I rarely share my portfolio. It’s mostly because I don’t want anyone to follow my ideas which probably aren’t healthy for the long term. I used to be a stock-picker and I still own a lot of them, but new money goes mostly to index funds from here on out.
However, this blog is about money and I believe in transparency, so I’ll spill the beans today. First though, I’ll tell you why I bought the stocks that I bought.
Production from Disruption
I’ve always thought of myself as the opposite of a dividend investor. Dividend hunters favor big, stable companies that return part of their profits every quarter. For a dividend investor, change is bad.
I like the opposite type of company. When buying a stock, I seek companies that are trying to disrupt the status quo. Here are some examples from my own portfolio:
- Apple (purchased January 2007): I bought most of my shares when the iPhone was introduced. I knew the new phone was a winner and would change the world. It has. Where are you now Nokia? Blackberry?
- Google (purchased at IPO, August 2004): Google is a company that wasn’t a household name 10 years ago, but is now ingrained in our lives. We use Google products every day: Gmail, Android, Nest and Google Maps. Google is changing the world.
- Tesla (purchased October 2012): The Tesla story is still in its early stages, but electric cars are the future. However, Tesla is much more than an electric car company. Its battery technology and factory is much more important to its success.
I like disruptors because they have the potential for huge growth. Google is almost a 20 bagger and Apple is a 10 bagger.
Look to the Future
The best way to find disruptors is to think deeply about the future. Ask yourself what technologies are going to be important 10 and 20 years from now. Some of my thoughts:
- Virtual reality: Facebook bought Oculus Rift for $2,000,000,000. Google has invested $542,000,000 in Magic Leap. Mark Zuckerberg, Larry Page and Sergey Brin are some of the smartest business leaders on the planet.
- Alternative energy: The recent climate change agreement will be a boon for alternative energy. Also helping the cause is improved battery technology along with cheaper solar panels.
- Electric cars: GM spent almost a billion dollars developing the latest small block V8 engine (Corvette!). Electric cars eliminate this cost and complexity by using a simple motor that was developed over 100 years ago. Battery cost and technology has held electric cars back, but the times are changing.
- Autonomous cars: Apple, Google, Tesla, Uber, Ford, Toyota and Baidu are just some of the companies spending big on developing autonomous cars. Taking the human out of the equation (I’m looking at you guy in the lane next to me looking at your phone) will make driving much safer and efficient.
- Battery Technology: Advances in batteries have the potential to change the world. Modern, lithium based batteries enable electric cars, smart phones, laptop computers and drones. They also have the ability to enable decentralized, alternative energy.
- Alternative banking: I have a credit score of 822, healthy income and over $1,000,000 in investments. Yet, I can’t get a mortgage of any size because of silly banking rules implemented after the Great Recession. Ben Bernanke can’t get a mortgage either. No problem. Companies like SoFi are stepping in to fill the void.
- Drones: Drones aren’t just for bombing the enemy anymore! They are finding new uses in everything from agriculture to package delivery (come on Amazon!).
- Artificial Intelligence, cloud computing and robots are all worth paying attention to as well.
Uber and SoFi
Two companies that I’m fascinated with right now are Uber and SoFi.
Uber: If you think Uber is just a cheap way to get to the airport, think again! Uber’s CEO, Travis Kalanick’s dream is do away with car ownership for most folks. He’d replace your car with a fleet of autonomous, electric vehicles available with a touch of your smart phone.
SoFi: SoFi initially started out refinancing student loans. However, CEO Mike Cagney’s big goal is to change the way we bank. It’s no secret that Mike Cagney hates banks and would like to send most financial institutions in the direction of the dinosaur.
Not so Fast
The hard part of evaluating new technologies and companies is picking the winner. Warren Buffett said this about the American auto industry:
There have been over 1,000 American car companies. Of those, there are less than 10 now. When the car came out, you would have been better off shorting horses than investing in cars.
Also, technology and innovation move quickly in modern times. Apple disrupted Nokia and Blackberry. Google then disrupted Apple:
Tread carefully friends. Know your circle of competence and don’t step outside it. For most folks, the best bet is a good old index fund.
Finally, let’s get down to business! Quick stats:
- Total value of investments excluding cash: $1,026,335
- Amount in funds: $551,148
- Amount in stocks: $475,187
*I’m classifying Berkshire Hathaway as a fund because of its conglomerate nature
**At least part of this holding is part of my Asset Class Experiment
***Why don’t I own all Admiral shares? The Vanguard solo-401(k) doesn’t allow Admiral or ETF shares.
Solo 401(k) investments: For at least the first half of 2016, I’ll continue to invest in foreign holdings. This is simply part of a planned rebalance. Once foreign investments make up at least 15% of my portfolio, I may direct money elsewhere.
Stock sales: This year, I sold 100 shares of Apple and 250 shares of Facebook. I’ll sell more shares of both in 2016:
- Apple: Apple is consistently underestimated, but no one can argue that its growth came from the iPhone. Because of less meaningful upgrades and market saturation, iPhone growth is going to slow. 2015 may have even been the peak year for sales. Apple has more tricks up its sleeve including a car (!) and transitioning to services as a major profit center, but I don’t have the same level of confidence in the company that I once did.
- Facebook: Mark Zuckerberg has done amazing things as CEO. Instagram and WhatsApp were expensive acquisitions, but are showing loads of promise. Oculus Rift hardware (virtual reality) launches in the first part of 2016 and I believe that this will be the next big computing platform. However, as much as I like Facebook, I don’t like having one company (a very speculative one at that) taking up almost 20% of my portfolio.
More cash: I have $30,000 currently in cash. I’d like to get my cash pile up to $80,000. This shouldn’t be difficult with the stock sales and Mrs. 1500 working. Here is why I want a bigger cash pile:
- Powder keg money for real estate: I’d like to invest in real estate in 2016. $80,000 would go a long way to funding a purchase.
- Powder keg money for market crashes: As long as one of us continues to work, I’d consider putting some of this money back to work if markets drop 20%. If the markets drop 40% of more, I’d most likely put it all back in.
- Smoothing out rough spots: $80,000 is two years of spending money for us. If both of us were retired, we could live off cash for at two years if the market takes a spill. Never forget: Buy low, sell high.
No more stock purchases: I didn’t purchase any stock in 2015. The last stock I purchased was Lending Club in 2014. Before that, it was Facebook in 2012. I’m not going to say that I’ll never purchase another stock, but the great majority of all future money will flow into index funds.
At times, I have been able to identify disruptors like Apple and Google. Much harder is knowing when to sell. Apple may be stronger than ever in a decade or it may be a shadow of what it is now. There is just too much risk for me to continue to pick stocks.
My litmus test is 10 years. The question I ask myself is this:
Do I have a high level of confidence that the company will be in a stronger position in 10 years that it is now?
Here is what I think of my top 5:
- Amazon: Yes
- Apple: No
- Facebook: No
- Google: Yes
- Tesla Motors: No
Two out of five!
Again, index funds are the way to go.
Money is nothing more, and nothing less than Power
Money is a beautiful thing because it gives you a position of power. Once you have enough to never have to work again, your life is yours to do with as you choose. If you’re already living a good and satisfying life, I suspect that not much will change. Maybe you’ll even continue to work. Never forget that it’s always better to do things because you want to, not because you have to.
The best way to predict the future is to create it. -Peter Drucker
Why wait around for life to drag you around by the scruff of you neck? Slack off and you could end up as the chew toy in the mouth of the Doberman.
Start working, start planning, start saving. One day, it will all come together and you’ll be happier and more content than you’ve ever been. Then, you’ll really be able to start living.
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