Picking individual stocks is not for the faint of heart. In fact, bulk of your investments should be in well diversified low cost index ETFs. Knowing which stocks will be winners or losers in the future is tough to predict.
But most of us can’t resist the urge to pick stocks. I am not infallible to this human trait. Today, I will take you behind the scenes to show you how my method of Moonshot Investing..
I have made plenty of mistakes in the past and lost money on individual stock picks. In fact, here are my 4 worst investments. Now I typically stick to sectors or companies I understand; and believe would do better than the average market.
To reiterate, investing in Moonshot stocks is less than 10% of my portfolio. It is an asymmetric risk like my Bitcoin investment. If it all goes to zero; I have no regrets. At the very least, I would be entertained. And learnt not only about investing; but also about my risk tolerance.
What Is Moonshot Investing?
Moonshot investing is investing in companies you believe will have a meteoric rise. It is based on identifying a trend. And knowing that the market will rate the companies much higher eventually.
Invest wisely but don’t be afraid to take some risk. I often see investors pile into old and safe companies without paying attention to how the world is changing around them.
Skate to where the puck is going, not where it has been.Wayne Gretzky
When we think of meteoric investments, most of the headlines focus on early stage technology companies, angel investors, accelerators, incubators, entrepreneurial founders and Silicon Valley Venture capital firms.
But there are also unicorns in the public markets which are accessible to everyone. Most of them have founders who still execute like start-up companies. And not all of them are based in the sexy areas of artificial-intelligence, machine-learning, biotech, crypto, etc.
A classic example is when cars started shifting from gas guzzlers to more environmental friendly options. When California started issuing car pool stickers to environmental friendly vehicles, it indicated the trend was here to stay. And if you caught that trend, then it was easy to invest in companies at the forefront of that revolution.
What Are Moonshot Companies?
Moonshot companies are the basket of companies or a single company that you believe will capture a lions share of the new trend.
If we continue with the environmentally friendly vehicle trend, there was a clear sign that hybrids and electric vehicles would benefit. Investing in those options over the last decade would have rewarded you.
Similarly, there was a trend with energy drinks. Individuals wanted a canned drink which would help them throughout the day. Or when performing certain activities. Red Bull, Monster energy, etc came on the scene. Monster Beverage corp was $0.87 in 2005. It sky rocketed to over $180.
Today, we have a trend of remote working. Employees prefer to work remotely and not spend time commuting daily. Employers can avoid expensive office space by providing employees work from home options. It is a win-win situation for both employees and employers.
Based on the remote working trend; we can invest in companies which help employees work from home. Of course, the downtown commercial office space REITs are the losers. So you can avoid them.
Please note that I am only showing this behind the scenes look to give you a better idea with examples of how I invest. It is in no way, shape or form a recommendation on what you should buy, sell or hold. Past performance is no guarantee of future performance. Consult a licensed investment professional.
Avoiding Price Volatility in Moonshot Companies
One of the biggest challenges of Moonshot companies is that they suffer from tremendous price volatility. These are established companies but it is hard to value the business. They tend to function more like startups. Continuously pivoting based on not only the changed business environment; but also their understanding of future trajectories of growth. Moonshot companies have several bets into the future which might or might not pan out. Hence the name Moonshot
Let us take Netflix as an example. Initially they started with mail order DVDs. Then they moved into streaming. Now they are like a movie studio producing Original Content. Netflix had a monstrous decade but even if we exclude that time period you can see the price volatility.
Amazon started as a retailer of only books. It then expanded to the “Everything store”. Now home grown technology of AWS makes up a significant part of it’s revenue. The recent acquisition of Pill Pack indicates a push into healthcare. Here is the Amazon price chart over a similar period excluding the last decade. As you can see, Amazon peaked during the dot com boom. It then crashed and slowly made it way back up and surpassed the peak. This kind of the price volatility leads us to second guess ourselves when investing in moonshot companies. After all, few would have had the discipline to continue holding to such stocks; let alone keep buying it.
Analysts using traditional metrics to value Moonshot Companies fail to realize the tectonic shift in trend. And the work which has been done years in advance at these companies before the markets sees it.
“When somebody congratulates Amazon on a good quarter … I say thank you. But what I’m thinking to myself is … those quarterly results were actually pretty much fully baked about 3 years ago”Jeff Bezos
What Is Dollar Cost Averaging?
Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases to reduce the impact of volatility on the overall purchase.
The purchases occur regardless of the asset’s price and at regular intervals. In effect, this strategy removes the work of attempting to time the market.
Dollar Cost Averaging is not a new concept. Your paycheck at work is invested in a similar fashion into your 401(k).
Using Dollar Cost Averaging For Moonshot Investing
Dollar Cost Averaging is a way for an investor to neutralize price volatility. The main benefit of Dollar Cost Averaging is that you buy less shares when prices are high, and buy more shares when prices are low. The goal is to buy more shares at a lower average cost per share over time.Moonshot investing involves a combination of luck and skill. Automated dollar cost averaging helps reduce the price volatility. Click To Tweet
How Has My Moonshot Investing Portfolio Performed?
In a year, the selected stocks I picked; resulted in over a 95% return. The market has been on a tear lately; but this is much higher than most indices.
Here are the stocks in my portfolio. Again this is not a buy, sell or hold recommendation. It is only an example how I approach investing in companies while minimizing any behavioral biases Past performance is no guarantee of future performance. Consult a licensed investment professional.
How To Setup Moonshot Investing Portfolio
I setup my moonshot investing portfolio using my favorite investment platform M1 Finance.
- If you do not already have an account, use my affiliate signup link
- Determine how much you want to invest weekly. Let us assume you decide $100.
- Pick your favorite moonshot companies. Can be any number.
- Decide how much % you want to invest in each company. To make it simple let us assume you pick 5 companies and decide on equal %.
- Week 1 – Your $100 is divided equally among all 5 companies and used to buy stocks
- Week 2 – Assuming company 1 goes up a lot; your $100 from week 2 is used to only buy the other 4 companies. This ensures that your moonshot portfolio is balanced automatically.
In my case, Tesla has had a monstrous run over the last month. So the Actual % of my portfolio (25%) is a lot higher than my Target (14)%. All future weekly contributions will go to my other stocks till they reach the desired target value.
This ensures that I don’t buy Tesla at the peak and instead buy others which are at a comparatively lower price point.
Summary Of Moonshot Investing
Moonshot investing involves a combination of luck and skill. It satisfies our urges to pick individual stocks based on trends. The method of investing I use has helped me reduce the price volatility. I consider this investment to be speculative and allocate only a small part of my portfolio to it.
Readers, do you pick stocks in your personal portfolio? If yes, what strategies do you use? Have you benefited from following trends as I do with Moonshot Investing?
John came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
John started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. He resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
M1 Finance: John compared M1 Finance against Vanguard, Schwab, Fidelity, Wealthfront and Betterment to find the perfect investment platform. He uses it due to zero fees, very low minimums, automated investment with automatic rebalancing. The pre-built asset allocations and fractional shares helps one get started right away.
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Fundrise: One of the top real estate crowdfunding platforms for non-accredited investors. Sign up for free and look at passive real estate investment opportunities with low minimum (only $10).
DiversyFund: is an excellent choice for non-accredited real estate investors with low minimum (only $500) offering automatically reinvested dividends.
Streitwise is available for accredited and non-accredited investors. They have one of the lowest fees and high “skin in the game,” with over $5M of capital invested by founders in the deals. It is also open to foreign/non-USA investor. Minimum investment is $5,000.
PeerStreet has a low $1,000 minimum, which allows for better diversification for real estate accredited investors. You can define the criteria based on rate, LTV, duration, etc., and use their automated investing feature to place you into investments that match your criteria. Or manually select the investments.
Credible: If you have been paying high interest on credit cards, car financing, etc.; check out personal loan rates from up to 10 vetted lenders in 2 minutes for options to lower interest cost.