Podcast Summary
Exploring three investments outside of top five holdings: Millennial investors Andrea and Jamie delve deeper into three investments, new or noteworthy, while maintaining satisfaction with their top five holdings: Amazon, Airbnb, CrowdStrike, Axon, and MercadoLibre, which account for 35% of their portfolio and have yielded a 47% return in 2023.
Andrea and Jamie, the millennial investors and chartered accountants behind the Stocks and Savings podcast, are changing up their approach this season by delving deeper into three investments outside of their top five holdings, instead of just providing updates on them. These three investments may be new additions to their portfolio or ones they believe are worth highlighting. Their top five holdings, which include Amazon, Airbnb, CrowdStrike, Axon, and MercadoLibre, account for approximately 35% of their portfolio, and they are pleased with their current performance. Despite being down around 9% since they started investing in 2020, they are currently up around 47% in 2023 and view their early mistakes as valuable learning experiences.
Learning from Others: Personal Development and Investing: Gain knowledge from others to save time, money, and improve outcomes. Stay informed, adaptable, and diversified to maximize returns and minimize risk.
Learning from others, whether it's from their mistakes or successes, is a valuable investment strategy. Both in personal development and in investing, gaining knowledge from others can save time, money, and lead to better outcomes. The speakers in this discussion shared their own experiences with evolving investing styles and top holdings, highlighting the importance of staying informed and adaptable. Whether it's through individual stocks or funds, the key is to continuously learn and adjust as needed. Additionally, the speakers emphasized the importance of diversification and having a well-rounded portfolio. From cybersecurity firms to e-commerce giants, each holding brings unique potential and risk. By considering a variety of investments, investors can mitigate risk and potentially maximize returns.
Diversifying investment portfolio with large and small companies: Investor uses Trading 212's 'pies' feature to create a balanced portfolio, combining 90% of Vanguard FTSE All World ETF and 10% of iShares MSCI World Small Cap ETF for potential risk reduction and increased returns.
The speaker shares her investment strategy of diversifying her portfolio by investing in both large and small companies through a combination of two funds in her Trading 212 account. She explains that she uses the platform's "pies" feature to create a global index fund, which consists of 90% of the Vanguard FTSE All World ETF (VWRL) and 10% of the iShares MSCI World Small Cap ETF (WLDS). The speaker's goal is to spread her risk and potentially increase returns by including small companies, which have historically outperformed larger ones. She acknowledges the potential complications and risks associated with investing in smaller companies but finds the process straightforward on Trading 212. Overall, the speaker emphasizes the importance of diversification and creating a well-balanced investment portfolio.
Diversifying Investments for Long-Term Growth: Diversify investments for long-term growth, consider various asset classes, and understand personal financial situation and risk tolerance. Avoid taking investment advice from the internet.
Diversification is key in investing, whether it's through a global index fund or individual stocks. The speaker, who has a high risk tolerance and long-term investment horizon, has all her investments in stocks and funds, making up 60% of which are US stocks due to the size of the US stock market. However, she emphasizes that everyone's financial situation and risk tolerance are different, and other investment classes like bonds, real estate, or gold can also be considered for diversification. The speaker also mentions her personal experience with investing in individual stocks, which resulted in a loss when she sold a fund to invest in a specific company that later underperformed. She advises against taking investment advice from the internet as a general rule, especially in finance. The speaker's colleague, Jamie, shares his experience of investing in individual stocks and mentions PayPal as a recent addition to his portfolio, despite it currently underperforming. Overall, the takeaway is that diversification and understanding one's financial situation and risk tolerance are crucial in making informed investment decisions.
PayPal's Versatile Digital Payment Services: PayPal's wide range of offerings, including online purchasing, peer-to-peer payments, buy now pay later, and fraud reduction for businesses, make it a strong player in the digital payment industry.
PayPal is a versatile digital payment platform that caters to both individuals and businesses, offering various services such as online purchasing, peer-to-peer payments, buy now pay later, and fraud reduction for businesses. PayPal's popularity is evident with the widespread use of its Venmo app and its integration into numerous businesses. Despite its significant drop in share price, PayPal remains a strong business due to its wide range of offerings and importance to the digital payment industry. The negative narrative surrounding PayPal's share price may be overblown, and its long-term potential should not be overlooked.
Impact of Public Perception and Sentiment on Stock Prices: The Case of Meta and PayPal: Investor sentiment and public perception can cause stock prices to overreact to short-term trends, but investors should focus on long-term fundamentals when making investment decisions. PayPal, despite current concerns over its margins, revenue growth, and leadership change, may be undervalued based on its expected earnings growth and strong brand.
The stock market can be influenced by public perception and investor sentiment, which can sometimes cause shares to overreact to certain events or trends. This was discussed in relation to Meta, where the focus on the metaverse led to a negative perception of the company, despite its profitable social media businesses. However, it's important for investors to look beyond short-term sentiment and consider the long-term fundamentals of a company. For example, PayPal, which has seen its shares plummet due to concerns over its margin shrinkage, revenue growth, and CEO departure, may be undervalued based on its expected earnings growth. Despite these risks, PayPal remains a strong business with a powerful brand and plenty of opportunities ahead. The company's current PE ratio of 12, based on analyst estimates for its 2023 earnings, is significantly lower than the average S&P 500 PE ratio, suggesting that investors are not fully recognizing PayPal's growth potential. If PayPal delivers on its expected earnings growth, its share price could increase, assuming that it does so. However, this comes with risks, such as competition, declining margins, and a new CEO who may not be able to boost the business. Ultimately, investors need to weigh these risks against the potential rewards and make informed decisions based on a careful analysis of the company's fundamentals.
Investing in Nasdaq 100 Index Fund: Long-term growth and short-term volatility: Believe in tech's long-term growth, invest in Nasdaq 100 Index Fund, expect volatility, choose low-fee, user-friendly platform
Investing in index funds, such as the Nasdaq 100 Index Fund, can offer significant returns, especially if you believe in the long-term growth of technology companies. However, it's important to note that these funds can be more volatile in the short term. During the last few years, the Nasdaq 100 Index Fund experienced significant fluctuations, with a record-breaking rise in 2021, a bear market in 2022, and a strong rebound in 2023. Despite its volatility, the fund has had an impressive 10-year annualized return of 18.37%. When starting out, choosing a platform with low fees and ease of use, like Trading 212, can make a big difference in your investment journey.
Investing in the Nasdaq 100 and Tesla: The Nasdaq 100, a high-risk, technology-focused investment, makes up a small portion of the portfolio due to its long-term potential. Tesla, with a larger stake, offers diverse business models in EVs, autonomous driving, solar, and energy storage, but its aggressive price cuts and uncertain profitability pose risks.
The Nasdaq 100, with an annualized return of approximately 9% since 1995, is a technology-focused investment with higher risk that makes up a small percentage of the speaker's portfolio due to its long-term potential. Another intriguing investment mentioned is Tesla, which accounts for a larger percentage of the speaker's portfolio due to its diverse business model in electric vehicles, autonomous driving, solar panels, and energy storage. However, Tesla's aggressive price cuts over the past year have led to a significant drop in operating margins, causing uncertainty for long-term shareholders. The speaker presents two scenarios: one optimistic, where Tesla's price cuts aim to expand its customer base and eventually generate high-margin revenue from autonomous driving technology; and another pessimistic, where the price cuts are a sign of financial distress. Ultimately, the success of Tesla's business strategy depends on the execution of its autonomous driving technology and the company's ability to maintain profitability in the face of intense competition.
Tesla's Price Drop: Strategic Move or Response to Market Trends?: Tesla lowers vehicle prices to boost sales and gather data for autonomous driving, but faces regulatory hurdles and brand risks. Long-term growth potential remains, but investors should exercise caution and closely monitor progress.
Tesla's decision to lower vehicle prices could be seen as a strategic move to increase sales and collect more data for improving autonomous driving capabilities, or a response to weak demand due to economic uncertainty or market trends. However, the potential risks include regulatory hurdles for full self-driving and potential damage to Tesla's brand due to Elon Musk's controversial statements. Despite these risks, the long-term thesis for investing in Tesla remains strong due to the growth potential of electric vehicles and autonomous driving technology. The company's energy storage business is also a significant contributor to its success. However, the high price of Tesla shares and the uncertainty around the timeline for autonomous driving mean that investors should exercise caution and closely monitor the company's progress. Ultimately, the wait-and-see approach seems to be the most prudent course of action for now.
Adobe's Strong Financial Performance and Competitive Advantages: Adobe exceeded earnings estimates, maintains high profit margins, and has a dominant market position due to widely recognized software and a subscription model, providing a steady stream of recurring revenue.
Adobe, with the ticker symbol ADBE, is a multinational software company with a strong presence in the digital universe. Known for its Creative Cloud, Document Cloud, and Experience Cloud, Adobe's products cater to artists, designers, marketers, and businesses. In their latest quarterly report, Adobe's sales and earnings surpassed analyst estimates, and their profit margins remain high due to their subscription-based model. Despite a high price-to-earnings ratio, Adobe's PE ratio is below that of its industry peers. Adobe's market leadership and subscription model are key competitive strengths. By using widely recognized software products as industry standards, Adobe maintains a dominant position in its industry. Its subscription model provides a steady stream of recurring revenue and allows for flexibility and scalability. Overall, Adobe's strong financial performance and competitive advantages make it an attractive investment opportunity.
Adobe's shift to subscription-based model boosts financial stability: Adobe's recurring revenue from subscriptions and AI investments keep customers engaged, but competition, regulatory investigations, and cyber threats pose risks.
Adobe's shift to a subscription-based model has significantly enhanced its financial stability with a predictable and recurring revenue stream. Additionally, the company's continuous innovation and investment in AI functionalities like Adobe Firefly keep customers engaged. However, Adobe faces challenges such as competition from top players like Google, IBM, and Oracle, as well as regulatory investigations into its acquisitions. Another challenge is the increasing threat of cyber attacks, with a 38% increase in global attacks in 2022 and vulnerabilities in Adobe, Microsoft, and Citrix products being exploited. Economic conditions can also impact Adobe's revenue during economic downturns. Despite these risks, Adobe's strong financial performance and focus on AI make it an interesting long-term investment, but investors should closely monitor its Q3 results and the regulatory investigations.
Red flags in promising investments: Even in growing industries, a company's financial integrity and employee satisfaction are crucial to maintain investor confidence.
Even a promising investment with impressive growth and a strong industry outlook can turn sour when a company fails to deliver organic growth, experiences accounting errors, and exhibits a deteriorating company culture. In the case of DigitalOcean, these red flags caused the investor to sell a significant portion of their investment, resulting in the company making up less than 1% of their portfolio. This serves as a reminder that even in growing industries, it's crucial for companies to maintain their financial integrity and employee satisfaction to keep investors' confidence.
Lessons Learned from a Loss on DigitalOcean: Investors should thoroughly research industries and companies before investing, even for smaller holdings. Stay informed and vigilant to catch warning signs, and consider proper tracking for lesser-monitored investments.
It's important to thoroughly research an industry and a company before investing, especially when it comes to smaller holdings. In the case of DigitalOcean, the investor recognized that they didn't fully understand the industry and missed warning signs such as falling Glassdoor ratings and a growth by acquisition strategy. Despite the loss, the investor plans to stay informed about the company and potentially bring it back into their main portfolio if it shows signs of improvement. Another lesson learned is the importance of proper tracking for smaller investments, as the investor uses a separate "pie" for companies they don't have the time to monitor closely. Overall, this experience serves as a reminder that not all investments will yield positive results, but staying informed and vigilant can lead to opportunities for turnaround.
