Hi Chris, thanks for joining us today, this should be a good chat.
Yes, it should be fun. Here's a fun little story from yesterday. I had been working offline all day and decided to check my own portfolio towards the end of the day. I looked quickly at the total dollar value and saw it had **collapsed** ... oops, my portfolio hadn't been adjusted to acccount for the 7:1 split in Apple. I had a good laugh after the mild panic.
I have a feeling you're not alone in having that nasty little surprise!
Thanks Darcy. The Strategy Lab project has been going on for almost 2 years now and I handle the growth portfolio. We started with a fake $50k to invest in Sept 2012.
Speaking of Apple, it's one of your picks in your Strategy Lab portfolio. What did you think of their decision to do the stock split?
Usually I don't care too much about stock splits. They are meaninless financially. I explain it to people this way .. imagine you had a giant slice of pizza. Would it fill you up any more if you cut it into 7 smaller pieces? Of course not. That said (continued) ...
There is a psychological aspect to it. Management is signaling that they believe their stock won't take a nosedive anytime soon. They wouldn't split the stock if they felt it was going to collapse. And in Apple's case they announced a split and a 8% dividend hike at the same time. So it shows good confidence.
Now ... the board of directors could be totally wrong about the company's prospects, and I think they probably have a better handle on the very short term (products, next quarter's sales, etc) versus long term competitive changes.
So I don't think the signaling aspect has much value in the long run, which is what I care about.
One long-held argument about stock splits being beneficial is that it will bring new retail investors onboard, since it becomes more affordable to investors dabbling in the name. Will this help Apple out?
I have never bought into that argument. Apple's stock was a bit over $560 at the time they announced the split. I think most people who invest can make investments of at least that size.... Brokers will let you buy one share. But perhaps there are lots of people who still see one share at $600 as somehow different than 10 shares at $60.
In a recent column, you discussed Mary Meeker’s Internet Trends report, which is widely read in the industry. It discussed the rapidly growing mobile sector in some depth – and there’s no debate mobile will be on fire for some time. What stocks are best positioned to capitalize on this trend?
Mobile trend: I personally am a fan of Google and Facebook for exposure here.
Apple gets you exposure for sure too, but less so on advertising, which is where a lot of dollars will flow.
On Twitter I am a huge fan of the service, but I'm not sure yet on their ability to draw out ad dollars. I've experimented with their ad platform. It's pretty good (easy to use, etc) but I don't like how they measure "engagement" with a promoted tweet.
Google or Facebook: Which name is better right now for investors wanting to buy into the mobile trend?
If I had to pick just one I'd pick Google. Highly diversified in search, video, and lots of long term projects that are not specific to mobile.
Just to be clear, I realize most of Google's revenue is ad related. What I mean by diversified is in terms of where they generate those ad dollars.
Yahoo’s Marissa Mayer made mobile a priority almost immediately upon taking the CEO role a couple years back. And she’s going to have a lot of cash to play with after the Alibaba IPO. Is Yahoo a good investment at this point given its investment in mobile (both in content and technology)?
I think Yahoo is trying to turn itself into more of a content play, which could work. But I'm not sure and I don't follow it as closely.
Look at how Yahoo spends $1B (Tumblr) vs. Facebook (Instagram). I think Facebook is doing a better job.
OK, let's back up a step here and talk about putting together a solid growth portfolio. What are some of the key things you analyze and look for when it comes to making a decision on buying a stock?
I like to start by identifying big, important trends (like mobile, as we've been discussing). I love growth stories that I feel will grow a lot more than the average investor expects over a long time period (i.e. a decade or more).
Then I just look for the probable winners in the sector. Almost always the stocks will look absurdly expensive to anyone focused on the next 2-3 years, but if I'm picking solid long term growth names they are not pricing in huge long term growth.
Netflix was a bit of an exception to this in 2012 because it looked quite cheap to me when we started Strategy Lab.
Rackspace is an example that hasn't worked out. I figured they'd see better growth, and in this week's column I announced selling that stock.
I have also been very curious about 3D printing, but never really spent a lot of time on that sector yet.
Why did you make the partial sales in Netflix last year?
Oh, Netflix partial sales ... I wanted to add other stocks and Netflix was becoming a dominant position in the portfolio. In real life I'd prefer to not sell and just use new savings to add new stocks. But we don't have new money coming into Strat Lab.
I believe in letting my winners run. You can't have 10-baggers if you sell every time a stock doubles.
Back to Yahoo for a moment, and more specifically, Alibaba. Do you advise investors to grab hold of the stock as soon as they can?
It's not a name that I've followed very closely. With that question I feel a bit like the dentist offering advice on swimming pools.
Our live chat friend mbgrinder has this question. Not sure Chris you follow the stock, but ...
It's another one that I've looked at only casually. From what I've heard about the company I'd just want to get comfortable with what seems to be a very high pressure sales environment. But the product is excellent from what I've heard, and it's definitely a growth market.
So out of all the stocks in your Strategy Lab portfolio, what name do you have the highest conviction in? Or, put another way, if you were only able to buy one stock right now, which would it be?
Ohh, that's a great question. If I could only own ONE it would be Google.
If I was swinging for the fences and willing to accept a lot of risk I'd go with another name.
Why so confident in the future of Google, especially if you're pitting the stock against Apple?
As you guys know, I like to own several competing players,. But if I could only choose one (i.e. Google) it would be because they've shown themselves to be really forward thinking in a lot of areas. I think the YouTube acquisition was brilliant, for example.
And they pretty much dominated the mobile OS market in a few years.
They haven't been very successful in social media outside of YouTube, which I think of as more a content play then social media. I think Google is going to come into our cars, houses, etc. Lots of growth here.