This is a response to this question:

I’ve been interested in stocks for the past few years and I’m finally looking to invest in some stocks. One thing that alot of investors recommend is to invest in companies you actually like. I was just wondering if this is a bad idea? I’ve also read about the importance of diversification - pick 5 stocks, all from different sectors, and gather information about said companies.

The companies I’m looking at are Costco and Chipotle. Both have expanded to my area within the past year and I really enjoy the service and environment. I’m a huge Apple fan and I’d love to get some Apple stock but I don’t think it’s within my budget. I feel like there stock can only rise if they meet their sales for the year with the iPhone. Nissan’s stocks look within my price range at roughly $18 a share. I feel like this may be a good pick with their shift to electric cars in 2010.

There’s some truth in the advantages to investing in companies you know. I think Apple is actually a good example. When I invested in it at the beginning of last year, everyone told me it was overvalued, “everyone loves Apple!”, etc. But I saw the huge growth in their PC market, and knew the iPhone would explode no matter what. And what happened? The stock doubled last year.

But the exact same thinking can kill you. I owned Jones Soda (JSDA) mostly for technical reasons (who wouldn’t want to own another HANS), but I also loved their soda, and thought there was a hole in the market they could take advantage of. The stock hit a high of $28 and now stands at $2.90 (though luckily I sold at $24).

So in the end, you have to have other solid reasons for investing in a stock besides the fact that you like it.

Regarding Chipotle: It was a great stock in the last bull market, but one common tidbit thrown around is that the leaders of the last bull market rarely have the same run-up in the next one. It’s in a clear downtrend since peaking at the beginning of the year.

Lastly, the price of the stock should have absolutely nothing whatsoever to do with your budget. What’s the difference between 10 shares of a $10 stock and one share of a $100 stock? Nothing! A stock is only “expensive” in terms of its price to earnings ratio. This is a common misconception I hear all the time.

(Click for big)

So it’s been awhile since I’ve done one of these, mostly because I still can’t find an easy way to dynamically display my portfolio online. So for now I’m back to taking screenshots of the spreadsheet I use to track it.

About two weeks ago, for the first time this year, my portfolio went from the red to the black, and I finally showed a profit! My portfolio currently has a gain of 3.63%, compared to -5.59% for the S&P 500. I am very happy to be outperforming that index by over 9 points.

The big winner this year has been Cleveland-Cliffs (CLF), up an amazing 88% since I bought it in mid-December. This kind of performance in a bull market would be exceptional, but seeing this growth from the past four months is amazing. Commodities are very hot right now (and have yet to show any slowdown), and CLF is really leading the way.

I am also very happy with Google (GOOG), which I talked about in a post a few weeks back. It trounced earnings estimates after the unnecessary, fear driven sell-off. I do hope it can keep up the momentum it got from that. My company doesn’t really believe in investing in “last year’s” bull market leaders, which is my only hesitation with holding GOOG.

Two of my other energy stocks - SandRidge (SD) and Helmerich & Payne (HP) are performing decently. It’s pretty funny how I discovered SD - I was watching a somewhat entertaining show called Wall Street Warriors, in which a money manager is heavily investing in Sandisk. Curious as to how the stock ended up performing, I entered “SD” expecting that to be Sandisk, but instead found SandRidge, and immediately noticed how strong the chart looked. So I bought it, and it’s returned 24% since. Not bad for a stock I stumbled upon!

Two of my recent additions - VMWare (VMW) and Immersion Corporation (IMMR) are both down a bit. I’m not too worried about VMWare, but I’ll need to take another look at IMMR (a touch-screen technology company) if it drops much further.

At the investment company I work for, their general approach to earnings is not to play them either way. Overall, I think this makes a lot of sense, because it often seems like a risky move to buy or sell a stock before it announces earnings in hope that it will move one way or the other.

So I really had to be sure before I spoke up on Wednesday’s stock meeting about Google. I should preface this by saying that even though I have been very happy with my portfolios (both real and paper) in the past year, and feel as though I have learned quite a lot in the past year and a half, I still am very nervous whenever I speak up at this meetings. Combined, these people have a century (or more) of knowledge about the stock market, bachelors and masters degrees in finance, and to top it all off are just extremely intelligent people. I think they invited me to this meeting last year both to encourage my interest in investments as well as get a “fresh” opinion on things - even if that opinion was based on a few months of investment experience.

Anyway, about a month ago, Google’s stock got hit when ComScore, who is kind of like the Nielsen ratings of the internet, announced that its growth from online advertising sales was slowing drastically. I immediately put 10% of my portfolio in the stock, for three reasons. First of all, ComScore is notoriously inaccurate. I had actually researched the stock last year as a possible investment, before reading too many stories about how their calls were often way off. Second, by spending a lot of time in the online advertisement industry, I can see first hand how Google’s online advertisements are continuing to grow.

Last, I feel as though Google is one of the best overall companies I have seen in my lifetime. It is well run, has a great business model, and puts out incredible products. I never got a chance to buy into Google last year, so I felt as though buying it nearly 375 points off it high was a great deal.

So at this meeting Wednesday, I said that I strongly felt that the next day, Google would beat earnings estimate and everyone who sold off in fear the month before would dive back in.

And, incredibly, I was right. Google opened this morning up 80 points, or nearly 20%.

I feel really, really good. I know that, like all investing, there was a good amount of luck in this. But I feel as though this was a great example of how you can really benefit from investing when you understand not only a company, but the company’s stock as well.

My only regret was not purchasing ten real-money shares on Wednesday like I was tempted to. If I had done that, I would have gained about $800 overnight.

After quite a bit of searching, I finally found a portfolio widget that looks like it will serve my purpose. I have placed it on the sidebar and will keep it updated whenever I make changes to my portfolio.

I should mention that the amount it shows me up (or down) is not entirely accurate as it is based off of my current holdings, not losses I took from sales at the beginning of the year. Unfortunately, I can’t get it to take into account those losses for some reason.

Also, the actual amount of money is multiplied by a certain amount, as I like to avoid disclosing specific numbers on this site. Believe me, I wish I had $100,000 to invest!

So let’s take a quick look at what I dare to invest in with the current market:

• Yamana Gold (AUY): It’s a gold stock, and gold has been going strong for a year now. I can’t say I know much of the differences between the various gold stocks, but this one has been highly recommended for months now and does seem to be one of the leaders of the gold pack.
• Cleveland-Cliffs (CLF): A resource stock that has really taken off in the past month. I am a bit worried at just how much it’s gone up recently, actually, and wouldn’t be surprised to see a pullback at some point.
• Google (GOOG): I never got a chance to get into this stock last year – I swear it was high above its moving average the whole time – but after a sharp drop due to bad pay-per-click news, I jumped in. I often hear that leaders from the last bull market won’t be leaders in the new one, but I still feel as though Google is just as good of a company as it was at $700, and that it will be making its way back up there.
• Arena Resources (ARD): Another resource stock, that I honestly do not know that much about. This one was mainly picked based on a recommendation.
• Cosan Limited (CZZ): A major sugar company based in Brazil. They produce ethanol from sugar (which is a much more efficient process than taking it from corn), so this is a green play with agriculture for some support.
• SandRidge Energy (SD): Yet another resource company, this one focused on natural gas. It only went public back in November, so it’s a bit newer than most out there. Supported by a strong management team.
• Patriot Coal (PCX): Because, you know, I didn’t have enough resource stocks. PCX is a recent spinoff of Peabody Energy (BTU). Coal is still in as much demand as ever, and this stock is also supported by a strong management team.

I ran my weekly portfolio update this week and found I was down 6% since the end of the year. I am actually pretty satisfied with this. Why? Well, mostly because the S&P 500 and Dow are both down about 9.5%, and the Nasdaq composite index is down 13%.

My decent performance, at least in comparison to the major indexes, is due to three general changes I made to my portfolio: Completely avoiding growth stocks for the time being, trying to stay around 50% in cash , and investing in resources and energy.

When the market timing indicators here started turning negative in December, the standard call to trim your portfolio went out. In my case, that meant getting rid of my weak stocks, which now were the same growth stocks that had been leading the pack in the summer. It was particularly hard to say goodbye to Baidu after those fantastic gains it gave me, but I’m sure we’ll run into each other again soon.

This left me with, well, no stocks in my portfolio, which shows just how heavily invested in the growth stock leaders I was. They had treated me wonderfully during the past year, but were not at all what I wanted to be invested in as the new year approached. I now somehow had to find the next leaders to spend half my cash on, in a pretty terrible market.

So I instead turned towards the boring, uninteresting stocks of the resource, energy, and gold sectors. Honestly, how exciting is mining coal? Still, I had to give them credit for their surprising performance in such a negative market climate. So I purchased four of them: Cleveland-Cliffs (CLF), Arena Resources (ARD), Yamana Gold (AUY), and Cosan (CZZ). The first two are involved in general resource operations, the third is obviously a gold stock, and the last is a major player in the ethanol field.

To date, they have all performed positively. ARD, AUY, and CZZ have returned 5%, 9%, and 7% gains respectively. Normally I wouldn’t be happy at all with numbers like that over two months, but with indexes down 10% I can’t complain much. Cleveland-Cliffs has been the big winner, returning 30% gains since I bought it.

For the time being I’m happy. But believe me that I have my finger on the trigger, ready to jump on stocks like Google and Baidu that are now extremely cheap. I will be waiting for some reliable performance from the market in general before doing that though. I believe we are near at turning point in the market. We’ve had a steady number of 30-50 lows for the past few days, and it seems like the market is just waiting to dart one way or the other.

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At the beginning of last year, I began my job at an investment advisory service. Though I had never been very interested in investments before, dealing with them in my everyday life spurned my interest forward. I went out and bought books recommended by personal finance blogs, such as A Random Walk Down Wall Street and The Little Book of Common Sense Investing.

I was promptly poked fun of by my coworkers.

Not because I was a neophyte in the investing world, but because I was reading books by preachers of index funds. What was so bad about index funds, I wondered? It sounded as though market timing was a myth best practiced by practitioners of voodoo, individual stocks were for the insane or insanely rich, and choosing a successful mutual fund was a fool’s errand.

What I learned was that in the end, index funds are a viable choice, but by buying one, putting a blindfold on, and selling it when you retire, you are submitting yourself to be a toy of the stock market and its investors. So instead, I followed the advice of my colleagues and invested in growth stocks, using market timing to balance the cash I had in my portfolio against the performance and strength of the overall market.

At the end of the year, my portfolio was up 39.32%, which I was extremely happy with. Now I must admit that I credit a fair portion of this with beginner’s luck. Not to mention I was being guided by people with ten, twenty, thirty, and forty years of investing experience – both in terms of stock recommendations as well as market timing recommendations.

So what were my big winners and losses of 2007?

Winners

• Apple (AAPL): Up 132%. This was the very first stock I bought at the beginning of the year. I kept it for the entire year, recently selling it before Macworld as it seemed as though the enthusiasm for the stock was dwindling.
• China Fire & Security Group (CFSG): Up 32%. A tiny company that racked up tons of contracts for installing fire and security systems in Chinese infrastructure. This one was up nearly 80%, but dropped at the end of the year.
• Garmin (GRMN): Up 115%. I was extremely enthusiastic about this stock, as I saw GPS’s becoming the next iPod, and thought Garmin had the best chance of capturing that. And they did – up until them losing their source of maps, Navteq (which they later regained). This permanently damaged the stock however, and it is now worth half of what it was in October. Luckily, I sold it right after this announcement, taking a short term loss but saving most of my gains.
• Dawson Geophysical (DWSN): Up 47%. Dawson found oil for companies by blowing up dynamite underground and studying how seismic waves reflected around. Cool stuff. Sold in October after it had cooled down for a month.
• Aecom Technology (ACM): Up 48%. Probably the “easiest” gain I had, in that it went up straight for nearly two months. This was a global infrastructure play, that especially benefitted from growth in China. Like Dawson, it also flattened out in October.
• Audible (ADBL): Up 23%. An online source for audiobooks. I mostly mention this because I sold it shortly before it was bought out by Apple! Ah well.
• Baidu (BIDU): Up 112%. The Google of China. I always regretted missing out on Google, so I figured this would be a good alternative – and it was, up until recently. Luckily I sold this before most of its recent decline. I still feel as though it will be a strong stock once the market regains some of its footing in the tech sector.

… and losers

• Comscore (SCOR): I work a lot in online advertising, and saw how much we were spending, so I tried investing in a company that profited from that. Unfortunately, this particular company did not, and is still a very volatile stock.
• Loop.net (LOOP): No matter how good the fundamentals look, this stock was a great lesson in why you can’t ignore common sense such as not investing in any stock relating to the housing market.
• Jones Soda (JSDA): I knew this one was quite the gamble, and thought I had found the bottom at 10. This was after a drop from nearly 35. It went up to 14 before falling all the way down to 6.5, where it is now. Luckily I sold it with only a small loss.
• Crocs (CROX): I actually ended up with a gain in this stock, but that gain was quartered after a horrible earnings report.
• Volcom (VLCM): Another clothing stock that I tried to capitalize on. My younger sister, who knows quite a lot about clothing, had never heard of them – maybe I should have taken that to heart!

At the beginning of this week, the investment advisory service I worked for posted this notice to their subscribers:

“We believe yesterday’s deeper-than-expected Fed rate cut, along with the market’s super-strong reaction, has kicked off the market’s next bull run. What impressed us most was the significant power shown in the broad market; up volume on the NYSE totaled nearly 30 times that of down volume, while advancing stocks outnumbered decliners by more than 9-to-1. (We get our figures from the Wall Street Journal, FYI.)

These are highly unusual readings … and history tells us they’re very bullish. Jason Goepfert of sentimentrader.com wrote that there have only been seven other times when up volume swamped down volume by 25-to-1 or more. Three months after these seven occasions, the S&P was up an average of 9.4%, and better yet, there was minimal drawdown during that time (read: the market didn’t pull back much at all after those big up days; it usually continued higher).”

At the end of the week, the markets closed – ending the best week of gains for 2007. And what a week it was! One of my core holdings, Baidu (BIDU), the “Google of China”, is up over 12%. In fact, because of its strong performance, my portfolio nearly doubled in value and is now up 22% for the year. I am sure I’m not the only one who benefited that much from this week either.

Well, the past couple weeks sure have been an interesting ride. I was on vacation, and only had slow, limited access to financial news. So imagine my horror when I find that the bottom fell out on two of my stocks, Jones Soda (JSDA) and The9 (NCTY). In fact, Jones Soda fell so much that my automatic 20% loss stop order was placed for me, preventing me from feeling the full impact of the stock’s drop to $10. Good to know those work – thanks Zecco!

Since my last update, I have sold Fuel Tech (FTEK), Loop Net (LOOP), Jones Soda (JSDA), and The9 (NCTY). Part of this was trimming my portfolio due to the volatile market, and part was selling stocks that had weakened dramatically.

Like most investors, I am still unsure of where the market is heading, and am listening closely for advice from the advisory newsletters I subscribe to. For now, I am holding some extra cash in my portfolio and waiting before buying any new stocks.

Gain as of 08/07/07: 2.1%
Gain of S&P 500 for the same funds: -0.1%
Current Cash Held: 28%
Bought: None
Sold: Fuel Tech (FTEK), Loop Net (LOOP), Jones Soda (JSDA), The9 (NCTY)

I posted about a month ago that I made my first real-money investment by purchasing a single share of a company called BE Aerospace (BEAV) for $38.05. Since then, the stock has risen 14.35% to $43.51. If only I could set that as the bar for all future investments, then I would be all set!

I now have a portfolio consisting of nine stocks, listed below. As you see, I probably have 1/1000th of the average amount invested by a person in the stock market. Nevertheless, I am having a blast with it, and am saving every penny I can so that I can have more to invest. For example, I made an update a few days ago about selling some old games on eBay. As soon as I got that money, I put half into my emergency savings and half into this investment account.

Gain as of 7/19/07: 6.6%
Gain of S&P 500 for the same funds: 1.7%

For the moment, I wanted to look at Jones Soda (JSDA).

This was a stock pick for my company before they sold it near its high. As you can see, it had a huge run-up before dropping steadily for a few months mostly due to fears of it being overvalued.

However, the strong financials of the company remained. They faced some negative press that hurt the stock further, such as the fact that Starbucks would no longer carry them. Yet it was soon revealed that Starbucks only accounted for about 1% of their sales!

I have tried Jones Soda a few times and really do believe it has the ability to carve out a nice niche in the soda market. However, it currently comprises about 3.3% of my individual stock portfolio, and I wouldn’t feel comfortable with having more than 5% in a stock that is still so bruised and battered from the past few months.

I have done portfolio updates in the past. However, this time it’s a bit more exciting as this is my first real portfolio update - meaning real money. Sure, it’s a miniscule amount, but it’s thrilling to see my actual cash move up and down every second.

So how has my first three week as a real investor gone? Great. Not because I’ve made boatloads of money (I’m actually down 1.7% at the moment), but because I’ve already learned lessons that no amount of time with a paper portfolio would have taught me.

The two best lessons so far are never act impulsively with stocks and let common sense win over emotions before trading. The first lesson came to a head yesterday when two stocks that I somewhat regretted buying (Cameco and Loopnet) were both down for the third of fourth day in a row. When I checked in the morning, they were both down nearly 4%. In my disgust I almost logged into my brokerage account and sold them right there.

Instead, I reminded myself of the fact that they are both fundamentally good stocks, which is one of the most important aspects to investing in growth stocks. Therefore, I should only sell them if either their fundamentals change, or they drop past the 20% stop limit I enforce on all my stocks. I’m glad I made this decision, as by the end of the day both stocks were instead up nearly 4%!

I learned my second lesson two weeks ago when I purchased Gamestop. I had meant to purchase the stock June 14th, near the end of the trading day. Unfortunately, I got caught up in work and wasn’t able to. When the stock opened the next morning, it opened up nearly 6%. In my anger I purchased the stock anyway, in a way punishing myself for not buying it the night before and losing out on those gains. However, this was a great lesson in that I should have used common sense to not buy the stock right after a huge gain, especially when it was already well above its average.

Anyway, you can see my stocks below. I had bad timing buying Cameco, and might have made a mistake buying Crocs. I also slightly regret purchasing Loopnet without knowing more about the company first. However, I feel confident about my shares in Apple, BE Aerospace, and Gamestop.