The recent stock market gyrations have revived the perennial debate between stock indexers and stock pickers. Indexers adhere to the view that, over time, a balanced portfolio will weather the ups and downs. Stock pickers see opportunities to profit handsomely on the latest dip by betting on the upside potential of stocks that are now in the doldrums.
Al Horrigan, a semi-retired real estate broker in Sarasota, Fla., who has lived through two stock market maelstroms since amassing substantial retirement assets, is a strong proponent of stock picking. Most of his IRA consists of shares of Apple stock, now worth more than $1 million.
I’m an Apple fan myself and own the stock for the same reason Horrigan does I have used Apple products since the mid-1980s and admire both the company and its CEO, Steve Jobs. But while my Apple stock is part of a diversified portfolio, Horrigan has put most of his eggs in one basket. To his credit, the bet has paid off handsomely and he’s sitting relatively calmly through the latest volatility.
Financial advisers have told him to diversify. Horrigan tried that many years ago. At the time he had everything in Apple and it was trading at $27 a share. On the advice of an investment expert, he sold half of his holdings and bought Microsoft. Two weeks later Apple was up to $33 a share and Microsoft hadn’t budged. Horrigan says he fired the adviser, decided “the heck with diversification, sold Microsoft and went back into Apple.
After the market tanked in 2008, Horrigan coupled this approach with a smart IRA strategy: he converted 1,000 shares of Apple (then trading at $85 a share) held in a traditional IRA, to a Roth IRA. That required him to pay tax on $85,000. But the stock continued to go up since then. Today Apple closed at $373.70 a share; earlier this week it was the most valuable company in the world. Those 1,000 shares, which were worth $85,000 at the time Horrigan converted, have grown in value to $373,700. In other words, $288,700 of appreciation ($373,700 minus $85,000) was completely tax-free. Another Roth conversion, which Horrigan did with Apple stock in 1998 has appreciated even more. Buying Apple and putting it into a tax-free wrapper “was one of the better moves that I ever made financially,” Horrigan says.
For more about Roth IRAs, see my recent post, Smart Moves For Battered IRAs.
This is the first of a continuing “Man On The Street, feature on this page that will showcase individual investors managing their own portfolios. To have your story considered as a future “Man On The Street column, write to me at: djacobs@forbes.com. Please include your telephone number and full name.
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