When I was a kid, I used to collect basketball cards. It was a fun hobby, but I had also read stories that a Michael Jordan rookie card was worth hundreds of dollars. And how other cards of Hall of Fame players from older generations were worth even more. I thought of my basketball cards as somewhat of an investment. I was hoping that I’d get a rookie card of a future Hall of Famer and that it would be worth hundreds or thousands of dollars 10 years or maybe 20 years from now. I bought a Shaquille O’Neal rookie card thinking he was a sure fire superstar and that it would be worth a lot in the future. I even paid $10 for it and that was a lot of money for me when I was a 12 year old. It was okay though, because I wanted to hit a homerun with this investment. I’m pretty sure it’s not worth hundreds or thousands of dollars since there was such a large supply for sports cards from that time period.
Back in May 1997, stock in Amazon debuted at $18 a share. If I had invested $10,000 in Amazon at that time, it would be worth $4.8 million which is a 48,197% return! When I first started investing in the stock market, I wanted to hit a home run. I wanted to buy the next Amazon and become filthy rich. While I was still in high school in 1997, I could have picked up shares of Amazon for pretty cheap after the tech bubble burst in 2000. If only I could go back in time!
In a recent post, I wrote that I am lucky that I’m a bad stock picker, because if I had hit a couple of homeruns, I’d be more incline to disregard index investing and swing for the fences. When I was in my investing infancy, I didn’t want stocks that were well established and growing slowly. Sure, in the back of my mind, I knew that slow and steady wins the race. The tortoise beats the hare, right? But I was young and impatient. An annual 10 percent return on my measly $1000 stock portfolio would result in a $100 increase. That amount of money is not game-changing. I wanted to buy a hot stock that would triple, quadruple, and continue skyrocketing. Not only was I picking individual stocks, I was focused on cheap stocks in industries that had a chance of growing enormously like in tech and biotech.
Fortunately, even though I was swinging for the fences, I was still pretty risk averse and hated to part with my money. I could only bare to put my excess cash into investing this way. This was after contributing to my retirement plans and saving an emergency fund. I was probably better off increasing my retirement contributions rather than picking individual stocks, but when you’re young, retirement seems so far away. I figured my savings rate was sufficient so I set aside some money to try to hit a homerun.
Now that I’m older and more experienced, I have realize that consistently hitting singles is better than always trying to hit a homerun. Many homerun hitters often strike out a lot. I didn’t want to live with the feast or famine, boom and bust mindset. However, even with the knowledge that I’ve attained, I do like to try and swing for the fences now and again. It is almost like setting aside money to blow on something fun so you don’t feel like you are depriving yourself. Some investors need fun money to blow on investments otherwise it might drive them nuts. If I didn’t have the outlet to “invest” money in things that are a little riskier but have the potential for higher returns, I might be more inclined to tinker with my portfolio too much. It is hard to leave it alone as I often want to optimize.
When I read personal finance blogs, I feel like many of them are ultra-disciplined and just put ALL their money in passive index funds. Is it just me that has this urge to hit a homerun? What do you do to keep yourself from taking too much risk in your investments? How much of your portfolio do you keep in individual stocks or other alternative investments which are more speculative?