Building a Stock Market Portfolio by Theme

Even with alternative investing in mind, many investors, including ourselves, keep some amount of capital in public market investments. There’s potential for considerable upside, though typically less than alternative investments. There’s no control of the investment, both in the sense that you can’t control the company’s performance nor how the market reacts, which may or not be in line with the company’s performance.¬† Though the higher liquidity is nice both as a piece of mind and potential to get out of bad investments quickly.

There’s a number of ways to go about constructing a portfolio. From a basic perspective that including roboadvisors, human advisors, handpicking index funds, and handpicking individual stocks. Of course, it’s also possible to use some combination of these styles.

Personally, I’m not a big fan of losing control of where my money goes, such as the case with index funds. There are a number of companies with which I’d prefer not to be associated with, either for business or personal reasons, so I’d rather handpick individual companies, much like I do with individual alternative investments. In some cases, this isn’t feasible due to a lack of knowledge of individual businesses or difficulty in investing in specific businesses.

Actively selecting individual securities is a mostly outdated style, though the tools and info make it easier than ever to be informed and to act (buy/sell). For us, it’s about investing in good companies in trending areas ripe for growth. The themes were following for 2018 include:

  • fintech – technology is completely changing finance. this includes roboadvisors but is much more than that including payments, funding, etc.
  • crypto – it may be a bubble yet that could still grow significantly before it pops. regardless, there’s new technology and it will have major implications. many existing public companies are already involved.
  • marijuana – things may be volatile in the U.S. under Trump/Sessions. Still seems inevitable at some point in future that this will be federally legal. For now, Canada offers some options as it’s scheduled to be federally legal there in july.
  • ecommerce – this has grown every quarter for over 13 years as a percentage of total retail sales. amazon is the leader, still growing but largely outside of retail. more and more business is done online.
  • automation – things are getting automated, jobs are changing. it’s inevitable. companies that take advantage of this will will.
  • cyber security – more attacks likely in the coming years. security becoming a bigger concern to companies. more resources being allocated to security.
  • technology – there’s a general pro-technology consumer market that wants the next device constantly. this may not always be the case but for now people willing to give significant resources (time, money) to technology. recently, there’s been some pullback in terms of news stories, but usage and spending hasn’t diminished at all.
  • non-meat foods – includes organic produce, healthy grains, and meat-replacement solutions
  • pro-women – companies that are very pro-women will benefit from both publicizing their message and making their organization very fair and open
  • china – huge and growing middle class market.

The next step is to find companies working in these themes.¬†They may not be 100% focused, but should a leader in that area, giving them room for substantial growth as the market grows. We’ll look more at individual selections in a later post.

 

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