Email

Calling “Bunk” on Portfolio Diversity

2 | By Michael A. Robinson

Our goal here at Strategic Tech Investor is to make money no matter what the market throws our way.

And one way I do that is by putting down the phone, closing the laptop and listening to what you readers have to say.

Today I’m taking a look at seven of your best, most recent questions.

In answering one of them, I “bust” a certain myth about portfolio diversity – and I think it’s a bit of advice all of you can use to make a lot of money.

Let’s go…

Answers to Your Best Questions

My May 22 column on now to invest in the robotics revolution brought a follow-up question about playing this growth field.

Thank you so much for this information. I have been interested in anything in this field, robotics, for quite some time now. Can you tell me what is the best company or fund to get into?

-Phil L.

I wanted to address this question because shortly after my column on robotics appeared a new report proves just what I said – this is indeed a fertile field.

On June 2, The Wall Street Journal ran a major feature story about what it calls the “new generation of robots for manufacturing.” The thesis was simple: Today’s robots are so advanced and “intelligent” that companies in virtually every manufacturing sector are adopting them, which is making U.S. firms more competitive globally.

So, I still l suggest that if you are new to robotics investing you start with the exchange-traded fund (ETF) I mentioned in that column, Robo-Stox Global Robotics & Automation ETF (Nasdaq: ROBO), which has more than 75 stocks in its portfolio.

I have plenty more to share about robotics in upcoming conversations with you – so stay tuned.

My April 21 column on the sleek new smartwatch from Apple Inc. (Nasdaq: AAPL) drew several questions.

Your new watch sounds absolutely wonderful, but can it actually tell the time?

-Viktor

Ha! I can’t tell you how glad I am you asked that question. One reason the Apple Watch will be so successful is that, first and foremost, it’s a great watch.

Don’t underestimate the importance of this fact. If it were just a small computer you could wear on your wrist, the Apple Watch couldn’t become a real breakout product. The global watch industry sells 2 billion units a year, which gives Apple what I call a “target-rich environment.”

The Apple Watch comes with several watch faces for you to choose from and then customize. I have mine set to Utility, which gives me my first calendar appointment of the day, the temperature, the remaining battery life and, yes, a large watch face with an accurate second hand.

Now, let’s hear an Apple Watch testimonial from a Strategic Tech Investorreader.

I received my Apple Watch Friday April 24. The UPS delivery person told me his truck was filled with them and that he had been delivering the Apple Watch all over Los Angeles. Well, after two weeks, I am convinced that this is the most innovative electronic gadget I have ever owned, besides my laptop!

The Apple Watch is truly the future of technology or, as I say, Dick Tracy and Maxwell Smart rolled into one fabulous device that I love wearing and working out with (golf, tennis and personal training).

-Larry B.

I couldn’t have said it better myself, Larry. In fact, the smartwatch has been the “talk” of Apple’s Worldwide Developers Conference in San Francisco, which wraps up tomorrow. Other important topics include new operating systems, HomeKit and, most buzz-worthy, a new streaming music service. I talked about all that and more on Fox Business and at Money Morning earlier this week.

Now let’s take a look at a comment, also from Larry, that raises an important point about investing.

I own almost $500,000 of Apple stock and want to purchase more, but my financial advisor believes I am too top-heavy with Apple. I say buy more and let’s watch this stock rise to over $145 by the end of September!

Because I’m not a registered broker dealer, I can’t make personalized recommendations to individual investors. But I can address investing ideas and portfolio-management tools.

The conventional wisdom in the investment world says you absolutely must be broadly diversified across the markets – meaning bonds, annuities and stocks that cover everything from soup to nuts.

To which I say “bunk”…

I believe that you make the most money over the long haul by developing investment areas of expertise – and then going after them with laser-like focus. For me, it’s all about tech and the biosciences, which are absolutely crushing the overall market.

Having said that, I like to diversify within my areas of expertise by adding ETFs and some safety plays. That way, when it’s time to take profits on a big position, I know exactly where to park my cash.

That brings up another portfolio-management question I received regarding our May 19 conversation about investing in cloud computing-related ETFs.

Are these to be considered foundational plays under the 50-40-10 rule?

-Kelly

I’m glad you bought that up, Kelly. Some of my colleagues at Money Map Press use that formula. But I don’t, in fact, use such a hard-and-fast rule.

You can use the “Money Map Method” as a rough guide. But the actual proportion you place in foundational plays, growth stocks and special situations really depends on three things: your risk profile, your age to retirement and your amount of risk capital.

The older you are and the less capital you have to invest, the more you should stick with foundational plays and avoid the high-risk stocks. Once your portfolio is well established and you have accumulated profits, the more you can afford to go after riskier plays.

My May 15 column on how much money you’ve already made from the five investments in The Million Dollar Tech Portfolio drew a question I’ve heard many times over the last several years. Because it’s so important, I’m going to address it again today.

I had one more question about portfolio management. This is obviously a topic near the top of your minds.

Investors and traders are advised to establish stop-loss orders, often 25% below purchase price. Regarding micro-caps and other thinly traded stocks, will these stop-loss price points hold up in a panic bear market? Or are demand and liquidity likely to evaporate in the face of supply being dumped into the market, leaving the trader who sought downside protection without buyers at 25% down… or 50% down… or much lower still? That question wakes me up in the middle of the night.

-Stephen B.

Your question is an excellent one, Stephen. The short answer is it will depend on the stock in question and the market conditions. It’s always possible that an avalanche of sell orders in a thinly traded stock may make it difficult for your stop loss to trigger at the exact price you specify. That’s the risk inherent in trading microcaps, and that’s why I don’t recommend many of them in Strategic Tech Investor, my service for newer investors.

And that leads into this next question, from Declan, about penny stocks.

I am looking for bargain penny stocks and companies trading at low prices right now.

Declan

First, let me say I completely understand where Declan is coming from. Fact is, The Wall Street Journal reports that 57% of U.S. workers have less than $25,000 in savings.

But I can’t emphasize enough how risky it is to invest in true penny stocks that are traded over the counter.

Yes, you will hear of the occasional success story. But for most investors, true penny stocks are fraught with peril – they are thinly traded and illiquid, and their financial reporting requirements are much looser than stocks and ETFs traded on major exchanges.

However, if you are looking to invest in low-priced, fast-moving tech firms with a lot of upside, then you might consider a subscription to my premium trading service, Radical Technology Profits. We currently have an 85% win rate on open positions with an 81% average return. And I’ve got plenty more recommendations lined up.

Regarding my April 14 readers’ Q&A report, I received a comment from Sean J., who’s very enthusiastic about the market.

Invest your capital, your spouse’s, your employer’s, your neighbor’s… everybody’s… ASAP! The cash you pull out from under their mattresses is not just sitting there holding its value -Its value is actually dwindling due to inflation and other factors.

-Sean J.

I like your enthusiasm, Sean, and I couldn’t agree more. No matter how challenging the market or economic conditions we face, you should always have some money in the market. And you should consider downturns and corrections buying opportunities that will add to your long-term gains.

I fervently believe that the best place to make money is in the greatest wealth machine ever invented – high-tech stocks.

The great thing about investing in high tech the way I do it is that you can make money consistently. Developed and perfected over 30 years, my five-part strategy delivers winning picks like clockwork.

So, I hope you’ll visit twice every week as I share my tech investing recommendations and strategies with you.

See you next week.

P.S. I hope all are “Liking” and “Following” me at Facebook and Twitter. We’ve got a great community there who are eager to make big money in tech stocks today.

[Editor’s Note: Michael loves reading your comments and answering your questions – just like he did today. If you have any more, he’ll be taking them on again soon. Just post a comment in the box below.]

Related Reports:

2 Responses to Calling “Bunk” on Portfolio Diversity

  1. Al Gullon says:

    Your comments on “investment areas of expertise” sounds an awful lot like ‘If ya don’t know the stock market, know the stock.’. As an automotive engineer, now in the relative financial security of a federal government pension, I have used that knowledge of the stock to invest a small amount in Magna as Canadian automotive stocks bottomed out in the recent recession … it is now leveling out at 385%. A more recent investment, early January this year, in another Canadian Tier 1 supplier is now up 50%.
    I am now avoiding the US market because of FATCA aka as, in stark contrast to your own constitution, “GUPI – guilty until proven innocent”. Is there anything you can do to get your government to reread your constitution and cancel GUPI?

  2. Kevin says:

    Michael your work and due dilegence
    on companies is amazing. You caught on to Ambarella way before Wall Street did just recently Jim Cramer started recommending it. Keep up the great work and keep them coming !!!, I’m also a paid subscriber due to the work you do.

    K

Leave a Reply

Your email address will not be published. Required fields are marked *