I have a confession to make.
Over the last 15 years, about 90 percent of Burns family financial assets have been invested in a well-diversified portfolio of the low-cost index funds I write about almost exclusively. The results have been very nice.
The other 10 percent has been in an account where I pick individual stocks. It’s not a “trading account.” It’s a “keep-the-dumb-side-under-control” account. At worst it keeps me from doing dumb things with the rest of our money; at best it might fatten overall performance a bit.
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There have been embarrassing moments with this account. One was back during the Internet craze of the late ’90s. I prudently sold JDS-Uniphase, a hot stock that multiplexed light waves to increase the data capacity of fiber-optic cable. What did I buy to reduce risk? Stodgy old WorldCom … Thank you, Bernie Ebbers. Stock picking is a great way to renew humility. Fortunately, mistakes have been balanced by good moves.
Last December the account had only two holdings: Apple and some cash. Over the preceding three years, Apple had crowded out the other holdings.
By last January, I was a very nervous guy with 15 percent of financial assets in one stock. Even though I cut back during 2012, I’m still nervous.
Apple stock is swimming against its own stunning success.
Those who own it have lots of unrealized capital gains. And lots of people still have unrealized losses in other stocks. So Apple has more likely sellers than buyers, even as the company continues to thrill people with its products.
So I have started to diversify. The question: Diversify to what?
My answer: By slowly shifting from Apple to a Bytes, BTUs and Bullion portfolio. This is a portfolio devoted to technology, energy and gold. This is my way of voting for the things that work in a dysfunctional and untrustworthy world:
Bytes: I started buying Apple shares when I saw that they were capturing young minds with the iPod and iTouch. At the Northpark Mall in Dallas, crowds gathered at the Apple store while a Dell store (since closed) only 200 feet away was empty. In due course I will buy other tech companies, but for the moment, Apple is still the one.
BTUs: The British thermal unit is the unspoken currency of the industrial world. Whatever happens in technology still depends on energy. Earlier this year I bought shares of Chevron, Conoco and Devon. So far, Chevron and Conoco are showing a profit, but I’ve realized losses on Devon twice.
Bullion. With interest rates on safe investments expected to be near zero for years, investing in most fixed-income securities is silly. No one should volunteer for a certain loss of purchasing power. Owning gold may not be better, but it is a good response to a world of compulsory low yields and competitive devaluation of currencies.
Will this portfolio thrive? Maybe, maybe not. Whatever it does, it will keep me from messing with the rest of the Burns family money, and that’s why it exists.
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