The $3 Billion Portfolio With Only 2 Stocks In It
This guy could care less about diversifying your portfolio
As I studied finance in college, everyone seemed to say the same thing…
Have a diversified portfolio
That advice carries its weight. If one of your stocks plummets, you have a few back-up stocks that can offset those losses.
The desire for a diversified portfolio is also the reason index funds have become popular investing choices. Almost every investor you know will have a diversified portfolio.
And then there are people like Ryan Cohen.
Ryan founded Chewy and ended up with $3.4 billion after the sale was complete. That’s more than enough for a person and their great-great grand children to live extravagantly.
Rather than create a diversified portfolio, Ryan Cohen decided to use his fortunes to buy into only two stocks…Apple and Wells Fargo.
In an interview with Business Insider, Ryan explained that he likes to go all-in on companies that he strongly believes in. Apple and Wells Fargo both happened to fit that bill.
While Wells Fargo has been in a slump for a while, Apple has continued soaring higher. Cohen’s also been on record to say that if Apple’s price tumbled enough in the short-term that he would sell Wells Fargo shares to buy Apple shares to make Apple the only stock in his mega portfolio.
Apple has been trouncing the average market return and helped offset the Wells Fargo loss.
Should You Diversify Your Portfolio Or Ride 2 Stocks?
While Ryan Cohen’s returns grew due to his Apple position, the narrative is different if he only went all-in with Wells Fargo. Most investors will fair better with a diversified portfolio. Does that mean you should also diversify your portfolio?
You could buy a stock like Exxon Mobil just in case the outlook on oil gets more attractive, but you’d end up with subpar returns even before the coronavirus. You can diversify with an index fund and then use the rest of your money for a few picks.
If you invest in index funds each month, you automatically have a diversified portfolio.
You don’t have to diversify your portfolio picks beyond the index funds to still have a diversified portfolio. If you want to lean heavy into tech stocks or some other sector, you’re still diversified if you have the index funds.
If you try to diversify your portfolio with dozens of stocks, you end up with a far more time consuming index fund that will slightly exceed or fall below expectations.
Unless your full-time job revolves around picking the right stocks and maximizing returns, you shouldn’t turn your portfolio into its own index fund. Just get the index fund.
If you decide to ride two stocks, focus on reliable companies that are still growing. If I had to pick two stocks to ride my entire net worth on, I’d pick Apple and Amazon. Stocks like Etsy and Big Commerce have a greater chance of multiplying several times in the long run, but those stocks are riskier than Apple and Amazon.
And while Wells Fargo isn’t looking the best right now, it’s still more than likely to survive the lockdown and reward shareholders who stick with the company. Bank stocks are generally seen as low risk investments that barely grow but provide solid dividends.
I’m not one to put my entire net worth into 2 stocks…even if it was $3 billion. The fascinating insight from Ryan Cohen’s easy-to-remember portfolio is that there are many ways to invest. It’s good to expand your horizons and look at investing strategies that drastically differ from yours. You can incorporate a new criteria for your investing strategy based on someone else’s strategy.