Investing in individual stocks

An experimental Portfolio

Posted by

Update: Today we are adding a company that has transformed our relationship with technology in more ways than one. It is also the company with the largest market cap in the world. We are of course talking about Apple (AAPL). The company recently underwent a 4 to 1 stock split which generated a significant amount of volatility. Over the past couple of days, Apple’s market value was reduced by approximately $350 billion due to a general market selloff. To put this in perspective, that amount is larger than the market cap of 98% of S&P 500 companies. It should be noted that the stock split and recent selloff have nothing to do with our decision to add Apple to our experimental portfolio. As buy-and-hold investors, we believe that Apple continues to deliver huge value to its customers, many of which are raving fans of its products. The company is expected to release a 5G version of its iPhone and we anticipate that this will drive a significant increase of phone purchases over the next few years, as iPhone users will want to upgrade to the latest and greatest technology. It is also possible that a number of users are currently holding off on buying a new iPhone in anticipation of the 5G version, which could further increase the company’s earnings down the road. Apple has been increasing its dividend payments since 2015 and as long as they can keep this up, it will increase their odds of outperforming the overall market (see the chart below for the impact of increasing dividend payments on long-term performance).

Source: Hartford Funds

As a reminder, you can scroll down to sign up for our free newsletter to get each new stock sent to your inbox!

Most investors today know about the advantages of investing in index funds. These funds tend to have lower expenses than actively managed mutual funds and they are often more tax efficient. But perhaps more importantly, they beat the returns of most actively managed funds!

However, some investors chose to invest a portion of their portfolio in individual stocks. This may be for one of several reasons:

  • To own a concentrated position in companies they strongly believe in.
  • Reduce their investing fees (since you don’t pay an annual management fee on individual stocks).
  • To attempt to beat the market.
  • To diversify their holdings in case major indexes go through a long period of underperformance.
  • For the fun of researching companies and attempting to find winning stocks.

The stocks listed below are part of a hypothetical portfolio (although I will be primarily selecting companies among stocks that are already in my portfolio, as they are companies I know the most about). The goal is to come up with a list of stocks that will beat the market over the long run. Some of my existing accounts have been beating the market for a number of years and I want to see if I can reproduce a market-beating hypothetical portfolio by selecting a new stock on the first and third Friday of every month.

DateTickerStockPrice paidReturnS&P 500Difference
9/4/2020AAPLApple$120.960.00%0.00%0.00%
8/21/2020PYPLPaypal Holdings$196.79-2.52%0.93%-3.44%
8/7/2020ETSYEtsy$135.06-17.04%2.43%-19.47%
7/17/2020NFLXNetflix$492.994.68%6.52%-1.84%
7/2/2020*SQSquare$113.3929.10%9.77%19.34%
6/19/2020DOCUDocuSign$161.4233.97%10.47%23.50%
6/5/2020WMWaste Management$112.20-0.88%7.22%-8.11%
Average Return7.89%6.22%1.66%

Last updated on 9/5/2020. The next stock will be added on 9/18/2020. The VOO (Vanguard 500 Index Fund) is used to track the performance of the S&P 500 in the above table. The Price Paid column will be adjusted to account for stock splits if needed.

Sign up to receive our free reviews and articles

* indicates required

Methodology

The above chart will be updated at least twice a month to keep track of the performance of the selected stocks and compare it to the S&P 500’s performance (as measured by the VOO). My goal is to add mostly well-known companies to this list but I will occasionally add newer or smaller companies that are not household names (yet). I will be following a buy and hold approach. The idea is to only sell a stock if there is a good reason to do so. As a long-term investor, I am not particularly worried about short-term fluctuation and I understand that it might take a while for these stocks to outperform the S&P (assuming that they ever will).

*7/2/2020: added the new stock on Thursday since the market was closed on Friday (4th of July).

Disclosure: I own shares of Apple, PayPal, Etsy, Netflix, Waste Management, DocuSign, and Square. I wrote this article myself and it expresses my own opinions. I am not receiving compensation for this article and I have no business relationship with any company/stock mentioned above.

Disclaimer: This is not an investment newsletter and Inveduco LLC does NOT recommend any of the above stocks. Investing in individual stocks can lead to the loss of principal and may not be appropriate in your situation. Some of the companies mentioned above are high growth companies and are extremely risky investments. Always consult with a financial advisor and do your research prior to investing in any security. The author and Inveduco LLC take no responsibility for losses due to investing in any stocks mentioned in this article. Read our full disclaimer.

Archive

8/21/20: This week’s stock pick is PayPal (PYPL). We seem to be living in a new golden age of contactless payments. Just look at some of the large companies involved in this field: Google Pay, Apple Pay, Amazon Pay, and of course Paypal. The latter owns the popular digital wallet called Venmo and it is revolutionizing the banking industry. By the way, this is our second stock pick in the “war on cash” industry. Back on July 2nd, we added Square (SQ) and it has been performing pretty well (up 36% to date). PayPal is a much larger company and it is more profitable that Square. While we don’t expect Paypal to grow as fast (mainly due to its size), we believe it has a good chance of outperforming the market over the next few years. The company is profitable and it has a big market advantage with its years of experience.

8/7/20: We are adding Etsy to our experimental portfolio. They just reported an amazing second quarter, crushing expectations. Apparently, that wasn’t good enough for some investors. Regardless, we believe that Etsy has a bright future for years to come.

7/17/20: We are adding Netflix. This is a risky move in light of their recent disappointing quarter. Historically, Netflix has managed to bounce back from negative developments. We will see if they can pull it off once again.

5 comments

  1. I am interested as well. Thank you for taking the time out and using yourself as your experiment. I am just studying for now and have saved my first 1000 and am adding to it. Another note is Vandguard has too many website technical issues for me as I am considering other firms.

    1. Zara, are you interested in investing in individual stocks specifically? If so, have you looked into Robinhood or M1 Finance? Both of them allow you to get started with very small amounts of money.
      Best of luck to you!
      Ron

  2. Hmmm. I am not a fan of Paypal but I didn’t know they own Venmo. I do like Venmo and find it much easier to use than Paypal. Thanks for the recommendation! I might just give Paypal a try.

Leave a Reply

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