Top 3 Stocks for Every Type of InvestorJan 29, 2021
Every day we often get questions from all of you regarding what stocks to invest in. Our immediate answer usually comes in the form of a few questions. Those questions are:
1) What are your goals? Are your goals to make as much money as possible? Is it to have a steady stream of income? Is it to preserve your capital? Is it somewhere in between? What we are trying to understand here is what is your optimal goal so we can make the right recommendation. What investors often do not understand is everyone has different goals and therefore the right investment for one person may not be the right investment for another. If someone wants to make a ton of money we may recommend a risky investment whereas if someone wants a riskless investment we will recommend them something else! There is no one size fits all answer here!
The second question we often ask is what is your risk tolerance? Can you tolerate the ups and downs associated with certain stocks? Or do you prefer something that is less volatile? If the stock was to not work out, could you tolerate losses? When we ask this question we often are trying to understand how much risk you can tolerate and if the answer clashes with the first question above. If an investor has goals of big gains but cannot tolerate risk, then risky investments that have large upside may actually not be for them! This point is very key here. More risk = more potential gains but also comes at the expense of potential larger losses.
The third question we often ask is what is your time horizon? Do you want this investment to make you money tomorrow or can you afford to wait over a year? The reason we ask this is because all stocks behave different. Generally speaking, for younger speculative companies, often only over the course of a long time, can we as investors, truly know if the stock will pan out. Whereas for investors with shorter time horizons, the investment then skews more towards the spectrum of "betting" rather than a true investment.
Long story short, until we understand who you are as an investor, it is inappropriate to make the right recommendation for you. But after understanding who you are, we then can make the right recommendation for you. And so with that introduction, we are giving our 3 favorite stock picks for the most common types of investors we run into. If you do not fit this category, please message us and we'll be more than happy to help you out!
Using the picture below, let's construct three types of investors and what types of investments they should be investing in.
Investor 1 Profile
Long time horizon, can tolerate risk, wants their investments to make significant gains: This is a common type of investor we run into. The investor who has time on their side (is generally younger), can tolerate the daily volatility of an investment and wants to make money over the longer term. While there is no "best profile" it often is the easiest for the investor to see upside, while minimizing risk, over the long term. For these types of investors, we often recommend growth type investments. Please note that these investments are very long term in nature (2-3 years plus)! And for this investor, these are our favorite growth 3 stocks for them!
1) Twilio (TWLO): Twilio is an American cloud communications platform as a service company based in San Francisco, California. Twilio allows software developers to programmatically make and receive phone calls, send and receive text messages, and perform other communication functions using its web service APIs. While Twilio has grown significantly in 2020, we believe they are primed to be massive leaders in the space over the long term.
2) Opendoor Technologies (OPEN): Opendoor is an online real estate company based in San Francisco. It makes as-is cash offers to property sellers through an online process, improves and repairs the properties it purchases, and relists them for sale. Think of it like the Amazon for home buying and selling. Given the real estate market is one of the largest markets in the world, we see Opendoor taking significant market share here.
3) Virgin Galactic (SPCE): Virgin Galactic is an American spaceflight company within the Virgin Group. It is developing commercial spacecraft and aims to provide suborbital spaceflights to space tourists and suborbital launches for space science missions. While space travel/space use cases may take awhile to materialize, SPCE will be a player in the industry for some time to come. As the riskiest investment here, this will take a very long time to likely play out, but if done correctly, this stock will sky rocket (no pun intended) over the long term (many years).
Investor 2 Profile Average time horizon, medium tolerate risk, wants an investment that either offers steady income or gradual stock gains: For this investor, they are neither growth investors nor are they strictly conservative investors. They fall somewhere in between and therefore should have a balance of both types of investments! For them our favorite types of stocks are:
1) Shopify (SHOP) Growth: Shopify Inc. is a Canadian multinational e-commerce company headquartered in Ottawa, Ontario. It is also the name of its proprietary e-commerce platform for online stores and retail point-of-sale systems. Shopify is another company we believe in thoroughly over the long term. While not as risky as the above, given the maturity of their business, SHOP still has a ton of room left to grow. This makes them a growth investment with a ton of upside. We believe this upside will be realized as they take on companies such as Amazon.
2) Lowe's (LOW) Conservative: Lowe's Companies, Inc., doing business as Lowe's, is an American retail company specializing in home improvement. Headquartered in Mooresville, North Carolina, the company operates a chain of retail stores in the United States, and Canada. LOW is a mature company that still offers some upside! We like this investment for this type of investor who wants upside but also wants some income and stability!
3) CarMax (KMX) 50% Growth/ 50% Conservative: CarMax is America's largest used-car retailer and a Fortune 500 company. The corporate entity behind the formation of CarMax was Circuit City Stores, Inc. The first CarMax used-car store opened in September 1993, 1.7 miles from Circuit City's corporate offices in Richmond, Virginia. CarMax is an interesting play here as they make the transition to buying online. Established almost 30 years ago, CarMax is a mature business, yet still very young as they look to take on this massive endeavor. Therefore we believe KMX offers a nice blend between conservatism and growth!
Investor 3 Profile Short term time horizon, cannot tolerate risk, and either wants big stock gains or gradual income: This investor requires proper education. For this investor while they may have goals of massive upside, for them risk should ALWAYS dictate the types of investments they seek. While they may want upside, if they cannot the tolerate the risk associated with growth investments, then they should not be investing in them. Period. For this investor, they should be focusing on conservative investments only. And for this investor these are our 3 favorite conservative investments:
1) SPDR S&P 500 Trust ETF (SPY): The SPDR S&P 500 trust is an exchange-traded fund which trades on the NYSE Arca under the symbol. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest ETF in the world. For the short term investor who is risk conscious, we actually recommend an ETF that tracks the broader market. That way if the market sells off, this investment won't do worse than the broader market and conversely when it goes up, it also will not outperform. This ETF will help mitigate any single stock risk and help diversify holdings across the general market!
2) Microsoft (MSFT): Microsoft Corporation is an American multinational technology company with headquarters in Redmond, Washington. It develops, manufactures, licenses, supports, and sells computer software, consumer electronics, personal computers, and related services. MSFT is a staple in the technology world. Transferring from selling software to selling software as a subscription (SaaS), MSFT has been able to weather any storm that comes there way. MSFT should see upside over the future, but also is a blue chip name that comes with less risk than other younger technology companies.
3) Goldman Sachs (GS): The Goldman Sachs Group, Inc., is an American multinational investment bank and financial services company headquartered in New York City. It offers services in investment management, securities, asset management, prime brokerage, and securities underwriting. Founded in 1869, GS is one of the oldest banks in the USA. While older, GS is no stranger to innovation and has been able to remain a leader in the finance world for over 150 years! GS should also provide stability, income and upside for this type of investor!