The Motley Fool: Every Sunday, useful tips on investment
Too many shares of one stock? Taking stock of Telefonica.
Ask the Fool
Too many shares?
Q: Can you have too many shares of one stock in your portfolio?
A: Think in terms of total value, not number of shares. You might have 1,000 shares of one stock, worth a total $3,000, and 100 shares of another stock, worth $7,000. Focus on the percentage of your portfolio that each stock represents.
Don't let any stock's percentage get too high, either. If one holding represents 25 percent of your portfolio, for example, that's very risky. If the stock plunges, your portfolio will take a big hit. If one holding grows into too big a chunk, consider selling some shares.
If you hold too many stocks, though, and your biggest holding represents just 2 percent of your portfolio, that's not ideal, either. If that stock doubles or triples, its overall effect will be small.
Avoid 401(k) mistakes
With fewer companies offering pensions, 401(k)s are a critical retirement tool. Make the most of them by avoiding these mistakes:
• Failing to grab your maximum employer match. That's free money, providing an immediate, risk-free return.
• Borrowing from your 401(k) for something other than an emergency. Don't put your future in jeopardy to remodel your kitchen.
• Trying to time the market. Don't jump from one investment to another, chasing "hot" sectors.
My dumbest investment
It's a bad thing
Dear Fool: My dumbest investment was in Martha Stewart Living Omnimedia. I like Stewart and have the highest admiration for her business abilities. However, I bought the stock for emotional reasons and only recently sold it, losing money.
The Fool responds: Your experience reminds us all that it's important to separate what we might feel about a stock from what our brains think about it. It's not enough for a company to have a product you love.
Martha Stewart Living's stock has lost money for investors, on average, over the past decade. Its current detractors point to several years of losses and shrinking revenue. Bulls are hopeful about partnerships with J.C. Penney and Home Depot and possible revenue from being on Pinterest.com. The company may perform well from now on, but it's risky.
The Motley Fool take
Ringing up Telefonica
Europe has been an economic battlefield for quite a while, with Spain recently near the epicenter. Investors are shying away from Spanish telecom giant Telefonica (NYSE: TEF). That might be shortsighted, though.
Investors have painted Telefonica with the same brush they've used for most other telecom stocks in Europe, avoiding the stocks as dividends look to fall and some project a long potential European recession.
But those investors ignore that Telefonica has more exposure to Latin America than to Spain. Although not quite half of its sales come from Latin America, its operations there are more profitable, and thus it generates more than 60 percent of total operating income.
Of course, Latin America has had its own troubles. But with Brazil hosting the World Cup in 2014 and the Olympics in 2016, it will likely want to bulk up its telecom system.
Telefonica recently yielded more than 10 percent but expects to cut its dividend in 2012 and 2013.