Everyone knows the old Wall Street adage: A bull market makes
every investor a genius.
While the stock market has been on a roller-coaster ride in
the daily picture, looking back over the past two years reveals a
powerful uptrend in the major U.S. stock indices.
This uptrend has been a blessing for many long-term investors.
However, the downside is that the nearly nonstop bullish move has
created overconfidence in more than a few investors. It has also
created confusion as investors are wondering if the bullish
environment will change and how to manage portfolio allocation
and diversification in such a great market.
While this confusion is certainly understandable, there are a
few time-tested ideas that will keep your portfolio on the right
track regardless of market conditions.
Regular StreetAuthority readers know about our primary
investing themes of long-term growth combined with dependable
dividend income. Above all, we emphasize the importance of
portfolio safety while aiming for maximum growth and
True diversification is the key factor to maximize portfolio
safety while at the same time exposing your portfolio to the
potential of rapid growth. Anyone can invest in either safe or
riskier high-growth stocks. The trick is to find a balance that
you are comfortable with as well as making objective
Andy Obermueller, chief investment strategist for
, teaches that the percentage of your portfolio for allocation to
aggressive growth stocks should be at least 10% but never more
"This is enough upside potential to move the needle on your
overall portfolio without shouldering an excessive amount of
downside risk. ... This doesn't mean that the other 80% to 90%
of your portfolio can't seek growth -- it only means limiting
exposure to the most aggressive securities."
Andy's pedigree includes picking more triple-digit winners
than just about any other analyst over the past few years, so he
speaks from successful experience. I wholeheartedly agree with
Andy's ideas in this regard. The 10% to 20% aggressive growth
idea is valid across most stock market conditions. However, it
should be tweaked within the 10% to 20% parameters depending on
your personal read of the market.
Obviously, in bullish conditions, allocations should lean
toward the upper percentage in aggressive growth. Tuning down
your exposure to aggressive-growth stocks during slow periods is
also a wise decision. However, since no one knows the future,
maintaining at least a 10% exposure will keep you from missing
unforeseen bullish moves.
Now that the critical subject of portfolio allocation has been
addressed, what exactly are aggressive-growth stocks? Like the
name suggests, aggressive-growth stocks are those that have or
are expected to exhibit yearly double-digit percentage returns.
In other words, aggressive-growth stocks are the fuel that will
push your portfolio returns from average to
However, along with that return trajectory comes equivalent
risk. As explained earlier, this is why the general rule of 20%
maximum portfolio exposure is a wise move.
Now, let's get practical. Here are two aggressive-growth
Methode Electronics (
Founded in 1946, this Chicago-based electronic subsystem
manufacturer and marketer provides components and subsystems for
a diverse client base stretching from automobiles to
One thing that attracted me to this company is the fact that
it pays a small dividend. The five-year average dividend yield is
2.9%. The company has consistently beaten estimates over the past
several quarters and is expected to continue its strong growth.
Exploding from the $8 range to nearly $28 in 2013, this stock has
returned more than 300 %, placing it firmly in the aggressive
Primecap Odyssey Aggressive Growth (Nasdaq: POAGX)
This aggressive-growth mid-cap fund is made to order for
investors who prefer the diversification already inherent in a
professionally managed product to building their own portfolio
with individual companies. It can also be used to add another
layer of diversification to your personal portfolio.
The fund is up nearly 36% so far this year and 44% over the
past 52 weeks. It requires a $2,000 minimum initial investment,
then $150 minimum subsequent capital addition.
Risks to Consider:
Aggressive growth equals high risk. There is no way around
this fact. This is why the 10% to 20% rule is so important in
most situations. Stop orders and diversification become even more
important in hyper-growth stocks.
Action To Take -->
I like both the POAGX fund and Methode Electronics right now. It
is not too late to gain profits from these aggressive-growth
stocks. I think they will both continue to outperform for at
least the rest of 2013.