In this episode of MarketFoolery, host Chris Hill and Motley Fool Asset Management's Bill Barker answer some questions from the dozens of listeners:

  • Why bother buying one Dividend Aristocrat instead of a Dividend Aristocrat ETF?
  • Is there any tourist attraction more overrated than the Liberty Bell?
  • When a stock looks like a loser, how can investors tell if they're disappointed in the company or the stock? That is to say, when is it time to sell a losing stock, and when is it time to double down?
  • Is 72 stocks too many?
  • How and when should investors cull their positions?

Find out more below.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on Sept. 20, 2019.

Chris Hill: It's Monday, September 23rd. Welcome MarketFoolery. I'm Chris Hill. Joining me in studio today, from MFAM Funds, Bill Barker. Thanks for being here!

Bill Barker: Thanks for having me!

Hill: We're actually taping this a couple days early because we're having a Fool member event in D.C. As folks are listening to this on Monday, I'm in Washington D.C. at the event.

Barker: We're admitting that this time?

Hill: We're admitting that this time.

Barker: There have been a time or two when I've been on a show, and we've finessed what day was being taped.

Hill: In this case, I felt like I wanted to just be upfront with the dozens of listeners.

Barker: I applaud your improved candor with the audience.

Hill: [laughs] We're going to dip into the Fool mailbag. We've had so many great questions over the summer. Thank you to everyone who writes into marketfoolery@fool.com.

Let's start with a question from Nick Burgess, who writes, "I began investing in MongoDB earlier this year when I heard a few Fool analysts discussing the stock. I did my research and began buying into the stock." Let me just stop right there and say, I appreciate that Nick did his own research. We always say, "Don't buy or sell stocks based solely on what you hear." And, as some of the listeners have admitted from time to time, "Yeah, you were talking about it, so I just bought it." No! Be like Nick, do your own research.

Anyway, Nick goes on to write, "But I'm down 21% and falling since jumping in. I've been buying the dip in this company since it's one I believe in, but at some point, it feels like enough will be enough. I know it can be a largely personal thing, but at what point does the Fool team know when to keep persevering or when to reallocate to something else? All this keeping in mind that I'm 27 years old and I basically have a 40-year outlook on my investments. Thanks again for your amazing work!"

Thank you for listening, Nick, and thank you for the question! It's a great question. I think it's one of those questions that experienced investors wrestle with. You can be investing for 10, 20 years and still look at a company, your original thesis still holds, it's down, maybe you buy a little bit more. But at some point, if it keeps falling, or it just hovers down below for a while, it's perfectly natural to look at it and think, "OK, is it time to just cut my loss here?"

Barker: Yeah. I'll have to fill in some of the blanks that I would have, necessarily, from a short email about the specifics of the writer, who is 27, and therefore -- at least, as a group, 27-year-olds would be expected to have less experience and less knowledge about themselves and how they are going to react over the long and short term to stock price movements. That may or may not be the case of this author.

What I would say is, is it the stock that's bothering you? Or is it the company that's bothering you? The stock is down 21%. That's mentioned here. Has the company's results disappointed since the purchase? If what you got wrong was something about the company, that's a good time to reconsider whether you should keep investing in something. If what you got wrong was, "What I really liked most of all, I have to be honest, is that this was a stock that was going up every day." MongoDB fit into that category. Went from $20 at the beginning of 2018 to a high of about $170 this summer. Yeah, I can see --

Hill: Who wouldn't like that?

Barker: Who wouldn't like that? And if that's why you're buying, "I love the fact that it just goes up and triples in less than 12 months, that's why I bought it," well, take a step back. Is that really why you bought it? I'm not saying that was the case here. But it is going to apply to some people. So, the first question, I would say, is it the stock? Or is it the company that's bothering you at this point? I'm seeing the stock mentioned here. I'm not seeing the company mentioned as having been disappointed in its last quarterly conference, or anything like that. So I would say, lean on that you're 27. You have 40 years. If you believe in the company, has that changed?

Hill: In terms of allocating money -- we talk about having cash in the account, having a watch list -- is there a process that you go through in your own investing life, when you're in that position, when you think, "I've got a little bit of money, let me look at my portfolio," do you tend to look at what's on a watch list? Something that you don't already own? Or do you tend to look first at "What do I already own? Is there something there that's on sale?"

Barker: I start with looking at what I already own. As time goes by, what do I feel I need to do to rediversify things that have gone up and take a bigger percentage of the portfolio, things where I've made mistakes and should leave the stock and find something that I like better. So, it starts with a look at what I already own.

Hill: Question from Daniel in Dubai. He writes, "My portfolio now has 72 positions. It's been beating the market returns for the last year. I noticed that my initial portfolio, set up a little over a year ago, has increased not less than 45% in value thanks to you guys. Originally it was 15 positions. In the past 12 months, as I've been adding to it, the overall returns are obviously smaller as many companies have not had the time to run high. I have a 70% focus on growth stocks, 20% on international, and 10% on marijuana stocks. Is it too big? Should I narrow it down to the winners? If so, when should I do so?"

72 positions in the portfolio, that's a lot of stocks. To go back to Nick and his question, he says it's a largely personal thing -- I sort of feel like 72 would be too many for me to feel like I had a handle on. That's just me. What do you think?

Barker: I would start with, why do you own 72 positions? If it's a David Gardner perspective, where he espouses buying and holding forever, over a long investing career, you're going to have found many companies that you want to keep owning, so you're not just selling to get down to a specific number. 72 is way larger than you need to be fully diversified. That said, the author here has identified 70% focus on growth stocks, 20% on international 10% on marijuana. I'm guessing, of that growth stocks, especially if he's a follower of The Motley Fool's work, probably heavily weighted toward tech. Thus, despite having 72 positions, might not be as diversified as 72 randomly chosen stocks would end up giving you.

Hill: Diversified on an industry basis.

Barker: Yeah. 70% on growth, this could be more diversified with fewer stocks. While everything's going up, it's been a great year for growth, it's been a great five years for growth, it's not going to feel like there was a mistake in concentrating on growth. That will, at some point -- even if it's just for a small period of time -- feel like, "Oh, all I have is growth and it's all going down at the same time." I'm not saying that for the long term, that's a problem, to be over-weighted in growth. But if you want to be more diversified, and with fewer positions, that's probably easy to do by culling this.

Hill: I think the only way I could own 72 stocks in a portfolio is if there was a decent chunk of them that I just no longer cared about. That it was a situation where I said, "I got to a point where I decided I wasn't going to sell stocks, no matter what was going on, just because you never know, things can turn around." But, there's 10 or 15, and it's like, "Oh, right. I own that. I'd forgotten since the last time I looked at my portfolio."

Barker: Nobody's going to be following 72 positions closely. Even if it is their job, they're probably not doing that. Most industry analysts are covering fewer than 20 companies in the same industry. Now, they're spending 60 hours a week or more on that. Somebody who is investing their own money in individual stocks, as a way to keep educated about this and to enjoy the process, 72 sounds like, you've seen a lot of things, you liked the story, you bought some, and you like that process. And it's been working out, according to the narrative here. But don't fool yourself into thinking that you're going to follow 72 positions and keep a job.

Hill: Question from Gerald Lynch, who asks, "Can you explain why it would ever be wiser (or more Foolish) to buy an individual stock among the dividend aristocrats rather than a low-cost dividend index fund or ETF based on all the dividend aristocrats?"

For those unfamiliar, dividend aristocrats are companies that have not only paid a dividend for 25 years, but they've increased the dividend for 25 years.

Barker: Right. Either the low-cost dividend index funds or ETFs based on the dividend aristocrats is an excellent way to be invested. Would there ever be a reason to buy an individual stock? If you enjoy the process. If you have some confidence that an individual stock is better than average out of that group. That would be a reason why it would make sense. If you have knowledge about the industry such that you are justified in having that level of confidence about a specific stock. Sure. A dividend aristocrat, of the places that you might buy one and only one stock, there's a pretty good safety net under there. They've got a long history, they're paying dividends. On the growth scale, they're going to be not the most aggressive growers. The amount that you are going to suffer when you're wrong about an individual stock out of that category is less than other categories.

Hill: From time to time, we talk about company management. Such a crucial part of what management does for any given business is capital allocation. How do they choose to invest the money? How do they choose to spend money? At what point in the process, at what year between one and 25, do you think the pressure starts to mount internally among the management team, like, "We have to keep this streak going?" My assumption is, it's not in the front first 10 to 15 years. But I bet, once you start getting into the high teens, it really becomes something that gets talked about in the boardroom or something like that. Like, "Look, I know, Bill, you're looking to make that investment, but we're in year 19 of raising our dividend. Six more, we're a dividend aristocrat. I'm sorry, we have to put some money aside to bump up the dividend." There's no way that conversation is not happening.

Barker: Yeah, it's probably happening. There are rewards for entering that category. Greater trust from investors, a more stable investor base. There are reasons beyond just kicking around, "Hey, let's keep a streak going." A streak in sports might be fun to watch. There are real investment consequences and, indeed, what is your cost of capital. If you have been showing that you can increase your dividend every year, and it looks like you will keep doing that, your borrowing costs are going to be lower. You're going to probably have higher-rated bonds, and you're going to be able to borrow that money a little bit cheaper than somebody else.

Hill: Please keep the email coming. marketfoolery@fool.com is our email address. I mentioned we got a lot of great questions over the summer. When I was going back through the email, I was reminded of the fact that we occasionally get email about other topics, not just stocks. We got a bunch of email in August in response to a topic that you raised when we were talking about Philadelphia. You just casually tossed out there that the Liberty Bell is the most overrated tourist attraction in America. Overwhelmingly, the dozens of listeners weighed in and said, "You might be forgetting about Plymouth Rock." It's just a rock.

Barker: In my defense -- this is true -- I didn't realize Plymouth Rock was a tourist site. [laughs] It had never occurred to me that people would go visit Plymouth Rock. Do they? You're from New England.

Hill: [laughs] I don't think I've ever been.

Barker: Has it ever occurred to you to go? Has anybody ever said, "Hey, let's go to Plymouth Rock"?

Hill: Not that I can remember. It's probably something, if you're growing up in Massachusetts, it's a school trip when you're learning about state history. It's probably one of those situations. But yeah, I think for people who are like, "Hey, for summer break, we're going to go to New England, we're going to Boston, and we're going to spend some time up in Maine, hit some of the state parks," that sort of thing. It's not, "We have to build in time for Plymouth Rock."

Barker: No. I picture these school children getting dragged to Plymouth Rock. Nobody is looking forward to the Plymouth Rock trip. This brings up the question of whether this is just a boring thing, whether it can be overrated if nobody thought it was going to be any good. Is this one of the great tourist attractions in terms of numbers that Massachusetts has to offer?

Hill: I think you're setting the bar too high. I think we're just talking about, some organization gets together and says, "We've declared, this is a thing. We're going to charge money so that you can come check out this thing."

Barker: People pay money to go to Plymouth Rock?

Hill: I'm assuming. Maybe not.

Barker: [laughs] That would be tragic!

Hill: It really would be. And I think you're showing your age just a little bit -- and I say that only because you're older than me -- when you're in grade school, you're pretty happy to get out of school. Are they psyched about going to Plymouth Rock? Not necessarily. Are they happy that they're not in the classroom? Definitely.

Barker: I don't know. Again, remember, this is an outdoor trip. Massachusetts is cold all the time.

Hill: [laughs] No, not all the time.

Barker: During the school year.

Hill: No.

Barker: They're being taken there in January by the evil school teachers when they've done something wrong. It's a threat. "Don't keep acting up or we're going to do that field trip to Plymouth Rock this week."

Hill: [laughs] I bet at least one teacher has done that. You can read more from Bill Barker and his colleagues at mfamfunds.com. Thanks for being here!

Barker: Thank you!

Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. Our man Steve Broido is behind the glass. Shout out to Steve. I'm Chris Hill. Thanks for listening! We'll see you tomorrow.