Use the “10×10 Approach” to Diversify Your Portfolio

Colin’s Note: Today’s insight comes to you from our colleague Kris Sayce…

He recently wrote to his subscribers over at his Daily Cut e-letter about a smart way to approach investing in growth stocks.

It’s called the “10×10 Approach.” And it’s a simple, but effective, way to ensure you don’t have too much riding on any one sector’s success… And that no single sector’s failure will cripple your wealth.

In just three simple steps, you can determine if you’ve got a well-diversified set of investments… Or if you need to balance things out to avoid disaster in your portfolio.

It’s all in today’s issue below…

Have you heard of the “10×10 Approach” to investing?

It’s an idea we covered back in 2021 during a brief stint writing essays for the Casey Daily Dispatch e-letter.

Today, we thought we would share that essay with you…

We love growth opportunities. But over time, we’ve seen how regular investors make big mistakes by approaching growth stocks the wrong way.

They tend to put all their proverbial eggs in one basket. When one sector is hot, they go all-in. They either make money… Or they lose money, search for the next hot sector, and go all-in on that too.

And on it goes. We figure that by the end of it, they likely haven’t made a single dime from their boom-and-bust investing strategy.

That’s why just over two years ago, we reminded folks of the 10×10 Approach. And given where the market is now, it’s the perfect time for a refresher.

Why We Like 1,000% Shots Best

The 10×10 Approach: You couldn’t ask for a simpler way to invest. It’s effective too.

So, what is it? And what makes it such a great way to invest?

The 10×10 Approach is an idea we learned from investing legend Doug Casey. It’s a simple three-step way to invest.

First, you take your investible capital and split it into 10 lots.

Let’s say you have $50,000, either in investments or standing by ready to invest. That means allocating $5,000 to each lot.

Next, you look for 10 separate investment ideas that have relatively little in common. Now, that isn’t always as easy as it first seems – it takes some thinking.

Finally, look for investments with the potential to earn you 1,000% returns over a business cycle. (For ease of understanding, think of a business cycle as the period between one stock market bottom and the next, although it’s a little more nuanced than that.)

The reason for picking 1,000% gainers, or 10-baggers, is that you only need one or two of your 10 investment ideas to pay off in a big way.

The rest may produce no more than average returns. Some may fail to take off entirely – potentially leading to losses. But even if only one of your ideas pays off, it will more than make up for any losses on your other investments.

Also, one or more of these ideas can include dividend stocks. It will no doubt take more than one business cycle for a dividend play to become a 10-bagger, but that’s OK.

You may have some investments that you hold for 20 or more years, paying dividends all the way. Other investments may only last for a year or two as you speculate on a current trend.

One thing to note: Many people assume this means that every investment you make is a high-risk speculation or even straight-up gambling. That’s not true.

Don’t mistake making big returns for the riskiness of an investment idea. Risk is only part of the equation when it comes to measuring potential returns.

There’s also time.

Are you buying the investment at the peak or bottom of a business or stock market cycle? And how much time do you expect to wait for the investment to play out?

Some ideas may take 10 years due to a longer business cycle or slower growth. Others may take only a few months to play out – especially if the idea is hot, and you’re lucky enough to get in at just the right time.

Do This Simple Exercise With Your Investments Now

Here’s the simple, three-step process of the idea…

Step 1: Take your total investible assets.

Step 2: Split it into 10 equal lots.

Step 3: Invest in 10 mostly unrelated investment ideas.

Now, let’s put this into practice.

Your next step is to break down your investments as they stand right now.

Take a piece of paper or create a spreadsheet with 11 columns.

In the first column, write all your current investments. Depending on how you have things set up right now, it may be a long list.

Next, starting at the top, you’ll move each investment into one of the other 10 columns. If your next investment is similar to the first one, put it in the same column.

If it’s different, put it in a separate column.

Work your way down the list.

Do You Have 10 Perfect Columns?

At the end, you’ll have several columns with your investments grouped under each. See how it looks. If you have 10 perfect columns, it likely means you’re well diversified.

If you only filled a few of the 10 columns, it may mean you’re under-diversified. And if you had to create extra columns, it may mean you’re over-diversified.

Why is that bad? Well, for example, if you’re under-diversified… A plunge in one of the sectors you’re invested in could cause outsized losses for your portfolio. Can you afford that? Many can’t.

And if you’ve got 20 or 30 investment ideas… How can you stay on top of them all? You’ll likely miss crucial news or data that affects your portfolio.

However it looks, you’ll have a great visual snapshot of your investments.

Regards,

Kris Sayce
Editor, The Daily Cut