Building a Cocktail Party Portfolio

Written by Nickel - 16 Comments

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As you may or may not know, I’m a huge fan of passive, index-based investing. That being said, I do realize that the stock market can be a popular topic of conversation, and that it can be considerably more fun to talk about the latest hot stock (or total dog) than about your Vanguard Total Stock Market ETF (VTI) holdings. So what’s a level-headed, responsible investor to do? I mean, sure you want to fit in, but do you really want to build a stock portfolio just so you have something to talk about the next time someone asks how your stocks are doing?

Well, wonder no more. I have the answer…

Before we go any further, I should say that I started writing this with my tongue firmly planted in my cheek. However, the more I think about it, the more this sounds like it might be kinda fun. So, here goes…

Simply open an account with a free online brokerage such as Zecco and pick out a basket of low dollar stocks. Set a ceiling of, say, $10/share and then pick up just one share of each. If you focus on companies that you (and others) have heard of, such as Ford Motor Company (F), Sprint Nextel (S), Countrywide Financial Corporation (CFC), or TiVo, Inc. (TIVO), you’ll fit right in at the next cocktail party.

Keep in mind that I’m not necessarily saying that any of these companies are going to be good investments. Rather, I’m just saying that they’re well known and cheap enough that you can pick up a share apiece from ten or twenty such companies and still keep your total portfolio cost well below $100-$200. And who knows, you might learn a thing or two about investing along the way.

Note: While Zecco requires a minimum account value of $2500 to qualify for free trades, once you have your shares, you don’t have to maintain that sort of balance. Alternatively, you could just lie and tell people about your fictitious portfolio. Or be boring.

Published on February 11th, 2008 - 16 Comments
Filed under: Saving & Investing
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

16 Responses to “Building a Cocktail Party Portfolio”

1
geo Says:
February 11th, 2008 at 9:15 am
How about a single share of Apple Inc. stock for circa $130? Plenty of cocktail cachet, and in a stock that might actually go up!
2
Johan Ericsson Says:
February 11th, 2008 at 11:52 am
And don’t forget all the fun you will have keeping track of the basis for your taxes…
3
ChristianPF Says:
February 11th, 2008 at 1:14 pm
I think I would suggest using a similar approach that is just about as boring as indexing, but could still get you some company names to around at the party… Dogs of the DOW method. It is very simple and has been a good method if used in an IRA
4
My Dollar Plan Says:
February 11th, 2008 at 3:58 pm
It makes me wonder how many times people said they owned Enron at a cocktail party back in the day!

We invest in the total market…. boring! But I do belong to an Investment Club, so I could always spout off those holdings if needed.
5
Ria Rhodes Says:
February 11th, 2008 at 4:41 pm
“I’m a huge fan of passive, index-based investing.”

Me too, but some index fund investors try to get to cute with a good, simple concept, by: 1. collecting too many index funds, 2. trying to chase performance, and by 3. shifting their allocations to favor one or two sectors. The current darling in the game is to load up on International exposure with allocations from 20% to up past 50%. I’ve read several ‘respected’ indexers suggesting 40% international as appropriate for most small investors. I believe this is a mistake, and 20% is more appropriate for most investors.

A spin over to: http://www.diehards.org

demonstrates that some indexers are still hunting for that elusive edge to increase their portfolio returns, but fortunately most remain committed Bogleheads.
6
KC Says:
February 11th, 2008 at 4:55 pm
I follow the stock market almost religiously for someone who is an amatuer. I just find it an interesting subject, I have CNBC on all day and I read investment books often. I even check my portfolio 3-4 times a day (which is not good advice for most people). Anyway, most would look at my portfolio (index funds and dividend payers) and say “BORING!” But I know enough that I can hold my own talking at just about any cocktail party. I’d recommend that approach – its cheaper. Just know about stocks and sectors and you’ll save money and still seem sociable.
7
Chief Family Officer Says:
February 11th, 2008 at 10:11 pm
What a fun idea! And it hadn’t occurred to me to temporarily put $2500 in Zecco, then take it out after I’ve made my trades. I’m going to have to remember that tip – thanks!
8
Sam Says:
February 12th, 2008 at 8:06 am
I have decided that I’m going to invest my IRA monies ($4000 for 2007) in individual stocks. I also max out my 401k and 90% of my 401k monies is in funds. The first stock purchase that I made last week was for a local biotech firm and the stock was less than $4 a share and I bought 100 shares. I’ve got some other stocks that I’m watching (companies that my husband and I use and or like) and hope to buy some more stock soon. We plan to buy and hold the stock that we pick up.

I can tell you, that for me, buying and watching individual stock is way more exciting than buying mutual funds or index funds. Since I’m only budgeting $4000 in stock purchases I’m not too worried about the performance.
9
planner Says:
February 12th, 2008 at 11:24 am
I watch the market and enough individual stocks to have plenty to talk about even though my investments are currently all Vanguard funds in retirement accounts. It wouldn’t be a lie to say you invest in them either, do you know how many interesting companies and sectors are covered by the SP500 index?

I wouldn’t buy shares just to say I owned them more than I would buy a specific car or television just to say I owned that type. Many people are impressed with those types of things though, so it is an interesting idea, and a relatively cheap way to buy something to impress people.

Another suggestion would be to get in on the Cramer hype, pick a few stocks that get some press, and do the type of homework he suggests. Then you can talk about popular picks but have enough detail to impress people who only know the news and hype.
10
Jon Says:
February 12th, 2008 at 2:02 pm
Or just open a CAPS account at fool.com. It’s free, fun, and makes a game out of stock picks- without any monetary risk. I’d much rather “have fun” for free.
11
zook Says:
February 12th, 2008 at 7:14 pm
Sam, you are making a mistake but it looks like you know this already. Who says you can’t buy a target retirement fund from Vanguard AND follow the market?
12
Kirk Says:
February 12th, 2008 at 7:33 pm
For Ria,

International exposure isn’t a fad; it is a necessity. Over 50% of the world’s capitalization is outside the US now. So an investor who ignores international equities is giving up on 50% of the world’s investing options.

Twenty percent is a good percentage, but a recent paper that can be found on Vanguard’s site says 30% is optimal. While 40% might even be better, Vanguard claims the cost of investing outweighs the gain so 30% is best.

But, I think adding REITs and commodities is also essential for a portfolio. Both have low or negative correlations to US stocks and bonds.
13
thomas Says:
February 13th, 2008 at 1:45 am
I prefer talking about all the investments I never pulled the trigger on – GOOG, YHOO, and many more.
14
Ria Rhodes Says:
February 13th, 2008 at 3:09 pm
Comment by Kirk:

“International exposure isn’t a fad”

I didn’t say it was.

“Twenty percent is a good percentage, but a recent paper that can be found on Vanguard’s site says 30% is optimal.”

Please provide a link/url (Vanguard ‘paper’ you mentioned) to the information you mentioned so readers can follow up information. As far as I know, Vanguard has most recently advised most smaller investors to stay close to a 20% International allocation, as increased allocations on up to 50% show greatly diminished
advantages in lieu of the risk/return vector.
I recommend a Vanguard PDF file (’Portfolio Construction for Taxable Investors’ – disregard the word ‘taxable’ in the name, as this is an excellent educational tool for most people needing sound advice) which offers a concise guide for modern portfolio construction.
15
Nicole Says:
February 15th, 2008 at 10:59 am
Sorry. Not impressing people at cocktail parties is how I can tell that I’m in the right investments.
16
Kyle Says:
April 28th, 2008 at 10:50 am
Ria and Kirk,
Measurements of “optimal” allocations are by neccessity backwards looking. What was optimal over the last 20 years is unlikely to be optimal going forward, so we can safely dismiss all papers on the subject as speculation, not fact. I personally invest 40% of my assets abroad, not because I think it’s an optimal number but because I think it’s a sufficient allocation. Besides, after I got finished rounding out my domestic portfolio, 40% was what I had left. Perhaps not the most scientific method of portfolio determination, but I’d be willing to bet it will do every bit as well. The biggest enemy of a great plan is the search for the perfect plan.

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