How to Add Your Favorite Stock to Your Portfolio if You MustSubmitted by Concierge Financial Planning, LLC on November 8th, 2019
“Wow, you’re braver than I am!” Janet commented when I told her I invested in the Peloton IPO. “You’re going to lose your shirt!” predicted other doubters. I guess this is what makes a market and presents opportunity—a diversity of opinion.
For those readers who don’t already know, I own a Peloton exercise bike and I love it! I ride every day and actually enjoy exercising, which was certainly not always the case with me. I’ve delighted in this piece of equipment for several years and watched as the company grew and expanded their offerings. When they recently went public, I wanted to own a piece of the company that has changed my life. My hope is that it will change many more lives well into the future.
In case the Bureau of Securities is reading, I want to be sure to emphasize that this does not constitute investment advice. I am not recommending that you buy Peloton stock. In fact, I am well aware that the company is currently not turning a profit.
If you love a company like I do Peloton and want to make it part of your portfolio, you can do so without the risk of losing your shirt if you do so prudently:
1/ Make sure your money is currently invested in a diversified portfolio with an appropriate asset allocation given your risk tolerance and risk capacity. Rebalance regularly.
2/ When you find your “Peloton”, that stock that you want to own and that you believe in, make sure that you fully understand that it may not work out the way you want it to. The market may not agree with you. It’s possible that the company may be mismanaged. It may not evolve. It could be a “Sears”. Be prepared to lose your money.
3/ Invest less than 2-3% of your portfolio in your chosen stock. Plan to make it a longer-term investment.
4/ Rebalance to accommodate your new stock. Peloton is a small company and my purchase caused my small cap stock allocation to exceed its target. I rebalanced accordingly. I’ve still increased the overall volatility of my portfolio because now a portion of my small cap position is invested in a single firm as opposed to a diversified index. This is the real risk I am taking.
5/ Expect volatility as your investment may go up and down. Do not panic on a bad day. If you were happy buying the stock at $10/share, you should be even happier to own it at $5/share. Try not to fixate on your new position. Don’t check its price daily or even weekly. I’ll allow a monthly peek.
6/ Share your passion—it may help your stock outperform the market over time and provide your portfolio with a little alpha!
I ended up explaining to Janet that with my risk-adjusted methodology I’m not really being that brave. “I’ve taken this approach with my portfolio on a few occasions over the years,” I told her. “I’ve won some and I’ve lost some, but my retirement portfolio is still intact!”