If you suddenly came into a lot of money, how would you manage it? If you won a big lottery or you inherited millions of dollars, it’s likely that you’d have to employ some professional money managers to help you invest your money.
If you are an individual stock market speculator, very likely you invest your hard-earned money the way you see fit. You pick your own stocks and you manage the risk.
So, when we’re talking about creating an investment portfolio of stocks, I think how you mix it up is important. Again, we’re not talking about creating a long-term, stable group of investments. We’re talking about speculative money — money we’re going to risk in order to make more money over the near term.
If you’re creating a portfolio of speculative stocks, you’ve just got to mix it up. If you’ve got $50,000 allocated to a speculative portfolio, you still don’t want to have $50,000 all in two penny stocks.
In my mind, I think the best speculative portfolios with staying power are the ones that have a combination of holdings including micro-, small-, medium- and large-cap stocks. Forget about investment terms, classifications or definitions. You only want to own the best moneymaking stocks the market has to offer. Who cares whether it’s a penny stock or a large-cap stock?
You’ll want some growth stocks with a solid track record (something like a Huron Consulting Group, Inc. or VCA Antech Inc.). You’ll want a few small-cap high-flyers (JA Solar Holdings Co. Ltd. or Zumiez, Inc.). Why not have a large-cap stock that’s doing great on the stock market (Companhia Vale do Rio Doce)? You might want a turnaround situation (Avanex Corporation) and a few penny stocks (Advanced Battery Technologies, Inc. and TIO Networks Corporation).
There it is. Mixing up the size and industries of the businesses you invest in could really pay off over a year. Enthusiasm for most stocks and most industries occurs in waves. Sometimes the market loves to speculate in turnaround stocks; most times it doesn’t.
If you have a pool of cash (it doesn’t matter how much) allocated for speculating in stocks, it really pays to mix up the stocks in your portfolio. Over time, as you cut your losers and ride your winners, it’s the only way to stay in the game for the longest amount of time. If you want to bet it all on one company, you might as well get a job there so you can really find out what’s going on. If you want to pick stocks from home, then you’ve got to mix it up.