Begin with the End in Mind

This title is borrowed from Stephen Covey’s book The 7 Habits of Highly Effective People. The title says it all. Before you buy a stock or decide to buy stocks and mutual funds, think about what your goals are. Then keep those goals in mind when you act on a purchase, a sale, or do nothing. Obviously, we all want to buy stocks that go up. What is your goal?

Quick money, retirement, building a legacy? What drives your efforts? 

What Purpose do you have with Investing?

We suggest in the book that your portfolio's purpose is to provide additional fuel for your retirement. In addition, you can leave a legacy bequest to your favorite cause or extra funds for your family when you’re gone. We suggest you think of it as money you actively set aside, to double it every five years through a combination of additional contributions and the appreciation of your portfolio. It does require some vigilance, but don’t constantly watch your stocks. 

Once you’re set up a routine, just keep following it for five years and see how you’ve done. You can assess your achievements each year to adjust your strategy, but keep your eye on the prize.

Suppose Your Goal is to create an Artificial Intelligence Portfolio.

You would purchase stocks that are sure to win in this new environment. What is the first thing a new data center needs?  Besides zoning and municipal approvals, you need electricity. You might add a local utility or a stock like Talen Energy Corporation [TLN].

Talen Energy is a new company in the space, headquartered in Houston alongside NRG Energy, another large gainer. So, pick one of dozens of power-generating companies and continue to add to it periodically on a basis you can afford. Then select a chip manufacturer such as Nvidia [NVDA], Broadcom [AVGO], or Advanced Micro Devices [AMD].

Then a memory maker such as Micron Devices [MU]. Then, a support company in the space, such as Nova, Ltd. [NVMI], is headquartered in Israel but operates worldwide. Lastly, a company that makes the servers to run Artificial Intelligence chips, such as Dell, Arista, or Super Micro Computer, Inc. 

What Do You Have After a Year?

This is an example of a narrowly focused portfolio that should do very well over the next five to ten years. But all these stocks will act in lockstep fashion. It is not diversified. It would make a substantial addition to your legacy or retirement portfolio, alongside a balanced IRA. If you wanted to build something for your family, a more diversified portfolio would be better. Keep asking yourself what your goal is. If your goal changes, you may need to review and adjust your portfolio to fit it. A portfolio like this would be akin to being the Captain of the Starship Enterprise.