Crafting a Chaotic Stock Portfolio

July 23, 2012 Printer Friendly Printer Friendly

I started investing as a child with a very small portfolio, handled by my father. I was not an active investor, nor an informed one. I handpicked companies with which I was familiar, including CAT (recommendation of my father), COST (so much fun to shop at), and BN (my favorite store throughout childhood). This disorganized collection had its ups and downs, and ultimately netted a small gain.

I’m spending my summer interning with Stock Rover, and I tried to use slightly more thought with my Stock Rover portfolio for our internal competition. I took the approach of investing in stocks with promising potential, like high margins and low P/E and P/B ratios, and studying the news to discern how and by what companies would be affected. I had high hopes that my portfolio could bring to me the victory of a Starbucks gift card.

Among the interns here at Stock Rover, my portfolio is affectionately referred to as “the haphazard portfolio.” My portfolio is a motley crew of 11 stocks in 5 different sectors and 1 ETF. Take a look at my stock portfolio below:

Emily's Portfolio

To assemble a well-diversified portfolio that could have short term growth, since my investment horizon had to match the brief duration of my internship, I focused on the recent news stories about companies (preferably good) as well as their fundamentals (preferably good value) and potential for momentum (preferably high). Some companies I stumbled upon through Stock Rover’s screener, others popped up in relevant news articles, and some companies strike a personal chord with me.

My top performing stock, in terms of percentage gain, is j2 Global (JCOM). This software company offers cloud-based services for businesses, and it was one of the first stocks I looked into. I was drawn to JCOM by its high margins and abundance of liquidity, which was immediately noticeable in Stock Rover’s insight panel. Its gross margin, operating margin, and net margin all exceed those of the software infrastructure industry and of the S&P500:

JCOM Profitability

In addition, JCOM is highly liquid—it has zero long term debt and quite high free cash flow. JCOM looked fairly undervalued, with lower-than-industry values for P/E and P/B ratios. It had been doing pretty poorly when I first looked at it, having fallen about 14% from the price at the beginning of the year, so I thought it would be a good value. I bought 3,200 shares of JCOM in the hopes that it would experience some growth and keep my portfolio in the black.

JCOM Chart 1

As of today, JCOM has shot up over 20% since I first added it to my portfolio. Part of the jump can be attributed to its higher-than-expected second quarter results, a pleasant surprise for me. It’s risen slowly since the start of the contest, but the significant jump occurred on Monday, July 16.

JCOM Chart 2

One of my biggest losers, percentage gain-wise, is Chinese search engine Baidu (BIDU). When creating my portfolio seven weeks ago, I knew this would be a risky and overpriced (P/E of 32.8, P/B of 14.2) stock. Based on the recent declines and investors’ worries about China, I was pretty sure that the price would fall in the eight weeks of the contest. I’m a risk taker, however, and I was buoyed by its June deal with Apple and its impressive presence in the Chinese market. My curiosity got the best of me and I added a small amount, 400 shares, to my portfolio on a whim, just in case it skyrocketed.

It did not skyrocket. As expected, it crashed on earth and was unfortunate for my portfolio. Its value declined more than 12% since I added it to my portfolio; I’m just glad that I didn’t put too much capital in that stock.

BIDU Chart

My patchwork portfolio is currently making respectable, albeit small, gains. With a few hits and a couple misses, it’s gained a decent amount of money, keeping me in the running for the holy grail of a Starbucks gift card. This internal contest has been quite the learning experience for me; it’s difficult to select stocks given such a short time horizon, and it’s refreshing to see that my pick with the strongest fundamentals also had the strongest performance.