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How many stocks?
THE MOTLEY FOOL
Ask the Fool
Published: April 23, 2024
Q. What's the best number of stocks to own? -- G.E., Garden City, Idaho
A. It depends. The fewer you own, the greater impact each stock may have on your portfolio -- for good or bad. The more you own, the less risk there is of having too many eggs in one basket.
For best results, you should keep up with the stocks you buy so you can notice if and when they no longer inspire confidence. That means, ideally, reading their quarterly and annual reports and following them in the news.
Sometimes a great-performing stock can come to dominate your portfolio. If, for example, one stock has grown to represent 50% of your portfolio's value, you'll have a lot riding on that one company. You might consider selling some shares and moving that money into another stock in which you have great confidence -- perhaps one you already own.
Aiming to own at least 25 stocks can keep you diversified. The savvier an investor you are, the fewer you might own, and vice versa. If you can't spare the time to choose and follow individual companies, you can do very well just sticking with broad-market index funds that allow you to invest in hundreds of companies with little work required. Learn about them by searching for the terms "index fund" and "Motley Fool" online. Or invest mostly in index funds with a few stocks on the side.
Q. What's Nasdaq? -- G.L., Kailua, Hawaii
A. The Nasdaq is one of the two major United States stock exchanges, along with the New York Stock Exchange. It's where more than 2,500 companies' stocks are traded -- many of which are technology-heavy, such as Apple, Amazon, Microsoft and Tesla.
Fool's School
Here's a Stock to Avoid
When you're looking to buy a stock, it's best to stick with what you know. If you don't have a good understanding of banking or biotechnology, for example, look elsewhere. Even Warren Buffett has explained, "You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital."
That said, though, there's one particular company that you probably know very well -- and that you might avoid investing in anyway. That company is your employer.
Why think twice before loading up on your company's stock? Well, remember that it's already providing much, if not all, of your income. You're already quite dependent on it. If you add lots of stock in the company to your portfolio, you are placing even more eggs in that single basket. Should your employer fall on hard times, your salary might be in jeopardy, and your stock shares might shrink in value as well.
Don't think it can't happen to your company. Remember the beginning of the pandemic, for example, when many travel companies saw their businesses implode. Remember, too, that even large and well-known companies can go out of business or declare bankruptcy. That happened to Brooks Brothers, General Motors, GNC, Gold's Gym, Hertz, J. Crew, JC Penney, Revlon and Texaco.
Some business disasters, such as that of Enron, are tied to scandals. At one point, according to Forbes, Enron's workers had almost 60% of their retirement assets invested in shares of the company. One lawsuit alleged that a group of more than 20,000 employees lost over $1 billion.
You might invest a small portion of your stock portfolio in your company -- or you might receive some shares as part of your compensation. If so, keep an extra-close eye on your employer and any potential threats it faces.
My Dumbest Investment
After I Bought, It Plummeted
My most regrettable investment? Well, I watched the internet bubble from start to finish. Fortunately, my inherent investing style, seeking value, stopped me from buying stocks with price-to-earnings (P/E) ratios of a bazillion to 1. After seeing internet stocks double and double, I surrendered and bought what I thought was the most promising bet: CMGI.
Within a month, the internet bubble burst, and CMGI plummeted. Forever the optimist, I held on for a while, eventually selling for a loss of about $330 per share. It was a breathtaking ride, and it took my stomach a few years to calm down. -- J., online
The Fool responds: CMGI was a successful internet company incubator, churning out exciting new companies and profiting from them. It was a market darling until 2000, when the internet bubble began to burst. (During that period of stock market history, the tech-heavy Nasdaq composite index surged almost 600% between early 1995 and early 2000, only to then crater by 75% between March 2000 and October 2002. Ouch!)
But as the bubble burst, many highly overvalued stocks saw their valuations fall to more reasonable levels. After all, many of those companies were not that profitable -- or profitable at all. CMGI lost $1.4 billion in fiscal year 2000, on revenue of around $900 million.
Foolish Trivia
Name That Company
I trace my roots way back to 1852, when two fellows spun off their messenger and delivery business from another company; they aimed to extend their services to the West Coast, inspired in part by the California gold rush. Often delivering valuables such as cash, gold and silver, they took security seriously and employed armed guards and robbery investigators. Today, based in San Francisco and with a market value recently near $200 billion, I'm a premier American financial services company, with close to $2 trillion in assets under management. Some of my logos may have made you think about John Wayne. Who am I?
Last Week's Trivia Answer
I trace my roots back to 1918, when industrialist Andrew Carnegie founded me as a nonprofit life insurance company offering a pension system for United States teachers. In 1952, I debuted the first variable annuity, and in 1990, a socially responsible investing option. I bought Nuveen Investments in 2014. I've grown a lot, and have more than $1 trillion in assets under management. I paid more than $5.6 billion in lifetime (annuity) income to retirees in 2022. I have no public shareholders and return my profits to my members. I've been named one of the world's most ethical companies. Who am I? (Answer: TIAA)
The Motley Fool Take
Growth and Income
Universal Studios parent and telecommunications giant Comcast (Nasdaq: CMCSA) has raised its dividend for 16 consecutive years, averaging 8% annual increases over the past five years. Its dividend yield was recently nearly 3%.
Comcast does sit on a ton of debt -- about $95 billion -- but that's balanced by its massive cable business, which produces stable recurring revenue.
Comcast bulls are excited about the company's expansion plans, as it has multiple new theme parks in development. Epic Universe is expected to open in central Florida next year, and a small park in Texas is in the works. Super Nintendo World -- in partnership with Japanese gaming giant Nintendo -- opens inside Universal Studios Hollywood this year.
Then there's Comcast's telecom business, where its cable business is growing, albeit slowly, taking market share from rivals AT&T and Verizon Communications. Comcast's Peacock streaming service, meanwhile, is aiming to capitalize on many consumers' switch from traditional TV to streaming entertainment.
Comcast's shares seem attractively valued at recent levels, with a forward-looking price-to-earnings (P/E) ratio of 10, below the five-year average of 13. (The Motley Fool has recommended Comcast.)
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