Is Ryan Cohen A Genius Or An Idiot?

I was amazed when I read that Chewy cofounder Ryan Cohen sold his company for $3.4 billion in 2017, then took most of his money and bought shares of Apple and Wells Fargo. What? Only two stocks? Doesn’t Ryan understand modern portfolio theory? It says that investors can achieve the best results by choosing an optimal mix of high and low risk assets and building  a diversified portfolio.

But Ryan (we’re not friends but I’m still calling him Ryan because we both own small white dogs) said he didn’t have time to follow a bunch of companies and he didn’t have any better ideas than Apple. He loves the company because the iphone changed the world (duh!) and, well, we won’t talk about Wells Fargo but I guess he loves something about that horrible company too.

I remember thinking how refreshing it would be to love one company, believe in it with all your heart and soul, and push all your chips in. The Stocks app on my iPhone now contains close to 75 ticker symbols and while I’d like to believe I could speak intelligently about all 75 companies, the truth is they more closely resemble distant cousins I’ve never met.

There’s a bunch of battery companies (BATT, LIT, DRIV) that might be huge when electric cars finally become the norm. A bunch of solar companies I might finally get around to investing in (RUN, JKS, SPWR, TAN, FSLR, ENPH) if I could just time it right and buy the next time they all tank.

There’s Accenture (ACN) which I’ve wanted to buy for more than a decade but somehow always felt like it was too expensive, costing me a tidy return.

And on and on.

How great would it be to just own two stocks and not have anything else to worry about? On a basic level, I imagine it would be like giving away all the clothes in my closet that I never wear and just sticking with two pair of jeans and 6-8 T-shirts, a strategy I could certainly live with and likely thrive using.

The ‘experts’ say a well balanced portfolio should contain somewhere between 20-30 stocks and be diversified across industries and geographies. That sounds nice but what about Cohen and Apple? Would I really be happier if I only had to follow one stock?

I’m not so sure. Five years ago I bought Shopify at 77. It quickly became my best performer of all time. In the last few months, it’s dropped nearly 40% from an all time high of $1762/share. At some point during those five years, unconsciously, Shopify became my stock market. I typically check the market once a day to see which way the wind is blowing, and increasingly I only looked at one stock’s performance. If Shopify was up, it would be a good day. If it was down, a bad one.

As an investor, I’ve been a bit down in the dumps recently because Shopify has been down. But today I decided to check and see how the overall portfolio is faring. While SHOP is down another 8% this morning, and the aforementioned 40% for the year, my entire portfolio is only down 6% so far in 2022. That’s not awesome but given inflation, Omicron, climate change, Damian Lillard’s abdomen, no permanent Jeopardy host and a ton of other things weighing down the economy, it’s actually pretty great news. It serves as a reminder that diversification, though not as simple or sexy as owning just one or two stocks, can serve a real purpose when we’re not in a raging bull market.

No doubt Ryan Cohen is a genius. He’s got $3.4 billion more dollars than me to prove it. I’m just not convinced he’s a great investor.