Is Buying 5 Shares of Google and Amazon Stock Daily a Sound Investment Strategy?

Introduction: While the market trend as of mid-June 2022 has been downwards, initiating an investment plan by purchasing stocks in Google (GOOG) and Amazon (AMZN) every day can prove to be a beneficial strategy in the long run. This article explores the viability of such a strategy, particularly in the context of the ongoing bear market.

The Current Market Context

Historically, bear markets lasting from peak to trough average 20 months. Given that the market bottomed out in mid-December 2021, investors have ample time to wait for the market to recover. However, it is important to note that not all stocks will recover at the same pace or have the same potential for growth. It is crucial to identify companies with enduring profitability and a clear path to future productivity. In this regard, Google (GOOG) and Amazon (AMZN) stand out as prime examples, boasting strong fundamentals and robust growth trajectories.

Company Analysis: Google and Amazon

Google (GOOG): Google is one of the largest and most profitable firms in the world. Its wide 'moat' is due to its dominant position in the search engine market and its suite of cloud computing services. Furthermore, Google is continually innovating, expanding into new markets, and strengthening its competitive edge.

Amazon (AMZN): Amazon is known for its extensive e-commerce platform, but it also has a broad range of services, including cloud computing (AWS), AI, and digital payments. Amazon's profitability, driven by efficient operations and diversification, ensures that the company is well-positioned to weather economic downturns and capitalize on emerging opportunities.

Risk and Reward: Short-Term vs. Long-Term

In the short term, investing in Google and Amazon can be risky. Market volatility and unpredictable economic conditions can lead to fluctuations in stock prices. However, over a period of 3–5 years, the strategic purchase of shares in these companies is likely to yield substantial returns. The sustained growth and profitability of these firms provide a strong foundation for long-term investors.

Diversification and the Limitations of the Strategy

The mentioned strategy, while promising, does lack diversification. Investing in just two stocks from the same sector can be perilous as it exposes the investor heavily to sector-specific risks. A diversified portfolio can help mitigate these risks and provide more balanced exposure to various market conditions. Therefore, while buying 5 shares of Google and Amazon daily could be a sound strategy, it is recommended to complement this with additional investments in different sectors to ensure a well-rounded portfolio.

The Case for Diversification

Diversification is a crucial component of investment strategies. By spreading investments across different asset classes, sectors, and geographic regions, investors can reduce risk and enhance potential returns. A diversified portfolio can provide stability during market downturns and capitalize on growth opportunities during market upswings.

A diverse portfolio might include:

Technology Stocks: Beyond Google and Amazon, consider additional tech giants like Microsoft (MSFT) and Adobe (ADBE).Healthcare: Pharmaceuticals and biotech companies such as Johnson Johnson (JNJ) and Pfizer (PFE) offer stable growth potential.Biotech: Companies like Biogen (BIIB) and Vertex Pharmaceuticals (VRTX) shine in the biotech sector.Risk-Adjusted Assets: Real estate, fixed income securities, and alternative investments can provide a buffer during market volatility.

Conclusion

Buying 5 shares of Google (GOOG) and Amazon (AMZN) daily can be a viable investment strategy, especially for those with a long-term horizon. However, it is essential to recognize the importance of diversification. By incorporating a wider range of companies and asset classes, investors can mitigate risk and maximize returns. A balanced portfolio that includes Google and Amazon alongside other sectors can help navigate market fluctuations and achieve stable growth over time.