3 perspectives on portfolio management

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HHow do you build your equity portfolio? In this episode of “The 5”, recorded on October 21, Fool contributors Jason Hall, Taylor Carmichael and Travis Hoium address this issue.

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Jason Hall: “Can you talk about the art of portfolio building?” List a few different compartments here, with growth, value, REITs, and dividend-paying stocks in mind. Ask questions like percentage of equity and positioning, then things like simple diversification into various industries, think of things like making it anti-fragile. During times of uncertainty, your portfolios actually get stronger. Then think about once you have a base, expanding it with the capital you receive each month. “

I’m going to start and talk for a minute and give you just a minute to think about it, and then you can share your own ideas. I’ve talked about this a bit before, but overall my equity portfolio, for many years my strategy has been to buy the best companies I can buy, buy as many as I can, and then own them for as long as I could. It was the strategy. I’ve never been one to spend a lot of time thinking about assignment to certain industries. If this was something I was really concerned about, I would just buy index funds because they already do. I never really worried about it. In part, at my age, I’m still in my early 40s, so I still have several decades left to measure my financial goals, and that gives me some leeway to not worry too much about being overexposed to certain industries for a while. a few quarters or a year or two or that sort of thing if there’s an industry downturn in that sort of thing.

For me the way I think about it is that my process has evolved over time, I have developed a dumbbell strategy. At one end of the bar, and it’s not like a balanced bar, it’s 70-30, 80-20. But at one end of the bar is growth. I’m really focused on buying businesses that can grow. Usually, this means that these are small businesses. Again, matches my financial goals. I have a 4 year old child, I am 20 years old from retirement. I measure my goals in decades, so I usually have to invest in growth stocks, and I think of disruptive companies that thrive and industries that thrive like the cloud. It’s much easier to buy a basket of cloud stocks and have the wind in my sails to make money than it is to fall into the weeds thinking that I need to diversify and maybe buy some as well. oil and gas. You look at which of these sectors has been very successful in the last 10 years, which has been very successful. Think over the next 10 years, who do you think will do better, oil and gas or the cloud? I thus simplify and seek growth with the majority of my investments.

The other end of the bar, dividend stocks. Companies that are generally more mature companies or their business model means that they pay dividends, like renewable energy companies, for example, they are designed to pay dividends. Buy the best companies in this business that I can that pay above average returns that are built with strong balance sheets and capabilities with favorable winds that will increase their cash flow so they can grow those dividends over time. time. This is my dumbbell investment strategy. At some point, as I get older and get closer to my financial goals, and I’m a decade or two away from something, the way I’m going to turn things around is that I have to start protecting myself. against the downside, which means I have to shift some of those stocks to cash, or maybe bonds with the right terms that will mature when I need cash. This is to avoid all the risks of downside volatility with all stocks. I’m not too busy with specific buckets. Taylor or Travis, who wants to pass that?

Taylor Carmichael: I will, it’s a fun topic, a fun question.

Room: He is. It’s very individual, that’s the trick.

Carmichaël: If you think about it, an action, a business has a lifespan like a human being. He has his first days when he’s a baby and he has his long days until he dies. A business can last decades and decades and decades.

Room: Well they can be reborn too, like Microsoft (NASDAQ: MSFT), for example we have earlier.

Carmichaël: This is a very good example. What I really think, what works really well is when you buy a small, fast growing business like say you buy Amazon (NASDAQ: AMZN) in 1999 or 2002 or 2004, or you by Intuitive surgery (NASDAQ: ISRG) in 2007, 2008. You’ve reached gold. It’s just a wonderful stock and an incredible stock. You let it roll, you let it run, and you can take small shards along the way. Honestly, we have sold quite a bit of Intuitive Surgical and we are sorry to this day that we have done so, we have sold a bit of Shopify (NYSE: SHOP), sorry so far we did. But you take little shards if you need the money, if not, don’t sell anything. Take little shards and buy another growth stock, the idea being that if you let them run and then keep going they’ll eventually mature, they’re going to become dividend payers, they’re going to be a lot more secure, they’re going to be in the S&P 500, and they get boring, but keep them boring too. Everyone’s personality is different. I tend to jump on high growth ones. My family owns Apple (NASDAQ: AAPL). We’ve owned Apple forever. I tried to convince my mom to sell a piece of Apple. She loves Apple, she gets mad at me. I’m like “Mom, let’s get rid of some of that apple.” But she’s right, and she’s right that it’s a great idea to pass up even when it gets boring and you feel like it’s over or they might hit a cap, keep it. and let that turn into your slow growers and branch out along the way, of course, into different industries. When you buy, I think you should buy growth, then keep yourself in the states of value, that would be the way I would take it.

Room: Travis.

Travis Hoium: I’m a bit like Jason in this, I don’t have a specific process. I like to think of it as being able to sleep at night or just feeling comfortable looking at my portfolio. One of the things I do is when I buy stocks I usually don’t like that there are more entry points, it’s maybe 1% of my portfolio. I don’t have a lot of posts compared to a lot of people. It can be 20 to 35 stocks at one time. One percent could be a typical allocation in a stock. Then if this stock runs out, I added Cloud burst, it was less than 1% and it’s gone up and it’s now 4 or 5% of my portfolio. It was just a surprise to me and I’m just going to let it run. I don’t need to add more. But that’s what Taylor was talking about, is letting these growth stocks go up. But at the end of the day, I think when I look at my portfolio as a whole I’m judging, does that feel comfortable to me? Does that seem particularly fair to you right now? We’re in a period of exuberance in the market right now, so I’m looking at my portfolio and growth stocks are really highly valued right now. What are my biggest jobs? Well, it’s companies like Apple, Square (NYSE: SQ), which could easily argue that it is over-valued, but I had Verizon (NYSE: VZ) in there. These are businesses that I’m comfortable owning even though there is a downturn, it’s not like their businesses are going to collapse completely. It’s really more, does it just seem like it’s a metric that I’m able to put on a spreadsheet and use a certain percentage of REIT, a certain percentage of dividend stocks, everything? naturally over time this portfolio ends up diversifying as i find more interesting opportunities in different parts of the market. I added actions like DG (NYSE: GM) and Zillow (NASDAQ: Z) that I have never had in the portfolio before which have diversified me into areas that I have never invested in before because I find them interesting and attractive at the moment. It’s something different for everyone, but it’s how I view building my portfolio right now.

Room: Thanks guys. I think it is useful and useful. Again, the key here is that he’s so individual. Three people we had overlaps, but we also all take our unique individual approaches. This is one of the things that is great about investing is that we can determine what will work best for us, as individual investors and for our families, to achieve our financial goals.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors of The Motley Fool. Teresa Kersten, an employee of LinkedIn, a subsidiary of Microsoft, is a member of the board of directors of The Motley Fool. Jason Hall owns shares of Intuitive Surgical, Shopify, Square and Zillow Group (C shares). Taylor Carmichael owns shares of Amazon, Apple, Intuitive Surgical, Shopify, and Square. Travis Hoium owns shares of Apple, General Motors, Square, Verizon Communications and Zillow Group (C shares). The Motley Fool owns and recommends Amazon, Apple, Intuitive Surgical, Microsoft, Shopify, Square, Zillow Group (A-shares) and Zillow Group (C-shares). The Motley Fool recommends Verizon Communications and recommends the following options: January 2022 long calls $ 1,920 on Amazon, January long calls 2022 $ 193.33 on Intuitive Surgical, January long calls 2023 $ 1,140 on Shopify, long calls March 2023 $ 120 on Apple, January 2022 short calls on Amazon, $ 1,940, $ 200 short calls in January 2022 on Intuitive Surgical, $ 1,160 short calls in January 2023 on Shopify, and $ 130 short calls in March 2023 on Apple. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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