I’d like to thank everyone on this board for their generosity in sharing their ideas and their time. It’s much appreciated! This board has a tremendous signal-to-noise ratio. I’ve spent the last couple of weeks reading the last 1000 or so posts. Every one. Did I mention the great signal-to-noise ratio?
For several months, I’ve been thinking that my portfolio is out of whack, that I’d like to concentrate and better balance my position sizes, and that I’d like to learn how to evaluate whether a stock is a good or bad investment. But I didn’t know how to get started. The idea that someone could sustain 30%+ CAGR is amazing! I’d be thrilled with half that. With even a third of that, I could confidently retire today and replace my gross salary. It’s time to get to work on fixing my portfolio and developing my skills.
I’ve been working for 27 years now. The first 25, my investing consisted of stock in my employer (Apple), and market underperforming mutual funds in my 401k (where I maxed out my contributions for all but the first few years). Two years ago, I discovered Stock Advisor and Rule Breakers. Based on some guidelines in one of the Gardner books (The Million Dollar Portfolio, I think), I evaluated a large chunk of the SA and RB universe and picked a couple of dozen to invest in. In May 2012, I sold most of the 401k mutual funds (have to leave a little in the plan’s funds) and started buying those stocks I had picked. I had some cash left over, which I gradually used to buy many of the newer SA or RB picks. I fairly quickly spent all that cash, so now I take my biweekly contributions to buy new picks (mostly SuperNova Odyssey 1). Funny thing is, my original picks seem to have a higher proportion of consistent winners than my new picks.
I’ve got two taxable accounts. The smaller one (15% of total investments) is mostly mirroring Pro, with some MFO positions; I’ll leave that one alone for now. The larger one (55% of total investments) is almost entirely AAPL, with a few small positions in other stocks. That means that AAPL is nearly 80% of my taxable investments – the stuff I’d be living on in the early years of retirement. That’s too concentrated. I need to reallocate (though not all at once).
My second largest position overall is TSLA, at about 5% of total investments (currently a 7-bagger for me). The majority of positions (over 80) are under 1%, with many under 0.1%. Those smaller ones could become 10-baggers over night, and I’d hardly notice. I need to concentrate my positions more, which means I need to pick which to keep (and add to), and which to sell. I clearly need to sell a lot (most? all?) of AAPL and diversify, but stay concentrated enough that growth makes a difference.
I saw Saul’s recent post suggesting groups of 5 or so stocks to get started with, depending on temperament. Thanks! And I liked Mykie’s suggestion of limiting the number of positions, forcing you to sell one to add a new one. And Huddaman’s observation that it doesn’t matter what happens to the stocks you sell, only to the ones you keep. But I still don’t have a clue how to do my own due diligence and assess whether a stock is a good investment. I’ve mostly been buying into recommendations based on the story (sometimes including dreams of future profitability, like WPRT). How do I get started learning to identify good investments (and identify when my picks weren’t so good and need to be sold)?
I assume I need to learn how to read and understand a financial statement, and filter out which parts are important, and what can be ignored. Can someone suggest a stock that would a good place to start learning? Hopefully something easy to understand and easy to research. It doesn’t need to be one followed on this board; something from a TMF service would have a dedicated board where I could go ask questions. Any other pointers would be greatly appreciated, too.