Mike Kueber's Blog

February 2, 2013

Investment diversification

Filed under: Investing — Mike Kueber @ 3:28 am
Tags: , ,

This morning brought me a reminder of the importance to diversify your investments. 

Since becoming active in the stock market in the spring of 2009 (a fortuitous time because the market bottomed out on March 9, 2009), my favorite stock has been Life Time Fitness.  In addition spending a couple hours every morning at a Life Time gym just a couple of miles down the hill from me, I have experienced the pleasure of watching my Life Time stock, which I purchased for $15 and $19 move up and up, eventually doubling.

In 2010, I sold about 50% of my Life Time stock at $35 to pocket a portion of my good fortune (and to go forward with house money), and on Christmas Eve I sold 50% of my remaining shares at $49.  My thinking was that I had too large a percentage of my brokerage account (15%) invested in one small company (plus more than 40% in one large company with an aging savant – Berkshire). 

But as the stock continued up through January to almost $53, I started having second thoughts.  I still loved the gym, and it had been the best stock I had ever owned.  How loyal was that?  Beyond second thoughts, I started having daydreams, too, about “what if” I had shown courage and invested my entire brokerage account in Life Time?  I could have more than tripled my account.

Then came this morning.  When I checked my brokerage account this morning, the following news from Market Talk was waiting:

  • 8:57 EST – Life Time Fitness’ (LTM) preannounced 4Q miss and downbeat guidance sends shares tumbling and leads William Blair to cut its rating on the gym operator to market perform. While dues growth remains “solid” thanks to price increase, “we are increasingly worried that LTM is walking a fine line between monetizing members and engendering member pushback,” says William Blair. Following 3Q which saw the largest sequential increase in attrition since 2008, membership growth was weaker than expected in 4Q, says the firm.  Shares fall 16% to $42.60 premarket.

By the close of the day, Life Time was down $11.37 (22.41%) to $39.36.  Wow.  That’s a big loss, but I would be really kicking myself if I had been greedy.  Everyone knows that it’s crazy for casual investors to avoid diversification.

p.s., on Christmas Eve, I also sold 33% of my Berkshire.B for $90 because Buffett can’t live forever.  Today it closed at $98, and I think I will start kicking myself for not trusting Buffett to outlive me.