If you’re going to own individual stocks, own these three

A friend asked me about investments recently after moving jobs. My recommendation was to invest all her retirement assets into a target date fund and avoid individual stocks.

But she wanted to feel like she was playing in the market and passive investing through mutual funds didn’t satisfy that craving.

These are the three stocks I recommended to her:

  • Apple. Yes, it’s the world’s most valuable company. Yes, it’s huge. But it can come up with hit after hit. It has a loyal fan base. Even in light of low-priced competition from Android handsets, Apple has remained resilient for years. It has eco-system lock in. If you’ve bought one Apple product, you’re likely to buy more Apple products.
  • Facebook. The company has almost (see below) unparalleled lock in. International growth will continue. More importantly, the company stands to benefit from maturation of ad systems in international markets. The company also has largely untapped opportunities in payments and video.
  • Google. It’s the best advertising engine to date. Google has diversified into many product lines. Yes, the bulk of the money is in search. But it has a strong product position in other spaces.

All of these companies have the flexibility to think for the long term, instead of chasing earnings quarters. They have strong CEOs who aren’t going anywhere.

This doesn’t mean that you won’t lose money over the short term. There will be short term volatility, as is the case with all stocks in the age of the Internet and high-frequency trading.

But if you buy small chunks over time and focus on the long term, you should do well.

Again, this should only be done with play money for the feeling that you want to trade stocks. The bulk of your assets should be in diversified mutual funds or exchange-traded funds.

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About Rakesh Agrawal

Rakesh Agrawal is CEO of redesign | mobile. Previously, he launched local and mobile products for Microsoft and AOL. His personal blog is at http://blog.agrawals.org and tweets at @rakeshlobster.
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