The road to self-directed investing for me has been a bumpy ride. I’m sure if you read last weeks piece you’ll know that my first and last attempt at day trading was followed by a quick loss of almost 40% of my investment portfolio.
Now, I know that day trading and taking an aggressive approach towards finding the best growth stocks are still not even close in terms of risk. But I can tell you, that one mistake I made nearly 5 years ago has been a contributing factor to an extremely passive investment portfolio. I need to change that.
My investment philosophy has always been a less aggressive approach
After my loss in 2013, I kept all my money liquid and vowed to improve my investing skill set before I ever invested in another stock again. I didn’t blame the market like most do. For most people who have little knowledge of the stock market, it comes easy to simply blame the markets as a whole. They don’t really review the crucial individual mistake that was made. I knew the profitability of the markets. In order to achieve an earlier than average retirement, I was going to need to invest in it in some way.
Naturally, when you lose a ton of money in the stock market you are going to try to find ways to not go down the same path again. One of the easiest and safest ways to avoid losing money on the stock market is to establish a strong portfolio of blue-chip dividend stocks. This is exactly what I did. As of today, my portfolio is still made up of about 90% of these stocks.
My profession, if you could call it that from early 2015 to late 2016 was a poker player. I worked the odd time, maybe putting in 10-20 hours a month helping the family out with electrical work. For the most part though, 95 percent of my income came from playing cards. My approach to this risky lifestyle ignited my interest for dividend stocks. Poker was stressful enough. I would sometimes go months without a paycheque. Imagine if I had a portfolio made up of speculative growth stocks? I already had enough stress in my life, so I decided to take the safer dividend route.
Dividend stocks are not optimal for young investors
This is pretty much the consensus out there in the financial world. As Peter Lynch said in his book One Up On Wall Street(Which by the way, is an absolute must read), you should be trying your best to find some “Tenbaggers” that are out there. Finding a tenbagger is a simple concept. You find a growth stock that in your opinion has the potential to increase your initial investment tenfold.
As you can see in this chart below courtesy of Yahoo Finance, a purchase made in November of 96 of WalMart(WMT) would have in theory nabbed you a tenbagger today. In reality, you’ve made much more than that due to a stock split in 1999 that would have doubled your position. Just for simplicity, I chose to use them as a reference.
You would be hard pressed to find an established income (dividend) stock out there that will increase in value tenfold. WalMart is now an established superpower in the world, and it’s highly unlikely you will ever see those kinds of returns again from them.
In my opinion as a young investor your primary goal should be focused on growth. A more aggressive approach at a younger age can help you immensely as you move towards retirement.
Why I need to incorporate a more aggressive approach to my portfolio
Currently, my portfolio is made up of a couple growth stocks and a large amount of blue-chip dividend stocks. My TFSA yielded me 15.2 percent last year, while my RRSPs brought in around 11 percent. Pretty good returns for a dividend portfolio right? There is a problem with this however, if you could call it that. Almost all of my earnings from my “income” style portfolio came from growth stocks.
I was lucky enough to jump into the cannabis industry prior to the hype (and don’t even get me started on how overvalued it is right now) and managed to grab shares of Canopy Growth Corporation at $11.49 a share. This stock as of today has provided a 200% ROI in a little over 3 months. Talk about earnings! I believe Canopy held for the long term will officially be my first tenbagger, and that’s exciting.
My dividend portfolio has been somewhat stale. I have the usual stocks that any Canadian would have in an income portfolio. TD Bank, RBC, CIBC, Telus, Bell, Enbridge, Transcanada, Fortis etc. Now, these stocks have been paying me dividends and average returns over the last couple of years, but can I do better at this age? Absolutely. Is my money safer in these stocks than trying to find high potential growth stocks? Absolutely.
Without Canopy, my returns last year can be summed up in one word. Meh. If I put the work in, I have the chance to earn so much more at an early age. This isn’t an opportunity I am going to let slip away.
When you’re young, you have a chance to recoup your losses
This is an argument I have always stood by. Taking risks when you’re young is absolutely essential if you are looking to earn the best returns on your portfolio over its lifetime. Assuming equal knowledge, an investor at the age of 25 riding a portfolio made up of blue-chip dividend stocks into retirement is going to have nowhere near the portfolio size as an investor who is picking profitable growth stocks in their early days and slowly transferring those earnings into income stocks as they approach retirement.
Now, I’m not advocating you go out and purchase penny stocks or highly volatile growth stocks at an insane rate. But in theory, a young investor at the age of 25 could lose their whole portfolio by the time they are 30, start over, and still be ahead of the game. Most people in their thirties haven’t even started to save or dabble in the stock market, especially early 30’s millennials. According to Barrons, only 13 percent of millennials have invested money in the stock market. The S&P 500 has increased over 75% in the last five years. Not exactly a tenbagger, but man are we missing out as a generation.
How I’m going to change the structure of my portfolio
I am way too cheap to sell out of the current stocks I own. I like my dividends. I also like the fact that as a buy and hold investor, my commission costs are basically null. However, at the age of 28, any further contributions I make to my Questrade TFSA or RRSP are going to be solely dedicated to finding growth stocks. Right now, approximately 8 percent of my portfolio is allocated to stocks that I would consider growth investments. I eventually want to get that number to an even 50%.
How am I going to do it? Well I can tell you right now I’m not going to make the mistake new investors often do and purchase the first stock I see on the Fool or some web forum. I have to admit, I haven’t had much practical experience picking growth stocks. I know how theoretically. But I’m just not ready to throw real money at a bunch of them just yet.
This is why we are currently working on a massive guide to analyzing the best growth stocks out there. To our current newsletter subscribers, this report will be given to you completely free. For anyone not currently on the mailing list, sign up now to either receive our top 40 stocks in Canada right now or our investing Ebook. When the analysis guide comes out, you will be one of the first to see it. Every time I add a new growth stock to my portfolio, I’m going to tell you how I determined it was a winner by using the same guide we are giving to you for free. We will do this together, because our number one aim at Stocktrades is to improve your knowledge, and ultimately returns.