Say what you will about CNBC's Jim Cramer, host of the network's Mad Money show; the thing is, he does well breaking down "conventional Wall Street wisdom" and everyday investor know-how for a broader audience. Recently, Cramer took on diversification, and I would like to highlight its applicability to a couple of highfliers this year, Elon Musk-connected SolarCity (SCTY) and Tesla Motors (NASDAQ:TSLA).
Diversifying one's portfolio is one of the cardinal rules of investing, and you will be hard pressed to find advisers who do not mention such an important principle. Cramer noted that speculative stocks should be a part of any portfolio for two reasons: first, it minimizes risks and can help lock in significant gains as it diversifies your portfolio apart from more "steady" stocks, and secondly, it keeps people interested. Is that second reason really that important? Looking at stocks like SolarCity (SCTY) and Tesla Motors (TSLA) one can see a couple of speculative stocks that keeps a lot of people interested.
Year-to-date SCTY is +278%, while TSLA stands at +327%. Whoever decided to diversify their portfolio with these names is sitting pretty right about now. And when you have a couple of stocks reap significant gains, often making news on television, in newspapers, and social media, shareholders keep their eyes on how things are going, how the business is doing, how much those gains produced for their portfolio, etc. Monitoring one's portfolio is of course an important practice for any investor, and stocks that spark intense debate, make headlines, and break news. Speculation can make investing fun, and can help diversify one's exposure to risk; certainly some of this year's big winners have served those purposes well. So search for some companies that will interest you and you can have some fun throwing some money at to see what happens. Retail investors should keep things interesting, otherwise, why are we really here?
Disclosure: I am long TSLA, SCTY.