I'm a dabbler. Knitting, guitar-playing, pottery, editing -- with nearly every new venture, I have to dabble awhile before I can commit fully to the task. Granted, most of the time, I reach that committal stage eventually (OK, except with pottery). But it takes a while.
I'm the same way with investing. I maintain that it's perfectly OK to dip a single toe in several investing styles at once. Think about it: If you stick just a toe in, you've likely got 10 ways to diversify right there. Want to put three toes in small caps, three in large caps, two in dividends, and one each in growth and value? Why not? Diversification in your portfolio can be lucrative. Just ask Peter Lynch.
"If you are looking for 10-baggers, the more stocks you own, the more likely that one of them will become a 10-bagger."
The above truism is simple probability. That's why I like the strategy espoused by David and Tom Gardner in Motley Fool Stock Advisor. Each month, the brothers' recommendations come from everywhere -- large caps, small caps, dividend payers, and value and growth picks are sprinkled throughout. And their recommendations have paid off: To date, David's recommendations are up 48.91% against the S&P's 16.95%; Tom's are soaring upward by 65.58%. And many of their investments still have plenty of room to run.
David selected 7-Eleven (NYSE:SE) for many reasons, not the least of which was its past growth and the potential for more: "In its most recent quarter, SE quadrupled profits, with an 8.7% increase in total sales, to $3 billion. It has celebrated 34 consecutive quarterly increases in U.S. same-store merchandise sales, and analysts expect an average 20% growth rate in earnings from SE over the next three years. The high end of those estimates forecast 25% earnings growth, which doesn't seem too terribly off the mark when you consider its big plans."
Moreover, it stood out from competitors -- grocery stores such as Casey's General Stores (NASDAQ:CASY) and gasoline giants such as ExxonMobil (NYSE:XOM) -- because "there's hardly any Wall Street coverage of the stock. Sure, 7-Eleven has been around since 1927 and been using the company name since 1946, so it may sound like a stock that's seen its heyday come and go. Many people would overlook it as an investment, thinking that its market has been saturated, that competitors have hurt it, and so forth, but really, that's not the case."
Then there was the big winner Tom snagged in Quality Systems (NASDAQ:QSII) -- a great play in the growing trend of digitizing medical records. Quality Systems stood out to Tom because it's "a financially strong company that is containing costs, while at the same time enjoying rising demand." Furthermore, "the clean balance sheet, cost management, and excellent cash flow" at the company made it too attractive to pass up.
"The more stocks you own, the more likely that one of them will become a 10-bagger."
Some people probably think I have some sort of attention deficit disorder. I'm here, there, and everywhere looking for a solid company selling at a good price. I like to think I'm not so much hyperactive as I am casting a wide net.
Indeed, you don't have to view yourself as one "type" of investor or another to realize superior long-term results. Often the best investors are those who can spot good stocks in any number of industries. Look at Lynch: During his tenure as the chief stock picker at Fidelity Magellan, he usually held more than 1,000 stocks at a time. From Pep Boys (NYSE:PBY) to La Quinta Inns (NYSE:LQI) to Service Corporation (NYSE:SCI), Lynch looked for a variety of businesses operating in a variety of industries -- all in search of the elusive "10-bagger."
"The person who turns over the most rocks wins the game."
So are you a "One-Toe-In" type of investor? You're not alone! Diversification is the key to a solid portfolio, and constant winners won't be found in the same one or two industries. We dabblers have an innate advantage there. From value plays to dividend payers to small caps to blue chips, Stock Advisor can help you dabble in the right direction. You can stick a toe -- or heck, why not two or three? -- in for free by clicking here.
One of the reasons for Stock Advisor's success is indeed its diversification. And as a One-Toe-In investor, I'm grateful for that. From Hollywood exposure to baby boomer health plays to consumer hotshots, David and Tom's ideas come from everywhere and make money in almost every way. But they all share a few key characteristics: good prospects, a reasonable price, and a catalyst that other pros may be missing. To see their two newest ideas when they are released today at 4 p.m. EST, take a 30-day free trial right now. There is no obligation to subscribe.
And in the meantime, don't be afraid to diversify. You'll learn to be a better investor, and you'll do well over the long run. Just ask Peter Lynch.
Hope Nelson-Pope is online coordinating editor at The Motley Fool. She owns none of the companies mentioned in this article. The Motley Fool has a disclosure policy.
