The Coca-Cola Company (KO), Wal-Mart Stores, Inc. (WMT): Stock Pundits Are Drug Dealers, It’s Time for Portfolio Rehab!

Page 1 of 2

Drug Dealers, of all shapes and sizes, prey on the weak and the needy. But before they can sink their claws into their cash cows, they need a drug and an addict. They need that addictive thrill and thrill seeker to exploit.

I believe the financial media in this country has turned into a Drug Dealer, they’re giving you a short-term thrill and ruining your (financial) health in the process. Here’s why, and what you can do about it.

Like a Drug Dealer, the financial media has you trapped in a vicious, destructive, cycle

There’s a dangerous cycle that starts the moment investors tune in to financial network “news” and watching their investments too closely, it goes like this.

1. We tune in to CNBC (or Fox Business, etc.) way too frequently, which makes us track the short-term performance of our stocks too frequently

2. As stocks gyrate up and down the financial media looks for reasons to explain why, when often there are none. We can’t get enough of this. We let these “stories” and headlines evoke fear and greed inside us.

3. We then proceed to buy (high) and sell (low) at the absolute worst time, because that’s what the TV is telling us to do. The “Experts” also start to convince us that we can miss every correction and cash in on every rally by chasing technicals and trading frequently.

4. Then, we the individual investors proceed to underperform the market by more than 7%.

The numbers back it up, over the past twenty years; the market has gained in excess of 10% per year while individual investors have earned a meager 3%. And it’s all because we gave in to mankind’s oldest addiction: trying to predict the future and rationalize the past.

Like a Drug Dealer the financial media tries to make your risky behavior seem acceptable

So much has been made of diversification in recent years. The financial media tells you that you’ll achieve safety through buying many “safe stocks.” I don’t see it that way.

The truth is a “dividend stock” or a “safe stock” is a stock that has little or no upside, while still having the same risk all individual stocks have—it can go out of business. Owning many companies that fit this bill isn’t safe. I understand the merits of diversification, but why, in the age of ETF’s is anyone still looking for diversification through buying individual stocks which carry unlimited risks?

The Rehab Portfolio

Ok fellow Fool, to get clean the first step we need to take is at least matching the market averages. I truly believe that the individual investor loses to the market because they get spooked (thanks to headlines) into selling they’re stocks at the absolute worst time. So why not commit half of your funds to well diversified ETF’s or Index funds that will match the markets return?

The reason is simple; an Index isn’t going to go bankrupt (barring an asteroid or alien invasion) so you can contribute to it each month without selling. I prefer Vanguard MSCI Emerging Markets ETF (NYSEARCA:VWO)’s because their fees are miniscule; here are a few you should consider.

Why not consider Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), which has a 2.17% yield, and only a .13% expense ratio? If you’re interested in having diversification and dividend exposure, this is a great place to be. The fund holds business like Wal-Mart Stores, Inc. (NYSE:WMT), The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and more with good dividends and growth prospects to increase them even more.

Coca-Cola Enterprises Inc (CCE)Image: The Coca-Cola Company (NYSE:KO)

Want even more safety and diversification? Well, Vanguard FTSE Emerging Markets ETF can get you the international exposure needed for a truly diversified portfolio. The fund invests in companies like China Mobile Ltd. (ADR) (NYSE:CHL), Samsung, Taiwan Semiconductor Mfg. Co. Ltd. (ADR) (NYSE:TSM) but you’ll skip the risk of investing in individual firms in companies whose rules you’re unfamiliar with. The fund offer a 2.4% yield with only a .18% expense ratio.

And to offer some upside with your diversification, I’d recommend Vanguard Small-Cap ETF (NYSEARCA:VB) the fund has an expense ratio of just 0.10% and tremendous upside. It’s bounced between a 52-week range of $69.43 – $91.72, a 42% variance. The fund owns small, cyclical, stocks so if you’re buying into it consistently you know that you’ll catch some of that upside—but again—it won’t go down to zero, so you shouldn’t get spooked out of it.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

On the Move: The 10 Fastest Growing Businesses in 2015

Fast Money: The 10 Highest Paying Fast Food Restaurants

Mixing It Up: The 14 Best Music Mashups of 2014

Rito Pls Buff: The 10 Least Played Champions in LoL Season 4

10 Covers of Popular Songs that are Better than the Originals

Must See TV: The 9 Most Anticipated Shows of 2015

The 15 Biggest Box Office Bombs of All Time

10 Things The World Can’t Stand About Americans

Picture Perfect: The 6 Smartphones with the Best Cameras

The 10 Best Countries To Work In the World

A Profitable Day At The Track: 5 Tips For Betting On Horses

Tearing You Apart: 6 Bad Habits That Ruin Relationships

Learning on the Job: The 6 Biggest Mistakes Parents Make

Shopaholics Rejoice: The 12 Biggest Malls in the World

Fright Night: 10 Horror Movies Based on True Stories

Mach Mania: The 10 Fastest Jets in the World

Military Heavyweights: The 10 Countries with the Most Tanks

All In: The 7 Richest Poker Players in the World

Abracadabra: The 10 Best Magicians in the World

The 10 Richest Asian Countries in the World in 2014

Eyes in the Sky: 10 Things You Need to Know About Drones

Rising Stars: The 6 Best Silicon Valley Startups

Military Muscle: The 5 Most Advanced Armies in South America

All that Glitters: The 7 Most Luxurious Jewelry Brands in the World

5 Things You Didn’t Know About ISIS but Should

Empowering Your Money: The 5 Best Energy Stocks to Invest In

The 11 Best Android Apps You Can’t Get on iOS

The 10 Most Important International Conflicts in 2014

Mood Enhancers: The 20 Most Uplifting Songs of all Time

Lover Beware: The 8 Countries that Cheat the Most

Breath of Fresh Air: The 25 Countries with the Best Air Quality on the Planet

Singles Beware: The 8 Worst Mistakes Made on First Dates

Healthy and Happy: The 10 Countries with Lowest Healthcare Costs

The 6 Best Company Team Building Activities to Build Workplace Camaraderie

Ships Ahoy: The 10 Busiest Shipping Ports in the World

10 Productivity Tips to Save You Time and Help You Do More With Less

Grab a Bite: The Most Popular Fast Food Restaurants in America

Friday Night Thirst: The 10 Most Popular Cocktails in the World

The 6 Greatest Unsolved Mysteries We May Never Figure Out

7 Useless Products You Never Should’ve Bought

The 5 Reasons Why You’re Single and Miserable

The 7 Most Addictive Foods in the World We Can’t Stop Eating (Even Though We Should)

5 Amazing Places You Can Swim with Dolphins

The Top 7 Most Livable Countries In The World

The 10 Most Expensive Baseball Cards Ever Pulled From A Pack

The 5 Easiest Second Languages to Learn for English Speakers

Silver Spoon: The 6 Richest Families in the World

The 20 Countries with the Largest Prison Populations in the World

The Top 10 Richest Actors in the World

The 10 Best Airline Stocks to Invest In Before They Fly Too High

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!