No matter how you slice it, investing is a lot like pizza. I know, maybe you figured it was like crab legs because you have to get cracking to get to the good stuff. Or perhaps you thought it was like an onion with its many intricate, tear-inducing layers. But in the end, after sampling far too many different delicacies in researching this column, I can assure you that I'm right. It's all about the pizza.
It starts with the pizza maker, of course. Flour-dusted hands that knead dough -- and who doesn't need dough? -- guide the maker. Globs of dough are rolled, twirled, and tossed until they make the perfect edible easel. With sauce and cheese at the ready, the next step is up to someone else -- you. What was it that you wanted on your pizza again?
Know your toppings
There isn't a single topping that is universally loved. Pizza chains wouldn't allow you to split your pies in half (or even in four now, thanks, Pizza Hut) if arguments didn't break out whenever it was time to single out the perfect ingredients.
There isn't a single topping that is universally loathed, either. Yes, your uncle really does enjoy anchovies on his pizza. Your aunt thinks that pineapple and Canadian bacon make for a divine deep dish. After all, an unloved topping wouldn't stand a chance taking up space on the menu.
By now, you probably know where I'm heading with this. That pie is your portfolio. Your toppings -- yes, your selections -- are your stocks. Just as you pick your toppings based on your tastes, odds are that your equity picks are also unique to your investing style. Creating the perfect portfolio is a lot like crafting the perfect pizza. Every stock you own should be in harmony with your other holdings just as one pizza ingredient must work alongside the rest.
You wouldn't pair up pepperoni with ham and leave it at that. They're too similar, not to mention that's not exactly a balanced meal. In Wall Street speak, that would be the need for diversification. In the pizza world, it's just a matter of good taste. You may like mushrooms, you may like pineapples, but odds are you wouldn't want both mushrooms and pineapples on the same pie -- at least, not on the same side. Your stocks, like toppings on a pizza, should complement each other in perfect harmony.
Better ingredients, better portfolio
Let's kick things up a notch. A few years ago, I likened investing to the way Waffle House serves up its hash browns. This time, I'll peg different stock traits to actual pizza ingredients. Play along. Either you'll learn a little something about investing, or at the very least, you'll never approach ordering a pizza the same way.
I'm a sucker for fresh tomatoes on pizza, but I know some feel that it's a throwaway add-on. Because of the tomato sauce, it may feel redundant to some tastes. That's fine. More tomatoes for me, I guess. Baked fresh tomatoes on pizza still maintain their juicy fresh flavor, and that's totally different from the tomato of tomato sauce.
That's why I'm going with high-yielding stocks as the tomato toppers. Yes, you can just as easily earmark that money for your broker's money market fund. That's the thin layer of redundant tomato sauce on just about every pie. You see, there are two ways of looking at it -- some say fresh tomatoes are redundant, some say tomato sauce is redundant. However, even a meat lover can appreciate at least one kind of tomato in there for good measure (and a healthy dose of cancer-fighting lycopenes).
I consider myself a growth stock investor. I've felt that way for all 15 years of my stock market-investing experience. However, one staple in my personal portfolio over the past few years has been Cedar Fair
Meaty and sometimes with a little spicy kick, I see high-octane growth stocks as the pepperonis of investing. As part of the Rule Breakers research team, I certainly practice what I preach. My portfolio is topped with a few zingers. I realize that I'm taking on greater risk with this part of my holdings, but I'm doing so in the pursuit of greater returns. It's why I have no problem owning a company like Jones Soda
International investing is something that way too many stockholders ignore. We live in a world of more than 6 billion people, and some choose to ignore that fact and focus only on stocks in their own country. The logic is sound in that it's easier to track stateside firms if you happen to live in America, because you're closer to the news source. You can kick the tires.
Still, every year there seem to be plenty of overseas markets that outperform the United States' equity market. That doesn't mean you should ditch your American holdings. That wouldn't be very patriotic of me to suggest. However, I am suggesting that a stock or two providing some overseas exposure would help diversify your dependence on the strength of one particular stock market. For me, it's Baidu.com
Every portfolio needs a tear-jerker or two. Whether it's a turnaround situation or one that just cratered, I can certainly vouch for ownership of an onion in my portfolio. When I bought Great Wolf Resorts
Where would we be without ham? I'm talking about stocks that ham it up. These are the companies you feel compelled to talk about at cocktail parties because they're just so cool. Every month it seems as if Rule Breakers has a ham or two up its sleeve. One of my favorite hams is Netflix
So many toppings, so little time
Mushrooms? Pineapples? Bacon? The list goes on. The point is that it's your pizza. Load it up accordingly. And even if you're just a "cheese only" sort of minimalist, order it proudly. Just be on the lookout for fresh, new ingredients that may make you change the way that you ultimately top your pie.
I could go on, but I guess I'll stop the analogy there, because I'd hate to have to face my fellow Rule Breakers research team members, having gone a little nuts and accused them of being Wall Street pizza flippers. They all do such amazing work in ferreting out breakthrough companies. It's why the average pick has gained almost 20% while the S&P 500 has mustered a mere 6% uptick in the same time. Then again, that's also why your next quest for your ideal topping should probably start with a free 30-day trial subscription to see whether that investing style is right for you. Consider it a taste test.
Longtime Fool contributor Rick Munarriz finds that eating, sleeping, and breathing growth stocks will work wonders for your financial health. He does own shares in Jones Soda, Cedar Fair, Netflix, Great Wolf Resorts, and Baidu.com. The Fool has a disclosure policy. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.