Why I Invest in Individual Companies Through the Stock Market
And You Can Too! Plus Portfolio Top 10, Reviewing Stock Picks, Tweets and Q&A...
What we gonna do right here is go back… way back
During my senior year of high school in ’00, my Econ teacher held a stock market competition. Playing the game, I bought stocks for the short term after reading rumors of mergers or a headline of the next big thing. Pretty much partook in every bad investing habit. Yet I still finished 2nd, easily beating the market!
After my success in the competition, I asked (probably more like “pleaded with”) my dad for some money to start my own investing account. He caved, and helped me open an account with E*Trade. I deposited the funds ($500 if I remember correctly), and immediately invested in JDS Uniphase, thinking I now owned the next best “fill-in-the-blank” thing.
I purchased JDS Uniphase in the midst of the aptly name Dot Com Bubble, where any company that slapped “dot com” onto their name saw their stock price skyrocket, taking valuations for all companies with it. During that time, I sat in front of my computer screen wide-eyed, absorbed by the headlines, and soon horrified as JDS Uniphase started to freefall. I bought JDS Uniphase with little to no research, no understanding of the business, and no idea how they would continue to grow in the future (sorry about that Dad). Regardless, I kept convincing myself to hold on to the stock, thinking that it would recover, but it never did, and I finally sold it for a 60-70% loss. To this day it is my best and worst investment.
In spite of the failure, I was hooked.
At its core, I believe their are three reasons I invest in individual stocks through the stock market, regardless of money:
There resides in me a certain amount of pride in owning companies. I know why I picked each one, I know where they’re headed, and I hope they do well in the future.
I want to beat the market. The famed statistic is that 90% of mutual fund managers fail to beat the market. But that also means that 10% do. With the risk of it sounding overly confident, I want to be a part of that 10% who does.
And finally I simply love the entertainment value of the market. Each day, it acts like Maximus in Gladiator when he yells to the audience, “Are you not entertained!?” I respond, just like the gladiatorial audience does, by clapping uproariously.
Don’t get me wrong, the potential to make money and build wealth over time is a strong undercurrent. But I could easily stick my money into an index fund and use my time in other endeavors. It is the pride in owning companies, the competitive drive to beat the market, and the entertainment value I receive from investing that has me, for now, owning individual companies through the stock market.
Top Ten Holdings in My Growth Portfolio as of 12/1/20
MercadoLibre (MELI) -> 11.6%
DocuSign (DOCU) -> 8.9%
DraftKings (DKNG) -> 6.9%
American Express (AXP) -> 6.0%
Chewy (CHWY) -> 5.9%
The Trade Desk (TTD) -> 4.9%
Pinterest (PINS) -> 3.0%
Ulta Beauty (ULTA) -> 2.9%
Teledoc Health (TDOC) -> 2.8%
Shopify (SHOP) -> 2.7%
**These top ten total 55.6% of my total portfolio, which includes 40 total stocks.
As of 12/4/20, the returns on my total portfolio are 32.7%. If I had just thrown my deposits immediately into an S&P 500 index fund, then the returns would have been 18.0%. My portfolio is currently beating the market by 14.7%.
Conviction Stock Highlight: Pinterest (PINS), where people find inspiration.
Pinterest (“PINS”) is the one social app where I am actually comfortable seeing ads, especially if they help me design a room. PINS saw a 37% increase in monthly active users to 442 million globally in their most recent quarter. And they have added new features like the integration of Shopify for small businesses and the partnership with Zoom to host class communities. Revenue increased 58% year-over-year and they continue to spend heavily on research and development to spur future growth. So far PINS has been a 2-bagger for me (gaining over 100%), but I still think there is a long runway for growth, especially as advertising dollars transition to mobile platforms.
I will be looking to purchase more PINS on any pullbacks over the coming years.
Tweets of the Week
5 Stocks to Bridge the Pandemic
Mid-month every month, I pick a set of stocks with a theme to track against the market. I periodically revisit them and their performance before closing out the picks at the end of a set timeframe (min 3 years). These picks are my time to truly compete with the stock market.
After three successive weeks of three successful vaccine trials in November, the stock market ripped higher. Throw in a dash of political stability, and the S&P 500 (Ticker: SPY) gained 10.8% while the Dow Jones Industrial Average set an all time high, closing above 30K on 11/24/20.
In the midst of this exuberance I picked 5 Stocks to Bridge the Pandemic on 11/15/20. The thesis focused on companies that can manage to grow and stay financially stable until the vaccines are distributed. And once the pandemic ends, they also needed to have strong “return-to-normal” growth potential. This basket includes:
Ulta Beauty (Ticker: ULTA) – the leading US beauty retailer.
Square Inc (Ticker: SQ) – a small business seller ecosystem and individual financial ecosystem called CashApp.
Take-Two Interactive (Ticker: TTWO) – a leading game developer in the US with franchises like Grand Theft Auto 5, Red Dead Redemption 2, and NBA2K.
DraftKings (Ticker: DKNG) – an online fantasy league app with sports betting and casino games.
Fiverr International (Ticker: FVRR) – a marketplace for businesses to find contract workers and freelancers to find work.
As of 12/4/20, this five stock basket is beating the market by 12.1%. The average return of the five stocks is 14.7% while the average return of the S&P 500 is 2.6%. I have chosen a 3-year timeframe on this basket of stocks, so there is a long way to go.
If you would like to receive my future picks then…
Weekly Q&A
Q: How are you able to save enough money to invest?
A: My wife Lizette and I focused on controlling the expenses of our two main cash outflows, housing and transportation. When we bought a house, we made sure that the total cost of housing would be less than 25% of our net salaries after taxes. This includes the mortgage, interest, insurance, taxes, maintenance, and repairs. Over time as our cash inflows have increased, we have seen our total housing costs decrease to the current level of 16%, more than half the national average.
As for transportation, neither Lizette nor I have a car payment. We buy solid used cars, pay them off quickly, and drive them until the AC breaks and the engine struggles driving uphill. We aim for transportation costs of less than 10% of our net salaries after taxes. This includes the car payment, insurance, gas, maintenance, and repair. Our current cost for transportation is 6%.
Having our two biggest cash outflows equate to 22% of our cash inflows gives us enormous leverage to invest.
But this would not have been possible if we were not on the same page financially. By having the same financial goals, it makes the budget and spending decisions a breeze.
Have a question, then leave a comment:
Thank You!
If you’ve made it this far, then you are an amazing human. Let me know what you think by leaving a comment. Or drop me a question. Share it with others who you think might appreciate the information. Looking forward to sending out the next issue!
**I am not a financial advisor, so please don't buy/sell anything based solely on what you read here and do your own due diligence.
Very nice job, and I remember those days back in '00 and funding the $500