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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?
It’s always a good idea to invest in companies you love. I don’t own Google because I tend to stick with stocks that pay dividends because I love the added return… so I picked Apple over Google.
Dan,
Apple was a really exciting stock a few years ago. I wonder where they’ll go from here. Their product line is aging and they need some big changes – fast! 🙂
Thanks for the comment,
Sam
Most of my investments are in Mutual Funds but I wanted to “play” with stocks so about two years ago I took $1,000 and bought a couple shares of Amazon and a couple shares of Whole Foods. My amazon stock has grown 86% and whole foods 26%!
Stefanie,
Well done! Amazon has been a terrific stock to own. Great choice. 🙂
Sam
I have always heard that GOOG was overvalued and that is why I have never pulled the trigger. Plus, there are many other things that I need to get to done and over $1,000 a share is crazy to me.
This is definitely something to be concerned with from a value perspective. Keep in mind that the market is far more emotional in certain investments. A stock can exceed many analysts’ perspectives when it comes to earnings per share (EPS). Mind you, a stock that’s valued at $1150 is not inherently overpriced. Depends where you see the company going. For instance, Berkshire Hathaway is $172,734.00 per SHARE! It’s EPS is around 15, which is a moderate value.
Do you do a lot of trading or is this a one-time thing? Every time I want to buy a couple thousand dollars worth of a stock, I think about how little I know compared to people who do this all day as their job and that in the next month, things could change and I’ll hate myself for it. I don’t have the stomach for it, so I keep 90% of my investments in index funds.
Hey Daniel,
Good to hear from you. Thanks for your comment and question. I’ve been investing for many years. I would say I have quite a bit of experience – I’ll leave it up to you to judge my expertise. I don’t daytrade, as I consider this to be too risky, psychologically unsettling, and a huge time suck for a graduate student schedule. 🙂 If you don’t feel comfortable and have some knowledge about the stock market, I’d recommend sticking with that plan of using index funds. A great site for learning more is Investopedia.com.
Hope this helps!
Sam
I did the same thing myself when I was in high school. Two shares of GOOG for $600, my entire portfolio. It was definitely a fun ride and taught me a lot about investing, diversification, and capital gains tax when I sold it within a year! Enjoy the little wins from betting it all on one stock, but remember when you start investing regularly that proper diversification and asset allocation will always win in the long run.
Spencer,
Thanks for your comment! That sounds like it was a heck of an investment. 🙂 Well done! You’re absolutely right, investing seems to help people learn tax rules, diversification, and economics pretty darn quick.
Sam
I would never be able to pull the trigger on spending $1000 on one share of stock in any company. The best of luck with getting a nice return on your investment.
There’s no doubt about it, you’ve invested on the right company. Google is an innovative type of company that never stops to discover, even small simple things are put on analysis. You’ll never achieve success if you keep following the same old track. So why not try the other one undergoing renovations and construction, right?
I remember when a Google share was $300 something in 2006, recently graduated from high school and freshmen in college. How I wished I had the money to buy it back then. I even told my dad to buy at least one but he’s not a risk taker I guess.
I’m late to the party, but this is my goal for 2019 in my TSFA – to save enough to buy one share of google. I already have BAC (Bank of America) and a little bit of Square. Of course I have more conservative/diversified investments in my rrsp’s and drip programs with Canadian Banks. I believe in the long term a company like google that invests so much in innovation will be worth it and continue to grow.
What is your opinion of slice or fractured stocks? Would this be a good way to get started?