Apple Inc. (AAPL) & Netflix, Inc. (NFLX): All In?

There must be a better way

Instead of going “all-in,” a better method of investing is to build a position over time by buying a relatively small amount initially and adding to this position as attractive opportunities develop. This will ensure that an investor does not buy a full position at or near the top, which would have been the case by buying Apple at $700 or Netflix, Inc. (NASDAQ:NFLX) at $300.

Do not focus too much on price initially. If there is a company with great long-term potential that you would like to own, but the price is slightly higher than you would like to pay, get some skin in the game by opening a small position. By getting a little skin in the game, an investor will be enticed to spend time researching the company, which will lead to an increased level of knowledge, a better feel for when to add to the position, and when it may be time to consider selling.

While buying at a good price is important, focusing too much on the price can cause an investor to miss some great opportunities. I learned this lesson the hard way. Last year I was fired up about buying The Walt Disney Company (NYSE:DIS), which is the most diverse entertainment company on the planet. At the time The Walt Disney Company (NYSE:DIS) was trading at about $42/share, but I decided to hold off until the price dropped below $40.

Guess what? The price never dropped below $40 and kept going up to the recent level of $63. If I would have opened a position by buying a small amount of The Walt Disney Company (NYSE:DIS) at $42, I would be a happy The Walt Disney Company (NYSE:DIS) shareholder now. Also, there would have been multiple opportunities to continue building my The Walt Disney Company (NYSE:DIS) position as a result of temporary price dips.

The Foolish bottom line

Apple and Netflix will more than likely continue to be very volatile. Over  the short term, the direction of their stock prices is impossible to predict.  However, I believe that both Apple and Netflix, Inc. (NASDAQ:NFLX) will go much higher over the long term.

I recommend that you consider building positions over time in Apple, The Walt Disney Company (NYSE:DIS), and Netflix, that you develop your own personal rule to cap the amount invested in any one company, and that you limit your “all-in” activity to the poker tables!

The article Should You Go “All-in” With These Great Companies? originally appeared on Fool.com is written by Greg Williamson.

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