The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: teamzissou00 on August 07, 2017, 08:32:41 AM
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I'm listening to Jim Cramer, and getting swept up in the idea of FANG - Facebook, Amazon, Netflix and Google.
While I'm fully aware that I already have plenty of exposure to them in my S&P 500, I'm curious about how much an impact of a side portfolio within my retirement accounts would have?
If I were to have put 5% of my net worth in Apple in the 80's, that 5% would (in my mind) be worth more than my entire portfolio of mutual funds. If they had gone bankrupt, the 5% wouldn't have killed my portfolio.
So - the feedback I'm seeking, is has anyone evaluated the value of direct stock investing with a small % of retirement accounts? Pro's and cons?
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Turn Jim Cramer off immediately.
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Step 1. Stop listenting to Jim Cramer.
Step 2. Set up your investments in an index fund portfolio.
You can stop here and be perfectly fine. But if you decide you want to invest in individual stocks continue to the next steps....
Step 3. At a minimum, read "Security Analysis" by Benjamin Graham.
Step 4. Carefully analyze each stock you intend to buy individually, for yourself, and if you are confident that each are trading significantly below intrinsic value thereby providing a good margin of safety, then purchase it.
How about 'intelligent investor'. It's $13 instead of $45.
I wasn't planning on day trading btw - just picking 3-5 companies I like and letting them ride. Either way - thanks for the feedback.
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If you want additional exposure, you might try something broader like QQQ rather than homing in on four specific companies. I'm overweighted on that index.
I also have a rule of never putting more than 1% of my portfolio in any one stock to prevent me from doing anything really dumb.
I would also agree ignore Jim Cramer. Well, you can listen to him but remember in the end it's just one guy's opinion. And if it's on big-time TV how much more likely is it to be entertainment.
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If you own SPY for anything similar you already have ~6% of that money in the FANG stocks, and ~11% in FAANG(including APL) stocks.
If you purchased 5% of each FANG you would end up with ~26% of your US equities in FANG!
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A safer alternative would be Vanguard's technology fund (VITAX / VGT). Despite the naysayers' concerns about diversification, I don't think it's a bad idea at all to put 5% of your portfolio into this sector, so long as you understand that you are increasing risk for a potential increase in rewards.
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Also wanted to add that if you own sp500 index you already have ~23% of you money in the tech sector!
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Those high returns have already happened, it's too late to get them if you didn't already own them. This is like buying a house in 2006-2007 or buying gold in 2011 because you noticed that there had been a years-long strong upward trend into those sectors.
Will those stocks outperform in the future? Maybe, maybe not. But purposely buying them AFTER they went on a big tear, BECAUSE they went on a big tear, isn't a great strategy in general. Buying at a peak is the first step in "buy high, sell low."
Buying indices including small caps ensures that you already own the next Apple or the next Amazon.
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This is why index investing works. The S&P 500 is self cleansing - stocks that are new and in their growth phase are added each year, while declining companies are taken out. This is how individual investor are able to achieve a 7% rate of return over time.
But in the process of self-cleansing implies you have a bunch of losers in your portfolio in the process of dying. I'm not saying it is obvious at all to pick the winners from the losers but I would think that QQQ would have more winners since the Tech companies seem to be eating some of the traditional companies' lunches. In the last 5 years the S&P is +67% while the Nasdaq is more like +111%. The question is, why is that and how long will it continue? I have about 15% of my portfolio in QQQ and maybe another 10-15% in the S&P. And again there is considerable overlap between the two.
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I'm listening to Jim Cramer, and getting swept up in the idea of FANG - Facebook, Amazon, Netflix and Google.
While I'm fully aware that I already have plenty of exposure to them in my S&P 500, I'm curious about how much an impact of a side portfolio within my retirement accounts would have?
If I were to have put 5% of my net worth in Apple in the 80's, that 5% would (in my mind) be worth more than my entire portfolio of mutual funds. If they had gone bankrupt, the 5% wouldn't have killed my portfolio.
So - the feedback I'm seeking, is has anyone evaluated the value of direct stock investing with a small % of retirement accounts? Pro's and cons?
I invest directly in selected few S&P companies, they are the companies in my work-related industry so it's a good way to follow the market even despite FIRE. It's also an easy and lazy for to know more about the makeup ofdifferent mutual funds.
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When Cramer got started in the heyday of CNBC, the tech sector had just crashed. He recommended making a "field bet" on several of the tech companies. I had a few dollars floating around and bought some Oracle. Made a good return on it and sold it a few years later. As time went on, Cramer sounded more and more like an addict looking for the next high. I stopped paying attention, which was a good thing.
While I'm not a believer in the efficient market hypothesis, I do think most people can't outperform the market, including most fund managers and virtually all the talking heads on TV. A diversified portfolio with low expenses is going to get most people where they need to go. My approach is to tune out the noise, invest relatively broadly, and get on with life.
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When Cramer got started in the heyday of CNBC, the tech sector had just crashed. He recommended making a "field bet" on several of the tech companies. I had a few dollars floating around and bought some Oracle. Made a good return on it and sold it a few years later. As time went on, Cramer sounded more and more like an addict looking for the next high. I stopped paying attention, which was a good thing.
While I'm not a believer in the efficient market hypothesis, I do think most people can't outperform the market, including most fund managers and virtually all the talking heads on TV. A diversified portfolio with low expenses is going to get most people where they need to go. My approach is to tune out the noise, invest relatively broadly, and get on with life.
I thought the Warren-vs-whoever bet has already proven that? One is an actively managed fund (in and out daily or weekly) and the other is tracking S&P500.
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In VTI ( Vanguard Total index fund) you already have:
Apple 2.65% of fund
Amazon 2.09%
FB 1.40%
Alphabet Inc A 1.09%
Alphabet Inc C 1.04%
and Microsoft is 2.09%
I now Netflix isn't even in that small grouping but you can see how well represented FAANG is.
Jim Cramer uses bells whistles , distractions and excess to get and keep your attention. Don't give up your attention so easily, he adds zero value. Turn him off , buy more VTI and go for a bike ride, read a book, hangout with someone in person.
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buy more VTI and go for a bike ride, read a book, hangout with someone in person.
Who knew there were alternatives?
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If you were already 100% invested in an index, would you be here asking us if you should sell 5% to invest in FANGs?
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If you hold the s&p500 index, then you already own a lot of FANG stocks. You might even wonder if you are overexposed to them since they make up a large portion of the index as individual stocks and have had a major run up in the last 5 years. As a prudent long-term investment strategy, then no. As a gambling/speculation play, well then it's anyone's guess.