share. I cannot recommend this investment technique from a risk perspective, but I felt like I understood the mood around this company and its leadership.
As a nerd of the highest order, I naturally paid attention to Google products, developments, and releases – no matter if I could afford them. Back in college, I was even given a free Chromebook (the Cr-48) from Google for testing purposes. More than any company before, Google made sense to me, and I used a ton of their products. So, I pulled the trigger.
What I learned from the decision
This was a risky decision; mind you, one that paid off. The Google share has risen about $100 over my original purchase price and investors continue to be optimistic about the growth. The company is on track to deliver driverless cars in 3 to 5 years, researching how to make people live longer, and investing heavily via Google Ventures (which just helped swallow up Nest).
Have you ever considered investing in Google? What stops you if you haven’t?