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Avoid Allocating a High Percentage of Your Portfolio to a Polarising Stock (No Matter How Good Its Fundamentals May Be).

Updated: Apr 25

Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.


In the world of investing, diversification can be useful. This means spreading your wealth across different asset classes and companies to minimise risk & volatility.

Today, we'll delve into a specific aspect of diversification: avoiding overexposure to polarising stocks.

The Peril of Putting Too Much Faith in Elon

Let's be honest, I've made mistakes. One was allocating a whopping 50% of my portfolio to Tesla. Tesla is undeniably a fascinating company with great fundamentals, but it's also undeniably polarizing. Its success is intricately linked to its outspoken leader, Elon Musk. While Musk's charisma is undeniable, he's also cultivated a significant number of adversaries.

From established auto giants to tech titans like Bezos and Gates, Musk has ruffled feathers. He's clashed with the SEC, Wall Street, and even politicians. His tweets have a reputation for causing market ripples, and his recent acquisition of Twitter with a dramatic staff cull only reinforces this image.

Personally, I find these aspects of Musk intriguing.  His authenticity and willingness to challenge the status quo might be precisely what makes him a successful leader for the companies he is running. However, the reality is that the public perception can be quite different. Many people prefer a more conventional leadership style, and Musk's antics can breed unease or even dislike.

Over the short term the market is a voting machine, but over the long term it’s a weighing machine. - Benjamin Graham

Metamorphosis of a Social Media Giant: A Case Study

Meta (formerly Facebook) is another example of a polarizing company. The Cambridge Analytica data scandal badly tarnished their reputation. They've been fined for violating EU data privacy rules, and their strategy of copying competitors like Reels from TikTok and Threads from Twitter hasn't exactly endeared them to users. Additionally, their heavy investment in the Quest VR platform hasn't yielded immediate returns. The result? Their stock price remained stagnant for nearly seven years, from mid-2015 to late 2022. Their recent surge can be attributed to strong earnings reports and their perceived leadership in the AI space.

The Allure of Neutrality: Why Apple Stands Out

Companies like Apple, on the other hand, are perceived as more neutral. Tim Cook's buttoned-up leadership style resonates well with Wall Street. This neutrality allows even giants like Warren Buffett to comfortably hold a significant portion (around 50%) of Apple stock in their portfolio, despite the looming threat of antitrust lawsuits.

The Takeaway: Embrace Diversification for a Balanced Portfolio

By now, the message should be clear: Avoid concentrating your portfolio on polarizing stocks, unless you have a huge appetite for volatility. While their potential for high returns can be alluring, the associated risks may be substantial. Remember, diversification & smart allocation amongst several promising assets may be a better strategy. Spread your investments across various companies and asset classes to create a more balanced and resilient portfolio. This way, you can weather market storms and achieve your long-term financial goals.



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