I occasionally receive the question - “My neighbor is invested in [insert the latest hot stock or industry], shouldn’t I be as well”?
My answer is almost always “Probably not”, which is never a popular answer if the stock has actually been performing well lately.
Some of the “hottest” stocks at the moment are known as “FANG”: Facebook, Amazon, Netflix and Google.
So why do I usually answer “probably not”? Because of days like today, July 26th, 2018, when Facebook is down 19.4%, in a single day of trading.
Being invested in such a stock certainly feels good on the way up, but man, does it hurt when it unwinds, as it always does. (Think technology stocks in '99 or financial stocks in '07.)
That’s why we build portfolios the way that we do; broadly diversified across as many asset classes, countries, industries and companies as reasonably possible, tailored to your specific goals and risk tolerance.
Yes, such a portfolio will almost always include the most talked about stocks of the day, such as Facebook, amongst thousands of others. However, with our methodology, each stock represents such a tiny fraction of all of the investments that any dramatic drops in price of a single component will have almost no affect on our portfolios.
The slow and steady gains that we are aiming for aren’t exciting, glamorous, or sexy, but not dealing with a 20% loss in one day has its perks.
So the next time your neighbor becomes suspiciously quiet about that hot stock tip they shared awhile back, you'll know why.