Today, I start telling you about my portfolio. I’m going to do it in three parts:
- Part One, Rare Insights: This is today. I’ll tell you about my three biggest stock holdings in detail. Once in a while, I think I see something that others don’t and take advanage.
- Part Two, Rare Leadership: A big part of success in life is associating yourself with the right people. Good people will take you to the stars. Bad people will drag you down to the gutter with them. Sometimes, finding good people is not easy, but not impossible. Owning companies with great leadership is no different. I’ll tell you how I identify great leaders and which stocks I’ve purchased as a result.
- Part Three, The Future: I’ll reveal the rest of my portfolio and tell you about my future plans.
These posts are the ones I never wanted to write. I don’t want to give anyone bad ideas, so please know that I’m not writing this to give advice or encourage you to pick stocks. You probably won’t get rich immitating my purchases. I am doing this for two reasons:
- Transparency: This is a personal finance blog, so I need to reveal what I invest in.
- I need to show you my thought process: Most of my money isn’t in individual stocks, but a significant amount is. I just can’t tell you what I own without a detailed explanation of why I bought it.
“Our experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime.
A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables.
And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.”
I love this quote. It epitomizes why I bought these three stocks. Here we go.
*I would buy another 100 shares at $300 on a later date. Those shares combined with dividend reinvestment and a 7 for 1 split is how I came to 1454 shares.
**Stock split! In the case of Google, I don’t have 100 because I sold some shares (mistake).
***Split adjusted price.
Google: I’m a computer programmer. One day at work way back in 2000, I was trying to solve a problem and was having a hard time. I finally gave in and asked a more experienced programmer. His response was, “Did you try Google?” “Goo what?!?,” I said? He brought up the search engine, typed in my problem and there was my answer. The way I worked instantly changed. No more paging through thick books. Anything I needed to know was just a Google search away.
When Google announced their unconventional IPO, I had to participate. I bought 50 shares at $85. My purchase was a bet that Google would continue to innovate. And they have. Google Maps blew Mapquest out of the water with their AJAX implementation. Android is the biggest cell phone operating system in the world. Google’s services are best in class and get better every day.
What I like most is Google’s willingness to take chances on incredibly speculative endeavors. Self driving cars? Yep. Microchipped contact lenses? Yep. Google is changing the world. I have no idea what other crazy things they are dreaming up, but I’ll bet they’ll continue to blow our minds in the near and far future.
Perhaps one of my biggest investing mistakes was selling some of my Google shares a couple years ago.
Apple: Before 2007, I paid little attention to Apple. However, the tech blogs I read had been discussing rumors of a new phone Apple was developing. In January of 2007, I watched as Steve Jobs announced the iPhone.
Prior to the iPhone, no one had released a good smart phone. The iPhone changed all of that. Music, maps and Internet access all on a mobile device with a smart touch interface. Brilliant! I knew I that Apple had nailed it. I snapped up shares of Apple that month and have clung to them.
Times have changed. Apple’s moat is gone as companies like Google attack them and innovate at a frenzied pace. This does not sit well with me any more. More on this later.
Facebook: A smart CEO concentrates on their product and not appeasing Wall Street. Release a really good product and the money will follow. This is exactly what Mark Zuckerberg has been doing with facebook. I remember an interview with him pre-IPO when an analyst asked him about revenue. His response was that he didn’t care about making money, his goal was to focus on the product, connect the world and the money would eventually follow.
The infamous IPO came and the media took facebook to the thresher. Among the complaints was that the stock price wasn’t justified by the company’s earnings. Of course it wasn’t, facebook hadn’t been trying to make money. Had the media paid any attention to Mr. Zuckerberg? Apparently not. I did, though.
I bought 1000 shares at IPO price. I watched with great happiness as the stock price continued to drop and I bought additional shares. I never lost faith in my belief that with 1,000,000,000 users, Zuckerberg would have to be an idiot if he wasn’t able to monetize the platform. So far, so good. I think their best days are yet to come.
- Reading is my greatest weapon: I love to read. I could give up TV forever in a heartbeat, but I’ll never give up reading. I read multiple newspapers a day. I love all sorts of magazines. Cars, science, business; it’s all awesome. All of this reading gives me a framework and reinforcement for thoughts and hypotheses that I have. This could be a series of posts in itself and perhaps will be some day.
- Finding the bandwagon before it becomes a bandwagon: Building on the above point a bit, the insights that I’ve had allowed me to identify and jump on a bandwagon before it became one. I knew that advertising dollars would move to the Internet (Google). I knew that facebook’s vast datasets and user base would allow it to generate massive quantities of money when it decided to open the floodgates. I realized right away that the iPhone instantly changed the game and it would take a long time for competitors to catch up. These insights are very rare for me and I only act if I feel very confident. However, as Charlie pointed out above, you just need a few big winners in life.
- I love innovators and companies that take big chances: Self driving cars (Google)? Not many companies would take a chance on that. Paying $2 billion for Oculus Rift (facebook)? Seems insane now, but mark my words here; in 5 years even your grandparents will know what Oculus Rift is.
- These decisions don’t come quickly: I’ll often think about a stock for months or even years before jumping in. Only after very careful consideration do I take the plunge. Also, I do it very infrequently. I have one more more stock in mind (not yet a public company). That may very well be the last one I ever buy.
- I am very aggressive: Tech companies are perhaps the most volatile type to invest in. Technology moves very fast, often rendering today’s hot company obsolete in very short amounts of time.
- I am all growth: Some day I may change my focus to income producing holdings that pay a dividend or buy more bonds (1% of my holdings currently). I’m not ready yet though.
- I like big moats: Nobody is going to overtake Google in Internet advertising any time soon. Android is very strong and getting stronger every day. Facebook isn’t going away soon.
- I rarely sell: I buy and hold. Selling 40% of my Google shares a couple years back was one of my worst mistakes*.
- Don’t be informed by the media: The media wants your clicks. They only care about the next 3 months. If a company lays off people, that is great news because the results next quarter will be higher! On the other hand, if revenue falls short because the company is investing heavily in itself, the stock price takes a hit. This is clearly backwards to the long term investor. Forget the media. Read the company’s quarterly statements. Tune into earnings calls. Figure trends out for yourself. Use your noggin!
- Qualitative measures: I’ve yapped plenty about Warren Buffett. However, his investing partner, Charlie Munger is who I admire most. He is the one who turned Warren Buffett on to qualitative measures, which I value far more highly than quantitative ones. I instantly tune out to any source that starts talking about trends in a stock price. I want to know that the company has strong leadership and is innovating.
- No empire lasts forever: Did you know that there have been almost 2,000 car companies in the United States alone? Now, think how many are around today. Apple, facebook and Google are flying high, but will they be around in 20 years or even 5? These companies are at the top of the world now, but Blackberry and Nokia also were 5 years ago. Perhaps the hardest thing with stock picking is knowing when to let go. I once bought a stock that went from $10, to $120 and then down to $0. Will I make this same mistake again? Maybe.
- Way overweight: I have 1/3 of my portfolio in Apple and facebook. Not good. This will change soon. More later.
Where do I go now?
I’ll elaborate more on future plans in post #3, but for now I’ll say that I’m mostly out of the stock buying business. Future money will go into low cost funds, real estate and peer lending. At the same time, I’ll be paring down these 3 investments since they take up a ridiculous percentage of my portfolio.
Next week: I believe that one of the keys to a good life is to surround yourself with great people. The stock market is no different. Next week, I’ll tell you what stocks I have purchased because of great leaders. I’ll also tell you what characteristics make up a great leader.
One more time: Do not follow me. Think for yourself. You own the most amazing machine in the world. It sits between your ears. Use it.
*I sold Google to buy more Apple stock. At the time, they were the same price ($500). I gambled and lost – GOOG has more than doubled since I sold those shares, AAPL has risen about 20%. Sigh.
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