The heart of Cocktail Investing recognizes the intersection of several powerful forces —economics, demographics, psychographics, technology, policy, and more we will discuss – that, when combined, give way to a powerful force that shifts the what, where, and how people and businesses go about their daily activities. Much like a tailwind that pushes a plane faster across the United States or the Atlantic Ocean, these shifting forces can propel a company's business or slow it down dramatically if it is ill-prepared to deal with the changes it faces, much like a headwind. The great thing about these trends is that they are often evident in things you observe every day and arise in conversations you have with friends over cocktails – you just need to recognize them.
We wrote this book to give you a lens through which you will be able to clearly see the actionable, observable, and recognizable trends that surround you every day to help you build a profitable portfolio for the long run. Unlike most every other book on investing, though, this book is written the way most people like to learn, with stories that you will find (we hope) not only informative but entertaining and relatable.
We will give you a process that will allow you to successfully build and maintain a portfolio and avoid the all-too-common errors caused by emotional investing. Thinking like a successful investor will become as routine as tying your shoes, and before you know it, you'll be walking through the mall making mental notes of the must-have items and the hot retailer, all without stepping foot inside a store.
We also wrote this book in such a way as to allow you to quickly get to the heart of the material, avoiding the majority of the related stories, although you're missing out on some serious entertainment, but we might be slightly biased here. If you want to read just the bones, avoid the areas in gray. Don't worry, we only have one shade of gray in this book. We've also written up chapter summaries that highlight the key points and finish every chapter with a Bottom Line section to call out key concepts.
We will talk about how to find specific investments, but we will not talk about theories on what combinations of investments you ought to have in your portfolio, as that is highly dependent on each individual's circumstance. That being said, here are a few good rules of thumb to keep in mind as you build an investment portfolio:
● Your portfolio should never have more than 5 percent invested in one security (e.g., a stock, bond, mutual fund, or ETF). You can give yourself a little more room if you are dealing with a widely diversified mutual fund or ETF, meaning one that holds a lot of individual securities. In practice, this usually means that you'll want to buy less than 5 percent of any one security; otherwise, if it goes up disproportionately relative to the rest of your portfolio, you'll need to sell some more quickly than would likely be prudent given the current tax code's treatment of long-term gains versus short-term gains.
● Before you start buying securities for your portfolio, decide how much cash you need to keep on hand. You should have at least three months' worth of your typical living expenses on hand in case of an emergency. If your primary source of income is unpredictable and/or volatile, you should have more. You've probably heard people talk about need for liquidity, a term that is widely bandied about and often misunderstood. We'll talk more about what it means, how to figure out just how liquid a security may be, and why you care.
● Once you've identified a security you want to add into your portfolio, you need to decide if you should buy then and there or hold off doing so. If it's time to buy that security, how should you do so, up to what price should you buy, at what price would you back up the truck and buy more, and later when the time is right, how should you sell it? We'll cover how these decisions can be even more important than deciding what to buy.
● Finally, when it comes to your portfolio, be cold-blooded. Fall in love with your partner, a song, a good book, a gorgeous sunset, or luscious Bordeaux, but never, ever with one of your investment picks. We'll talk about ways to stay cool as a cucumber, even when the markets get wobbly.
So without further ado, let's talk about one of the most emotionally charged words in the world —Money.
Acknowledgments
From Chris: Sitting down to put fingers to keyboard and write the volume you have before you would not have been possible were it not for the education, learnings, and conversations that helped develop the thematic way I look at the world. As you might imagine, the list is far from short, but also like any list, there are several central figures worth noting. These include David Snyder, Dr. Phil Lane, and Dr. Ben Fine, who had an influential hand from the very beginning; friends and compatriots Keith Bliss, Mike Canevaro, Brian Vosburgh, and Chris Broussard; Dr. Bernard McSherry, who wrangled me into the classroom and afforded me the opportunity to stun graduate and undergraduate students alike with my desk walking; A.J. Rice, without whom my time on the radio and elsewhere with people such as John McCaslin, Matt Ray, Chris Salcedo, Melanie Morgan, and others would never have happened; and Stephanie Link, who welcomed me to The Street and allowed me to work with folks like Bob Lang, Kamal Khan, Paul Curcio, and many other wonderful people, including Jim Cramer, who has been nothing but encouraging and enthusiastic as my role at The Street has grown over the years.
From Lenore: This book would not have been possible without the insights gained from conversations with some of the most truly spectacular economic, investing, and scientific minds I've had the pleasure of getting to know. I'd specifically like to thank Raoul Pal, not only for sharing your brilliance, but for assuring me that I had something worthwhile to say in my moments of greatest frustration; Grant Williams for your uniquely humorous insights; Richard Rahn for everything as there is just too much to list; Dan Mitchell for showing me how to make even tax policy positively riveting to your audience; Tom Palmer for enlightening me in countless ways; David Abner for getting me started in this direction; Peter Whybrow for showing me how to make even the most complex understandable and entertaining; Ed Crane, you are an endless inspiration; Alessandro Dusi, what would I do without you? Michael Cannon, you've taught me to never give up. Finally, thank you to Eric Spinato for helping me evolve from those first truly cringe-worthy television appearances, which helped open the doors that led to the eventual writing of this book.
Chapter 1
Money
When I was young I thought that money was the most important thing in life; now that I am old I know that it is.
Wealth is the ability to fully experience life.
A feast is made for laughter, and wine maketh merry: but money answereth all things.
Cash, bread, dough, greenbacks, loot, moola, scratch, wampum, soldi, dinero, l'argent, geld, penge, dinheiro…
No matter what language, money is a simple word that, if you aren't careful, can cause you a lot of problems. If not you, then chances are, a family member or a close friend has struggled with it.
It's a word that can make people very uncomfortable. How many times have you been in a group when everyone gets that awkward no-eye-contact nervousness because someone (gasp) mentioned “money”?
Some abhor it as a dirty word; some worship it as the purpose of life. For one of your authors it means the latest Apple tech joy, climbing an adventure course, adding to his Under