OFF THE WALL: Two stocks versus a dozen or so
By Daniel de la Rosa
My wife has a small IRA.
She started out with about $4,000 about the middle of last year. We listened to the smart guys at CNBC and bought small stakes in a number of companies. ‘Diversify’ was the mantra then. She had stocks from Pfizer, Coca Cola, Microsoft, BlackRock, Apple, Wells Fargo, Disney and about four others I don’t remember anymore. Gains were painfully slow. That was understandable since the money was spread around so many stocks.
By late last year, her IRA was up to about $4,500-$4,700. At this rate, it would take a couple of lifetimes to get past $5,000, much less have something to withdraw in a few years’ time.
Towards the end of last year, she sold all of her stocks except two — Apple and BlackRock. She is not the type to read research reports. She just liked what Apple is doing. Smartphone sales are going gangbusters and then she saw the report that Apple Pay has been launched and it has partnered with Visa, MasterCard and American Express.
As for BlackRock, it is the world’s biggest asset manager with over $4 trillion under management. How big is that? BlackRock manages assets that are double the $2 trillion economy of India. Can’t go wrong with their shares.
That was about two, three months ago. Now, her IRA is running about $6,000 and looks like it is on the way to $8,000 or more.
I asked her about the switch from a diversified holding to just two companies.
“I decided to go with one or two I really liked, rather than have 10 stocks and just earn small amounts on each,” she said.
She is now going to leave the money alone and will not look at it until 2016 or even 2017.
Her ‘whatever-works’ investing style reminded me of what an experienced investor once told me: “You don’t have to go out and buy 20 stocks. You just have to get a few that are really good and you think will do well over the years and just ride them.”
One can pick, say, five to seven stocks. The first five would be your core holding, the ones you will not let go no matter what. The last two are the ones you play with. You get two speculative stocks and see if they can shoot up like a rocket. More often than not, you will misfire on the two stocks.
Maybe out of 10, eight will be crap and you have to cut your losses and run away from them. But you only need one that is a real gem and that will cover all your losses on the other eight. And if you’re really lucky, you might get lucky on a dollar stock, and it goes to $50 or $100 in a few years.
Doesn’t that sound too much like buying a lotto ticket and hoping that out of the thousands of times you buy, one fine day you will hit the jackpot and live on easy street?
It’s all calculated risk. The really good stock pickers learn to have patience, lots of it.
And they don’t panic.
When they buy a stock, they do not look for the exit when it drops up to 20 percent or more. If you did your research and you trust your judgment, the stock is a long-term hold.
For me, that can run for five or even 10 years.
Like any horse hitting the backstretch at Belmont, you release the pony and see how far it can go.
‘Off the Wall’ is a regular column on the stock market. The comments expressed here are the author’s own, and are not meant to recommend the buying or selling of stocks.
