"Invest in what you know."
It's good advice. But I have a confession... I've been using said advice as an excuse to be lazy. As a healthcare sector editor/analyst here at The Motley Fool and the host of the healthcare edition of our Industry Focus podcast, I know healthcare. I also invest in healthcare -- heavily. So heavily that I can take a look at the iShares Nasdaq Biotechnology ETF and have a pretty good idea whether my entire portfolio is in the red or not for the day. That kind of reliance on a single sector just isn't smart. So, in 2016, my resolution is to diversify.
Of course, I'm not about to swing wildly in the opposite direction and invest blindly in other sectors. And that's the part of my resolution that's going to take work. I need to actually learn about sectors outside of healthcare, find some interesting companies, and do the research on them. Fortunately, I'm surrounded by a community of experts, both in house at Fool HQ and online on fool.com. Research in an unfamiliar territory is two-fold -- you have to understand the broader space, and you have to understand why the company you're considering buying is the best way to play the space.
A burst of energy
To get myself started, I dug into the energy sector earlier this month and found my interest piqued by Kinder Morgan (NYSE:KMI), a natural gas pipeline operator. Since I don't live under a rock as much as the beginning of this article may have implied, I knew that the energy sector was hurting. Whenever an entire industry gets creamed, I assume there are great buying opportunities.
With Kinder Morgan, I'm hoping to have bought a great company at a discount price (the stock price has been hammered lately both due to sectorwide oil price concerns as well as a reduced dividend specific just to KMI). Buying in was a big moment for me: this was the first company in my portfolio that wasn't either (a) healthcare or (b) a household name-type business that everyone understands.
Where the money is
Next up I'm going to step back in time to my days of hosting the financials edition of Industry Focus and revisit the bank stocks I used to know and love. (I'm looking at you, New York Community Bancorp.) I've gotten a little rusty, and I'm sure significant news has come into the picture since I last got my hands dirty in that sector, so it'll require some catching up before I make any actual buys. Fortunately I can rely on the understanding of the space that I previously built up -- it's like riding a bike.
Slow and steady wins the race
Aside from sector-based diversification, I'm also looking to diversify away from high-risk growth stocks. These types of companies (think small-cap biotech) are my favorite type of investment, but they shouldn't make up an entire portfolio. I have a very long investing horizon ahead of me, which makes me more comfortable weathering short term volatility, but that same long horizon is why I want to add some stable dividend-paying stocks. If I choose wisely, the power of compounding should lead to astronomical returns even from more "boring" companies.
In the spirit of confessions, the first step I took here was to buy healthcare giant Johnson & Johnson, which I have previously touted as my favorite dividend stock but had never gotten around to buying. But to stick to my diversity resolution, I will be hunting for equally strong income stocks and/or low-risk plays in other sectors. One area that I'd be remiss to ignore is REITs, which again harkens back to my old days in financials.
The year ahead
Overall, holding myself to this resolution is going to take a lot of research. I know there will be many coffee dates with other Foolish analysts, countless metro rides spent reading conference call transcripts, and a whole lot of podcast binges.. As I expand my wheelhouse, I know I'll come out of it better able to understand the broader market, better able to educate others on how healthcare fits into it, and better off financially, too.
Here's to a smarter 2016.