Focus on the product
Like Tesla and its electric vehicles, some of the best-performing stocks have delivered value to early investors thanks to product success. Apple’s stock has soared thanks to the succes of its iPhone and Nvidia’s AI chips have been highly profitable.
Understanding and evaluating a product’s potential is key to successful investing.
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Learn MoreRiches in niches
When Alice purchased Tesla stock in 2011, the electric vehicle market was limited to enthusiasts and early adopters. Only 0.2 percent of total car sales were electric that year, according to the Bureau of Labor Statistics. Given that data, it’s not surprising that Tesla stock was overlooked and relatively undervalued at the time.
Investors looking for hyper-growth investment opportunities should keep an eye on niche segments of the economy that other investors are neglecting.
Time horizon matters
Assuming she purchased Tesla shares at $2 each in 2011, Alice saw a 1,000% return by 2017. If she had sold the stock after holding it for six years, it would have been considered a sound investment decision. However, having the discipline to keep it for 14 years, despite the volatility, turned out to be an even better decision.
It’s also a rare one. In the past 50 years, the average time investors hold individual stocks has plummeted from 5 years to just 10 months, according to eToro’s Ben Laidler.
Resisting the urge to buy and sell stocks frequently allows you to fully enjoy the power of compounding. As Warren Buffett once told his shareholders:
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
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Discover the secretDiversification
As she spoke to Delony and Kamel, Alice shared her concerns about pushing her luck too far with Tesla stock, which accounts for a large portion of her portfolio.
Kamel agreed there are risks to being too concentrated in any single stock, like Elon Musk’s company Tesla.
“Trump could go, “Ahh, Elon’s not a friend of mine anymore,’” he said, “and Tesla stock takes a 10% dip in one day.”
Alice said she was considering selling her Tesla stock to pay off her mortgage. Both The Ramsey Show co-hosts agreed that paying down her mortgage and gradually building a more diversified portfolio would be a good way to mitigate risk of overconcentration.
A balanced portfolio of different asset classes is generally a good idea. For example, you could consider a mix of stocks from various industries, bonds and real estate to bolster your portfolio.
You may also want to diversify your investments beyond traditional stocks, as many young people are doing.
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