On Thursday I was invited to close out the hour on The Claman Countdown by weighing in on the markets and discussing some of my favorite stonks. While this was not my first time appearing on live TV, it was the first time I was asked to give my opinion on individual companies. You can watch the video below:
Don’t go running off to use your unlimited leverage cheat code just yet! This is far from the tailored financial advice I provide for a living. When it comes to investing, I am more of your long-term buy-and-hold kind of guy. I link investment strategies to individual goals because the financial planner in me knows that I stand a very low chance of consistently beating the market. And while I might not be trading on behalf of my clients, you’d be kidding yourself to think that many of them aren’t trading themselves, especially young professionals familiar with (free) online platforms.
I don’t see anything wrong with managing an opportunity portfolio, or 5-10% of your investable assets designated to picking individual securities. I don’t mind when clients dabble in the markets. In fact, I think it can help them learn more about how markets work and about investments in general. There’s no better way to learn than by doing and, should things go poorly, they’ll learn a valuable lesson without losing their shirt or blowing up their financial plan. On the flipside, if they do well, they can hypothetically reinvest their gains into their core investment strategy.
Opportunity portfolios can also provide a sense of control. When coupled with financial planning, I’ve found that individuals are more attuned to the markets, economy and, most importantly, their financial lives. It also makes having conversations around risk more productive because of a greater understanding about the types of investment risk they’re taking. Investing is no longer just an account balance that goes up and down from month to month. Having greater control can sharpen one’s senses and investment acumen.
But therein lies the rub. It doesn’t take much for a successful investor to become over-confident and a defeated one to become too risk averse. The results are often disastrous when this type of behavior bleeds into core investment strategies. As a result, financial goals get delayed and you begin to move backwards financially, unwinding the investment discipline you’ve instilled in yourself. Without having the proper controls in place, an opportunity portfolio is nothing more than a fool’s errand. A waste of time and money.
Establishing rules around things like position size, number of holdings, holding periods or when to cash out can be helpful, but in the end they’re only as good as your ability to stick to them. In addition to having a set of rules, I recommend approaching these portfolios by being okay with losing everything. It’s extreme, sure, but this way you you can plan around what would happen should your seeking opportunity result in realizing disappointment.
Now, this doesn’t mean you should be reckless since YOLO-ing trades is not investing. It’s gambling. But when working with opportunity portfolios, I find it’s a lot easier to first understand how you can impact your overarching financial goals if you wind up obliterating your portfolio. By setting that expectation up front, we can tie everything back to financial planning and truly determine if the endeavor is really worth your time.
Opportunity portfolios are certainly not for everyone. Managing one takes effort, attention and, of course, money. For many individuals, these precious resources are better utilized elsewhere, like on having fun with friends, advancing one’s career or being with family. Nonetheless, I do believe there’s room for them n the broader context of one’s financial plan and that a lot of good that can come out of investing a portion of your money on your own.
Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities. Investments like those mentioned in this blog and the video are subject to risk, including the loss of principal. Because investment return and principal value fluctuate, shares may be worth more or less than their original value. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.
Come lose/make money with the “pros” over in the hamlet known as financial Twitter:
Capitalism is getting paid millions of dollars to manage a US large cap portfolio and never once beating the S&P 500.
— Douglas A. Boneparth (@dougboneparth) November 11, 2019