Whether you’re talking about where stocks are heading next or how effective a certain political policy will be, we all believe …. or believe in … something or perhaps someone.
Heck, we admire people who have strong belief — faith, if you will — in a leader, company and/or cause.
After all, the world doesn’t get changed by consensus. Rather, the world usually makes progress thanks to the vision of an individual who just sees things in a different way … and then takes action to make that different perspective a reality.
Think here Steve Jobs, Henry Ford, Albert Einstein, Nikola Tesla, etc.
Well, a modern-day version of this kind of person is Elon Musk. And it’s no coincidence that he named his visionary all-electric luxury performance car company Tesla Motors (TSLA).
We greatly admire Musk’s genius, and his vision. But there is one thing we’re not big fans of, and that is when people want to put all their investment capital in any single idea.
Yet that’s precisely what one executive at a San Francisco-based startup recently proclaimed he’s doing. And his move even got the attention of Musk himself.
Austen Allred is his name. Late last year, he tweeted at Musk that he "just put 100% of (his) net worth" in Tesla shares. He even noted that he doesn’t even care if he loses it all.
Now, investing all your net worth in one stock may be a sign of psychosis. But it also may turn out to be a genius move for Allred.
TSLA shares ran up as much as 1,100% since their June 2010 debut. They hit their highest level, at $286, in September 2014. And they stayed below that level until after last night’s earnings announcement, when the stock surged above $280 in after-market trade …
|TSLA shares are up 1,100% since the stock debuted in June 2010.|
The run-up came even after Tesla posted a loss of 69 cents per share!
Allred’s supreme confidence in Musk & Co. appears to be paying off. But it defies the classic money mistake that everyone (else) learns early on in his/her investing education — don’t put all your eggs in one basket.
For his part, Elon Musk congratulated Allred on his stance. In fact, Musk even took to Twitter (TWTR) to assure Allred he was making the right move.
Hey, we admire Musk’s bold affirmation of this move. But he would have helped Allred more by telling him about the concept of diversification.
While we like the idea of belief in a CEO, and/or the genius of a man like Musk, we hate the idea of anyone placing such a big bet on one company’s stock.
As much as we might believe in a company, a CEO, an industry or an economic trend, we also believe that investing all your capital on one outcome is a very poor way to grow your money over the long haul.
There’s also the fact that this kind of move has a low success rate.
It’s just like playing poker. And though you may be tempted to take risks here and there with a mediocre hand, you also know that the key to long-term success is to play the percentages.
If the "pot odds" are good enough, and you calculate the possibility of your hand winning as better than the pot odds, then you bet big on that hand.
That seems to be the kind of calculation Allred is making.
Is Allred still all-in? Looking at his recent tweets, it appears he is …
We respect his faith in Musk. Yet as a strategy for most investors, this is not the way to do it.
A much-better way to approach things is to diversify your holdings for a variety of outcomes.
You can do this in numerous ways, and you can even make big bets on companies and/or CEOs via buying call options (or, in some cases, put options) on trends you believe in (or trends and companies you think are likely to fail).
Indeed, one of the reasons we have so many different newsletter services here under the Uncommon Wisdom Daily umbrella is because there are many ways to invest in many different sectors.
A well-played use of the diversity of investment styles, strategies, asset classes, etc. is what can help investors achieve winning results.
The reason why is that sometimes one approach works a bit better than another, just like some sectors of the market perform better than others given different market conditions, economic conditions, regulatory environments, monetary policy climates, etc.
Still, we realize that there is something attractive in a "dreamer’s" sense when going "all-in" on one hand.
- When that hand wins, there is nothing more exciting.
- Yet when that hand loses, there is nothing more devastating.
And while most poker players can afford to take a big loss at the table and live to play another day, we don’t know any investors who can afford to lose all their money in one stock … no matter how much they believe in that company’s CEO.
Here, we’d rather show you how to grow (and, at the same time, protect) what you’ve got. You can still go for the big gains in a variety of asset classes. In fact, the rush of identifying double-, triple- and even quadruple-digit winners is one of the highlights of what we do every day here.
But the real rush comes from giving our readers regular opportunities to go for those gains without losing a single wink of sleep in the process. This comes from our belief in, and adherence to, our time-tested trading strategies that can give us a lot to smile about when they go in our favor … and the ability to invest another day even when they don’t.
The Uncommon Wisdom Daily Team