If you are going after big winners like Netflix, you need to go after more than one.
Investors who bought Netflix five years ago at $60 are still up 424% even after yesterday's $37 fall. If you are worried about giving back all your Netflix gains or missing the next leg up, take a lesson from Tony Mitchell, one of my best managers who has been in your shoes with his position in AMD.Tony Mitchell first bought AMD in October 2014 at $3.45. He even named AMD as hiswhen it was at $19. Now at $33, his original shares are up over 850% in less than five years.
Yet AMD is still a reasonable 10% of his portfolio which, by the way, has returned a little more than 26% a year for the last 15 years. At no point was Tony's portfolio ever over-dependent on AMD's success.The key is to look at how the rest of Tony's top five holdings have performed over the past five years: Alibaba up 86%, Facebook up 166%, Square up 515%, and Cisco up 123%.
These four stocks did not do as well as AMD, but when Tony bought them, he believed they had the same potential. Having a portfolio like this made it easier for Tony to sell whenever any of the stocks ran ahead of itself because that enabled him to buy more of the other stocks.If you knew which stock was going to perform best, of course, you would just put all of your money in that one stock. The problem is no one knows for sure which stock will do best.
Tony was right to spread his bets over other stocks with similar upside potential. It made for a less volatile portfolio that was never dependent on the success of any single stock. And, Tony still outperformed the top equity fund manager in Morningstar's database for the last 15 years.: Netflix's prospects against its many new competitors are not solid enough to stake your financial future.
If Netflix is less than 10% of your portfolio, this may be a dip worth buying. However, none of my managers seems to think so at this time.
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