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We often get questions from our Moby Premium members asking, "what different types of stocks should I invest in?". Our immediate answer usually comes in the form of a few questions.
What are your goals? Are your goals to make as much money and funds as possible through potentially high value stocks? Is it to have a steady stream of income? Is it to preserve your asset class? Is it somewhere in between?
What we are trying to understand here is what  your optimal goal is so we can make the right recommendation.. What investors often do not understand is everyone has different goals, and therefore the right investment or share for one person may not be the right investment or share for another. If someone wants to make a ton of money, we may recommend a risky investment, whereas if someone wants a riskless investment, we will recommend something else! There is no one size fits all answer when it comes to market capitalization!
The second question we often ask is what is your risk tolerance? Can you tolerate the ups and downs associated with certain cyclical stocks? Or do you prefer something that is less volatile?
If the investment was to not work out, could you tolerate losses? When we ask this question, we often are trying to understand how much risk you can tolerate and if the answer clashes with the first question above. If an investor or shareholder has goals of big gains but cannot tolerate risk, then risky investments that have large upside may actually not be for them! This point is very key here. More risk = more potential gains but also comes at the expense of potential larger losses from some stocks and MLPs as well. If you’re wondering, “what is an MLP,” read up on the topic to make sure you’re confident when you begin trading on the stock market.
The third question we often ask is what is your time horizon? Do you want this investment to make you money tomorrow or can you afford to wait over a year?
The reason we ask this is because all investments behave differently. Generally speaking, for more speculative investments, often only over the course of a long time, can we as investors truly know if the value stock will pan out. Whereas for investors with shorter time horizons, the speculative stock then skews more towards the spectrum of "betting" rather than a true investment.
Long story short, until you understand who you are as an investor, it can be unwise to think all ordinary shares fit within your profile. But after understanding who you are, then you can make the right choices.
And so, with that introduction, we are giving our 2 favorite common stock picks for the 3 most common types of investors we run into.
Using the picture below, let's construct three types of investors and what types of investments they should be investing in.
Long time horizon, can tolerate risk, wants their investments to make significant gains: This is a common type of investor we run into. The investor who has time on their side (is generally younger), can tolerate daily volatility and wants to make money over the longer term by stock trading potentially high income stocks.
While there is no "best profile," it often is the easiest for the investor to see the upside, while minimizing risk, over the long term.
For these types of investors, we often recommend growth-type investments that have a slowly growing stock price. Please note that these investments are very long-term in nature (2-3 years plus)!
And for this investor, these are our favorite 2 stock exchange options for them!
1) Twilio (TWLO): Twilio is an American cloud communications platform as a service company based in SF, California. Twilio allows software developers to programmatically make and receive phone calls, send and receive text messages, and perform other communication functions using its web service APIs. While Twilio has grown significantly in the last few years, we believe they are primed to be massive leaders in the space over the long term when it comes to high value stocks.
We have and continue to love Twilio. While the stock price is down huge over the last 12 months, we still have full conviction in them over the long run for anyone who has a trading account with goals similar to Investor 1's profile. Last we spoke about them, we were extremely interested in their CPaaS platform and the Segment + Syniverse acquisition/partnership. Twilio is making significant strides in its "supernetwork" and should absolutely dominate communications for years to come. This is a preference share we're going to be holding for years.
The reason for the growth stock being down is only due to the indiscriminate sell-off we're seeing across all tech names. Things will rebound and when they do, you'lre going to be kicking yourself for not buying opportunities like this when they are on sale.
2) Bitcoin: If you've been following the crypto space for a while now, you may be used to these up and down cyclical stock periods.
If you're newer to the space, just know that this current sell-off is completely normal. As risk on assets sell- off and people flock to safety, crypto is going to get hit. It is completely normal. But similar to stocks like Twilio above, things will rebound even if it seems impossible. And when they do, the rebound for crypto will be hard and fast. See more on our long term outlook here.
Average time horizon, medium tolerance to risk, wants an investment that either offers steady income or gradual gains for their trading account.
For this investor, they are neither growth investors nor are they strictly conservative, institutional investors. They fall somewhere in between and therefore should have a balance of both types of preference shares!
For them our favorite types of stocks are:
1) Palo Alto Networks (PANW) Growth: Palo Alto Networks is an American multinational cybersecurity company with headquarters in Santa Clara, California. Its core products are a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security.
This speculative stock is one of the few tech companies that has actually kept up well during the last year. With the stock up 33% in the last 12 months, PANW shows no sign of slowing down. PANW is actually showing a HUGE amount of revenue growth and is consistently CRUSHING earnings calls. There is no slowdown on their fixed price during this period of companies moving back to in-office models. Read more on our price target here.
2) Lowe's (LOW) Conservative: Lowe's Companies, Inc., doing business as Lowe's, is an American retail company specializing in home improvement. Headquartered in Mooresville, North Carolina, the company operates a chain of retail stores in the United States, and Canada. LOW is a mature company that still offers some upside! We like this investment for this type of investor who wants upside but also wants some income and stability!
Lowe's value stock may be down this year, but the company's business model is still as strong as ever. We strongly believe that the market is undervaluing Lowe's future earnings potential. And the reason for the sell-off is largely due to the general market selling off their redeemable shares as well. If you want to see our long term price target, just click here.
Short-term time horizon, cannot tolerate risk, and either wants big stock gains or gradual fixed income:
This investor requires proper education. For this investor while they may have goals of massive upside, for them risk should ALWAYS dictate the types of investments they seek.
While they may want upside, if they cannot tolerate the risk associated with growth investments, then they should not be investing in them. Period. For this investor, they should be focusing on conservative investments only. And for this investor these are our 2 favorite conservative investments:
1) SPDR S&P 500 Trust ETF (SPY): The SPDR S&P 500 trust is an exchange-traded fund that trades on the NYSE Arca under the symbol. SPDR is an acronym for the Standard & Poor's Depositary Receipts, the former name of the ETF. It is designed to track the S&P 500 stock market index. This fund is the largest ETF in the world. For the short-term investor who is risk-conscious, we actually recommend an ETF that tracks the broader market. That way, if the market sells off, this investment won't do worse than the broader market, and conversely, when it goes up, it also will not outperform. This ETF will help mitigate any single stock risk and help diversify holdings across the general market!
SPY has and will always continue to make sense as an investment. With the market averaging 10% returns annually over the last 70+ years, investments like SPY come with much less risk. Since outperforming the market is hard enough on its own, investing a portion of your portfolio in an index like this, is a surefire way to make sure that you're always participating in the broader exposure to market upswings. While it is a boring pick, it is right for most investors to hold in their portfolio.
2) Microsoft (MSFT): Microsoft Corporation is an American multinational technology company with headquarters in Redmond, Washington. It develops, manufactures, licenses, supports, and sells computer software, consumer electronics, personal computers, and related services. MSFT is a staple in the technology world. Transferring from selling software to selling software as a subscription (SaaS), MSFT has been able to weather any storm that comes their way. MSFT should see upside over the future, but also is a blue chip name that comes with less risk than other younger technology companies.
There are 3 things that are always guaranteed in everyone's life. That is death, taxes, and that Microsoft (MSFT) always goes up. Kidding aside, MSFT has been proving the market wrong ever since its IPO. With the stock up 265,420% since its IPO, MSFT has been on the road to stardom during its entire public life. Always adjusting with the times, MSFT will continue to be a market leader for years to come. While this pick will not make you rich overnight, it will appreciate, pay out income and be one of the safer tech stocks in your portfolio management. See more on it here.
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