Apple Inc. (AAPL) & Netflix, Inc. (NFLX): All In?

As a recreational poker player, I find it exciting to occasionally throw all of my chips on the table and go “all-in.” Sometimes this can pay off, especially during the rare occasion of having pocket aces.

However, this is a concept that I do not recommend with investing, regardless of how much you believe in a company. A disciplined, long-term approach is vital in developing a diverse, well-managed portfolio that will handily beat the market.

I believe that it’s important for each investor to limit their investment in any particular company to a specified level and to make it a personal rule to not exceed this level.  My personal rule is 5%, but this will vary from investor to investor depending on their investing experience, investing style, risk tolerance, and current allocation situation.

 Apple Inc. (NASDAQ:AAPL)

Great temptations

It is very tempting to break this rule with some companies such as Apple Inc. (NASDAQ:AAPL). Apple Inc. (NASDAQ:AAPL) is a perfect example of how capping the percentage of any one holding could save investors a large amount of heartache.

In a relatively short time, Apple Inc. (NASDAQ:AAPL) has fallen 40% to around $430 per share from its all time high of $700 reached during the fall of 2012. When Apple Inc. (NASDAQ:AAPL) was at $700, everyone loved the company and some analysts had targets of more than $1,000 per share. If an investor would have gone “all-in” at that point by risking a majority or all of their portfolio to buy Apple Inc. (NASDAQ:AAPL) at $700, their stress level and amount of sleep would more than likely have been affected in a very bad way.

Apple Inc. (NASDAQ:AAPL) has a current P/E of 10 and after the recent 15% dividend increase, yields nearly 3%. With a payout ratio of 30%, these dividend increases should continue well into the future.

Netflix, Inc. (NASDAQ:NFLX) is another example. Netflix has been on such a wild ride that it could make your head spin.

If an investor would have gone “all-in” two years ago when Netflix, Inc. (NASDAQ:NFLX) was trading near $300 per share, they would have experienced a gut-wrenching downturn to the $50’s. However, if an investor would have gone “all-in” when the stock was in the $50’s during the spring of 2012, they would be more than likely celebrating immensely at a remote beach sipping on an adult beverage of their choice. However, It’s important to note that this would have been a major gamble.

Netflix, Inc. (NASDAQ:NFLX)’s 2012 earnings were down significantly from 2011 earnings due to inappropriately-timed price increases in addition to streaming launches in international markets. The investments to expand its international streaming capabilities should pay off big time in future years. Netflix, Inc. (NASDAQ:NFLX) currently has an impressive 36 million (and growing) streaming customers.