The Los Angeles Lakers are iconic. A dynasty. They’re one of the great franchises – not just in basketball, but all sports. They’ve won 16 NBA Championships. Their roster has included legendary players like Magic, Kobe, Shaq, Wilt, Kareem, Mikan, Worthy, Baylor, Jamal, LeBron and The Logo.
I grew up watching the Laker’s in the ‘80s with Show Time. Their battles with the Celtics, Pistons and Bulls were epic. A Magic led fast break, or a Kareem sky hook was magical. Listening to Chick Hearn enhanced the experience.
This season the Laker’s have fallen on hard times with a dismal record of 32-41. They’ll miss the playoffs for the 6th year in a row and snap LeBron James playoff streak. He had made the playoffs every year since 2005 and appeared in eight consecutive NBA Finals.
LeBron James is arguably the greatest player of all time. Despite his pedigree, it wasn’t enough to get his team into the playoffs. His abilities couldn’t make up for a less than stellar roster. When Mr. James was winning championships, he was surrounded by strong teammates like Dwayne Wade, Chris Bosh and Kevin Love.
It takes more than one strong performer to generate wins. It takes a team balanced with specialists.
Most investors are familiar with story stocks like Facebook, Apple, Amazon, Netflix, or Google (Alphabet). These high-flying brand names probably anchor most individual portfolios. It may be easier to identify these companies because they’re constantly mentioned on the airwaves and social media. But how do you expand beyond these highfliers? How do you build a supporting cast? How do you identify the 15th best stock in your portfolio?
Is it possible for a superstar company like Apple or Amazon to carry a portfolio of average, or below average, stocks? If you owned Weight Watchers, Camping World, Stamps.com, PG&E, PetMed Express, Red Robin Gourmet Burgers, Shutterfly, Kraft Heinz, Tupperware, United Rentals or Zillow your portfolio would have had disastrous results as each of these stocks was down more than 35% last year.
A portfolio of individual stocks may leave you exposed to concentrated losers, especially if you only own a handful of companies. In addition, your portfolio may ignore categories like small companies, emerging markets, real estate holdings, or (gasp) bonds.
A diversified portfolio of low-cost mutual funds or ETF’s will give you an opportunity to find winners around the globe.
Dimensional Fund Advisors Global Allocation Portfolio is an excellent example of a diversified portfolio. The fund’s asset allocation is 60% growth, 40% income. It owns more than 13,500 securities scattered around the globe through eleven different mutual funds with exposure to stocks, bonds and real estate. It has generated an average annual return of 9.47% for the past 10 years. It’s not dependent on one superstar stock. It performs well because it’s diversified with a strong supporting cast.
Rather than trying to find one stellar stock, build your investment portfolio with a broad mix of low-cost mutual funds based on your financial goals. Your diversified account will give you exposure to several magnificent companies. It will also remove anxiety by eliminating the need to find the “best” stock. You’re no longer dependent on the daily movements in the stock market because you now own thousands of investments from around the world.
So, go ahead and draft a portfolio of low-cost funds based on your goals and start winning the investment game today!
The game’s in the refrigerator, the door’s closed, the light’s out, the eggs are cooling, the butter’s getting hard and the Jell-O’s jiggling. ~ Chick Hearn
March 26, 2019
Bill Parrott, CFP®, CKA® is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.
 YCharts: March 2009 – March 2019