Since we learned how to make our portfolios in the last newsletter, we really need to know what stocks we should own. Today, I will discuss how to create your discretionary portfolio with the analogy of diversification. Are you ready, SKEEDADDY!!!
Creating your portfolio is like creating your dinner on the table. Dinner table should have salads, soup, french fries, beef steak, cake, coffee, and so on. In your portfolio, you need to have like that. Let’s talk about each dish on a table!
1. Your fist pick should be a stock of a company from your neighborhood, something that you know or can relate to a company that employs people close to you or you can ask around that. Since most of us live in Bay Area, there are many companies that we know, such as Peet’s Coffee & Tea (PEET), Wells Fargo (WFC), and a lot of tech-giants in San Jose. If you don’t know much about companies around your area, check the business pages of your local newspaper, which usually have a good read on the companies in and around town.
2. Your next pick should be an oil stock. Oil is in what we call a “secular bull market,” meaning that it has characteristics of longevity that counteract the traditional cyclical nature of so many businesses. Strong or weak economy, oil is staying up there as a valued commodity. In this century, emerging markets, such as China and India, need much oil and the world can not supply enough oil to them.
3. You need a brand-name blue chip. The Dow 30 components are all blue chips and some big names in the S&P 500 are also blue chips. That helps you keep in the markets and follow the economy.
4. You need to own shares in a financial, which now accounts for 20% of the S&P 500, followed by 17 % technology. Many analysts think that this year will be the year of financial as the Fed might stop raising interest rates by summer. The interest rates always matter, as interest rates are higher, companies have difficult time in borrowing money and paying interests, especially companies in large debts.
5. Next is your speculation. Buy stocks something lower than $10. These stocks are optional to add to your portfolio. They are very risky but high returns. If you can find next JDSU or Lucent, you would be rich.
6. You should own one high-quality cyclical stock. Cyclical stocks are always affected by the economy. You should rotate your stocks and that produces value for a long period of time. Airlines, for example, if the oil price is high, they have to pay high-fuel cost that squeezes the company’s profit, but on the other hand, if it is cheaper, the company makes more profits and that stock goes higher.
7. Technology companies are risky, but you need to make your tech stock your speculative stock. They are Yahoo!, Google, Apple, Microsoft, and more. Tech stocks give higher return than the S&P 500 large-cap companies. That will lead you higher profits in your portfolio. However, remember that you can have all tech stocks in your portfolio as I talked last two newsletters.
8. Add one young retailer that hasn’t yet expanded to the majority of the country. Find next Starbucks Coffee, which started from Seattle then to nation-wide, now to worldwide. So what’s next?
9. Finally, buy a “hope for the future” non-tech stock, perhaps a biotech company or another kind of company from the S&P 600, which is the mid-cap index. Many of these companies will turn out to be the Amgents and Starbucks Coffee of tomorrow.
As a reminder, “Diversification is the only free lunch.” At least you should pick 5 of those to well-diversify your portfolio. These 9 stocks to pick from are in your book: Jim Cramer’s Real Money: Sane Investing in an Insane World, page 181. Read this chapter, then you have more understanding of creation of your portfolio.
Creating your portfolio is like creating your dinner on the table. Dinner table should have salads, soup, french fries, beef steak, cake, coffee, and so on. In your portfolio, you need to have like that. Let’s talk about each dish on a table!
1. Your fist pick should be a stock of a company from your neighborhood, something that you know or can relate to a company that employs people close to you or you can ask around that. Since most of us live in Bay Area, there are many companies that we know, such as Peet’s Coffee & Tea (PEET), Wells Fargo (WFC), and a lot of tech-giants in San Jose. If you don’t know much about companies around your area, check the business pages of your local newspaper, which usually have a good read on the companies in and around town.
2. Your next pick should be an oil stock. Oil is in what we call a “secular bull market,” meaning that it has characteristics of longevity that counteract the traditional cyclical nature of so many businesses. Strong or weak economy, oil is staying up there as a valued commodity. In this century, emerging markets, such as China and India, need much oil and the world can not supply enough oil to them.
3. You need a brand-name blue chip. The Dow 30 components are all blue chips and some big names in the S&P 500 are also blue chips. That helps you keep in the markets and follow the economy.
4. You need to own shares in a financial, which now accounts for 20% of the S&P 500, followed by 17 % technology. Many analysts think that this year will be the year of financial as the Fed might stop raising interest rates by summer. The interest rates always matter, as interest rates are higher, companies have difficult time in borrowing money and paying interests, especially companies in large debts.
5. Next is your speculation. Buy stocks something lower than $10. These stocks are optional to add to your portfolio. They are very risky but high returns. If you can find next JDSU or Lucent, you would be rich.
6. You should own one high-quality cyclical stock. Cyclical stocks are always affected by the economy. You should rotate your stocks and that produces value for a long period of time. Airlines, for example, if the oil price is high, they have to pay high-fuel cost that squeezes the company’s profit, but on the other hand, if it is cheaper, the company makes more profits and that stock goes higher.
7. Technology companies are risky, but you need to make your tech stock your speculative stock. They are Yahoo!, Google, Apple, Microsoft, and more. Tech stocks give higher return than the S&P 500 large-cap companies. That will lead you higher profits in your portfolio. However, remember that you can have all tech stocks in your portfolio as I talked last two newsletters.
8. Add one young retailer that hasn’t yet expanded to the majority of the country. Find next Starbucks Coffee, which started from Seattle then to nation-wide, now to worldwide. So what’s next?
9. Finally, buy a “hope for the future” non-tech stock, perhaps a biotech company or another kind of company from the S&P 600, which is the mid-cap index. Many of these companies will turn out to be the Amgents and Starbucks Coffee of tomorrow.
As a reminder, “Diversification is the only free lunch.” At least you should pick 5 of those to well-diversify your portfolio. These 9 stocks to pick from are in your book: Jim Cramer’s Real Money: Sane Investing in an Insane World, page 181. Read this chapter, then you have more understanding of creation of your portfolio.
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