Let me briefly explain how I constructed my investment portfolio. It is still work in progress as I am half-way-there, but let me share How it begin and what is the logic behind it and some of the advantages and disadvantages of building the portfolio this way.
I began with $5, The first buy order was for SPY. I was giving an advice to a friend about stock market and he suggested what should I do? So I suggested, if you know nothing, first thing you do is invest in “Index Funds”. Then whatever I suggested to him - I wrote it in this blog (https://viralpatel15.blogspot.com/2021/03/stock-market-beginner-advice.html) and then I said to myself, “Why not walk the talk” and I started the same in my Robin Hood account. (I have not yet stopped).
For those who know nothing, this is probably a good advice, but those who know a little and I like to believe, I know slightly more than little by now, and have always been fascinated by those big percentage gains in NVDA, AMZN etc over 5, 10, 15, 20 years returns. So I sort of started reverse engineer the process and created a systematic approach.
I created different buckets. Sort of 7 buckets.
First bucket, I picked 20 best stocks that I know - which has potential to be great winners down the road and I started buying $5 worth of each of that stock.
Second bucket, I picked 30 next best stocks that I know - and started buying $3 worth of each stock daily.
Third bucket, I picked 40 “Value Stocks” which also pays some sort of Dividend, to balance out the portfolio, so that it does not have only growth portfolio. Stable companies such as Starbucks, Disney, Pepsi and so on and started buying $2 worth of each stock daily.
Fourth bucket, I picked 50 left over stocks, which are good names, good companies, but either too high in valuation and may not provide great growth, but add some stability in the portfolio, such as BKNG, GOOGL, MSFT etc.
Fifth bucket, I picked 150 stocks which are just very high risk, many of them may bankrupt in few years, but something that can give 1000% gainers - if it works, and started buying $3 in a week in each of those names.
All this is listed in this blog: (https://viralpatel15.blogspot.com/.../robinhood-portfolio...)
Over the period of time, that ratio has changed a bit. Now I also have Top 10 list (where I buy $10 worth of those stocks daily)..the other buckets remain the same, but I stopped buying the high risk companies. Reason, is I learned over the period of time, that some of them are just pump and dump and not worth putting money. Secondly, you also gain some experience, knowing the market, reading the market, their balance sheet etc, and realize, there are very few businesses worth investing, others are not.
Now, how do I select those companies and where I put them (in which bucket), will have lot more details - but if I have to simplify it, I would just say this, I try to invest in companies which are growing in their revenue. Key is they should be able to double their revenue in 5 years. That means they are growing at least 20% each year. So NVDA’s revenue was 16 billion in 2021, and if it is more than 32 billion in 2026 then it will be in (Its 130 billion now), but AAPL’s revenue was 274 Billion in 2021 and now it is nowhere close to 550 billion (Its 391), so it will not be in my bucket list. This bucket list keeps changing each year, depending upon how companies are doing, so if somehow AAPL turned out to be a company which is again doubling their revenue in 5 years, it will be in some bucket, otherwise it will not.
Apart from selecting those buckets (which I do it at Christmas time, because workload is less and there are holidays), I spend roughly 30 minutes each week, to see if any changes are required. So I created a bucket at the start of the year, and some company is not doing good and down 20% in the value and it is in the top bucket, I drop that and pick the highest winner from the lower bucket. This way, I keep feeding my winners.
Here are some advantages of constructing portfolio this way:
- You can buy when you have just $5. and then you can keep adding as and when you have money.
- You are adding a very small amount to each stock, so you will not have urge to Sell it. This will prevent you from “Trading” and really keep you focus on “Investing”.
- You are “Diversifying” the portfolio to have bunch of stocks.
- You are “Dollar Cost Averaging” so, you do not need to monitor what is the attractive price to buy, as the buying price will average it out (in their lows and highs)
- You are not picking the winners, but you are letting the market pick the winner for you.
- So over the period of time, Lets say, you put $10,000 in one stock (it will literally take you more than 10 years), but lets just assume, one of that stock did not work (maximum you will lose is 10K), but the winner has no limit, it can grow that 10K to 100K. In fact, so far - even though we saw two bear markets recently, 2022 and 2025, Top 26 losers combined value is less than just one winner’s gain.
- sometimes, from the risky buckets, you will find some hidden gems such as “CVNA” which will give 500% gainers.
- sometimes, some stocks, which you probably did not rated very highly initially such as PLTR, keep climbing the different buckets and turn out to be big winner.
- Over the period of time, you will have your own version of ETF, the difference is, in this ETF, the stocks such as AAPL and MSFT are not 13% but other growth leaders such as NFLX and CRWD are. When AAPL and MSFT were first introduced to the S&P 500, their weightage was not 6 or 7%, they proved themselves and are at that level, similar way, you are getting a jump start and investing in other mid-cap or large-cap companies from the beginning which in 20 years down the road will become next AAPL and MSFT.
- Method can have various variations such as if I can afford only $100 per week to buy - I can choose to just do it in 20 companies $5 in each of them every week and so on. Similarly, if you have more money to invest, you can also increase dollar amount.
Also some disadvantages:
- It will take years, for it to be grown to signficant amount such as 1 million dollars, it will probably take 5-10 years, depending upon how much you add monthly.
- Even if you identify a company - lets say FROG (just a random name), you will start at the lower bucket, and after one year completes, it has only $200. (it may double from there, but that would be just $400) and it will frustrate you, that even if you were right, you did not added more money in it. (because you are not trading, you are investing for the long run and you have a system, Let the system work for you, Dont try to oversmart the system).
- When indexes are down 20%, Your portfolio could be down 35%. (It works the other way too, when indexes are still red, you are up 10%), because you have your own index and % allocation.
