A reader sent me this email recently:
Dude, your net worth has gone up crazy high in a short amount of time. Are you making this stuff up?
Nope, it’s all true.
Big Tech Tantrums
2020 has been a hell of a year for the portfolio. We’re up about $600,000. and last Thursday, our net worth touched $3,000,000 for the first time.
Coincidentally, I was listening to the Animal Spirits podcast which explained one of the factors that got us there:
If you’re going to pick a handful of individual stocks that are going to be grand slams, it’s going to be qualitative, not quantitative that gets you there.
–Ben Carlson
Exactly.
Stock Speculation, Awesome Appreciation, And Careful Consternation
I’ve done really well with stocks. Here is a snapshot of some of my holdings:
I could tell you why I bought each of these stocks in one sentence:
- Amazon: Online shopping and outsourced computing (AWS) are the future and Amazon is the leader.
- Facebook: Facebook will successfully migrate to mobile and will successfully monetize the platform. (In 2012, Facebook was a desktop platform and the site was barely monetized)
- Tesla: Electric cars are the future and Elon Musk is the human who can lead the revolution.
Note that I said nothing about valuations, earnings, profits, or dividends. My thoughts were qualitative only.
Qualitative strategy is the opposite of an investor like DGI (Divident Growth Investor).
- DGI looks at numbers. I look at broad trends.
- DGI is looking for potential dividend increases. I’m looking at the potential for growth.
- DGI is betting on the status quo. I’m betting on disruption.
Before you dividend-heads jump all over me, I’m not saying that his approach is wrong. DGI sleeps better with cash-flow. I sleep better with speculative growth.
And The Problem
Attentive readers may have figured out one flaw in my strategy. There was a clue in the caption of my eTrade account screen capture above:
I purchased almost all of these in 2012.
I purchased these stocks 8 years ago. Almost all stock market investments since then have been index funds. Why? The answer is simple:
I haven’t felt strongly about any individual company since then.
If you asked me what stock to buy today, I’d tell you to buy all of them. AKA VTSAX. Massive growth just isn’t easily repeatable. My obsession with tech gave me some good ideas that I acted upon. I haven’t had another good idea in 8 years.
I also question staying power. Amazon, Facebook, and Tesla are all juggernauts now, but I wouldn’t be at all surprised if one of them is gone by 2040. Microsoft or Google could destroy Amazon’s cash cow, AWS. A hipper social network will destroy Facebook. Most major auto manufacturers are gunning for Tesla with their own electric car lineups. Or maybe Uncle Sam will break them up.
No empire lasts forever. The same disruption that helped make me a paper multi-millionaire will eventually kill my cash cows.
My juggernauts will turn into jugger-nots. (I’m such a jargonaut)
Enough jabberwockery! Go buy an index fund.
Join the 10s who have signed up already!
Subscribing will improve your life in incredible ways*.
*Only if your life is pretty bad to begin with.
yep, that’s how it works. even with a couple of swings and misses those home runs can make up the difference if you just sit on them. we have a bunch of different multi baggers bought in 16 and 17 that have shortened our timeline considerably if we wanted to retire. i like to sometimes mention that leadership matters. when i answered your 10 questions a couple of years ago here i mentioned my favorite CEO was tobi lutke of shopify. they are now something like a 20-25 bagger for us and they take care of their customers. we’ll see where it all ends. i think the hardest part is not finding them but deciding if/when to trim the positions while still keeping enough to remain “core holdings” and still capture future upside.
we’ll see how it all ends up. well done on your choices.
freddy smidlap recently posted…Welcome to Smidlap-Con 2020
Haha, so, does this mean you’re going to rebalance with more VTSAX (or other index funds)?
Assuming this is mostly in taxable accounts, realizing those gains are going to offer stiff tax bill!
You could always …transfer some of the higher multiple gains, like TSLA, into a donor-advised fund, avoid the taxable event, and easily begin some longterm charitable giving off those sweet gains. 🙂
Just sayin’.
Either way, keep up the great work and hopefully, luck continues.
Chris@TTL recently posted…Reader’s Choice Donor-Advised Fund Launch and Blog Update
Yeah, we’re selling some stocks every year and rebalancing into funds. Not much though because of those gains!
all of your multibaggers are tech stocks. WHy not allocate some to index ets instead of putting more towards the index?
QQQ, VGT or ARK funds?
Yep, I’m doing that. I have over 100K in VGT and FTEC: https://www.1500days.com/my-investments-2/
Nice article. Thanks for this.
I’m nervous for you, at this stage of the personal computer revolution Apple was an unknown, the Tesla’s of the burgeoning tech field looked awesome then, but they are all gone now. The bleeding edge leaders usually fail and their great ideas make the copycat companies all the money. The first ten companies to make smart phones are all history, Apple came on the scene late and simply tweaked the genius of the original leaders slightly and got rich. Apple wasn’t the Tesla of smart phones, they were way behind the technology curve. Microsoft didn’t create the business PC, they waited in the wings and co-opted the technology of others, they weren’t a Tesla either. The Tesla’s of DOS computers didn’t make it. I can see Tesla being swamped by the huge international car makers, all of which can start with Tesla’s best current designs and improve them. They are far better at design and scaling than Tesla, a company with hardly any manufacturing experience. The same could be true for Amazon, who makes only fractional profits and for Facebook who could just be the next MySpace. My point is nobody knows who will be the WalMart of these new companies. And buying individual shares is making huge bets that you do. I’m sticking with index ETF’s.
“Apple came on the scene late and simply tweaked the genius of the original leaders slightly and got rich.”
What Apple did was more than a tweak. The touch interface completely changed how we interact with phones. No phone looked like an iPhone when it came out. Now, they all do. Do you remember what Android looked like before the iPhone came out?
Tesla may very well go to $0 by 2030, but the company has a massive head start. For example, GM just announced that its Lyriq crossover will cost around $75,000 and appear at the end of 2022. Meanwhile, you can buy a similar Tesla now (Model Y) for 50K.
“They are far better at design and scaling than Tesla, a company with hardly any manufacturing experience.”
I find it interesting that you mention manufacturing. While Tesla has struggled with quality in early models, manufacturing may be Tesla’s biggest strength. The company is doing thing that other manufacturers are dreaming about. This comes to mind immediately: https://www.teslarati.com/tesla-model-y-giga-press-china-first-look/
Here’s another one about Tesla’s electronics:
“This kind of electronic platform, with a powerful computer at its core, holds the key to handling heavy data loads in tomorrow’s smarter, more autonomous cars. Industry insiders expect such technology to take hold around 2025 at the earliest.
That means Tesla beat its rivals by six years.”
“The bleeding edge leaders usually fail and their great ideas make the copycat companies all the money.”
I think you’re correct here, but you have this situation backward. Ford, Honda, GM, and Toyota were the bleeding edge leaders and Tesla is the copycat company.
But, it doesn’t matter much either. Tesla is less than 9% of my net worth, so if it went to 0, it wouldn’t be a big deal.
I’m bullish on Tesla and Amazon for sure. Part of my moonshot portfolio. Got a few angry tweets / comments from pure index lovers when I published my methodology and how I’m buying 🙂
BTW how do you decide when and how much to sell each year?
Financial Freedom Countdown recently posted…Follow These 9 Tips On How To Get Motivated
Congratulations are in order! If anyone thinks its easy, its not. I thought about buying Facebook back at $19 per share before they had a proven business model and I sat on my hands and did nothing.
We’ve had winners too, but still on a hunt for a ten bagger. We’ve had some 5’s, but usually sell due to valuation.
Tesla is scary, just my opinion on valuation. The current market cap is more than 3 times the market cap of GM, FCAU and F combined. I hope for humanity sake they are successful with their vision. If they are, how much could the company be worth?
TPM recently posted…The Right Number of Stocks for Your Portfolio
Carl,
Thanks for the awesome update. Quick question: have you had any challenges rebalancing your portfolio based on the growth of tech stocks? I have two stocks in particular that I like to say have eaten my portfolio, Apple and Amazon. Recently I just broke them out separately from all of my other taxable and retirement holdings and things look much more balanced. Of course, that does not get rid of the rebalancing issue. Just sort of sweeps it under the rug.
Brad recently posted…The Case for Getting Outside.
Brad!
Rebalancing! My quick answer is that I don’t bother. I didn’t plan for the crazy growth, so the extra money is just icing on the cake. If one of these high-flying stocks does go to $0, the gains weren’t expected, so I’ll just be back to where I was if I had it all in index funds to begin with.
Amazon and Apple are both incredible companies and I don’t think I’d lose sleep holding them. The biggest threat to them now is government breakup.
But, I’ve also done a little rebalancing with Facebook. At the start of every year, I’ve sold some off. I don’t like paying taxes, so it hasn’t been that much. If Mindy were to quit and our income was a lot lower, I could see more off and not pay any capital gains. Until then, I’m holding on tight for the ride!
I am a newbie. My portfolio may be 0.0001 % of your total stocks. I need some advice . I have some savings in
Vanguard target funds and in some Vangaurd etfs . I have some fidelity zero stock market funds. and i have my huge chunk of my 401 in blockrock bonds managed by financial engines.
Market is at the apex of valuation. Is it wise to make lumpsum investment in some index fund now.? I feel like i lost the train .
Yep, the markets are very high. It’s quite crazy. However, if you’re in it for the long-term (10+ years), I’d dump it all in. Over the long-term, markets go up.
Thanks for sharing, nice article, actually I have two stocks in particular that I like to say have eaten my portfolio, Apple and Amazon. Recently I just broke them out separately from all of my other taxable and retirement holdings and things look much more balanced.
It’s a pretty interesting (and fun!) situation when a couple of investments do really well. Do you hold? Do you sell and rebalance? I’m OK with the former because even if they went to $0, we’d be OK. And why get rid of a stock just because it’s done well?