It's probably the toughest question you can ask yourself, but if you can't answer it (or even attempt to) then you need to reevaluate your investment criteria.
Question: If you could invest in one thing, what would it be?
Now by 'thing' I mean as specific as possible; not just asset class, you have to pick the individual stock/bond/commodity. Many people would no doubt find this difficult, it's troubling to think about a portfolio with 0 diversity, with all your eggs in one basket. The key lesson here is simple:
If your uncomfortable making something 100% of your portfolio, then don't bother
I'm talking more to retail investors of course but the lesson holds true even for the big players. Even the math that supports diversification says that having roughly 20-25 individual holdings is the optimal portfolio, anything greater than that adds no benefit. This number is cut down even further when considering ETFs.
With that in mind, what is my top pick?
Asset Class: Equities (historically the best)
Market Cap: Small-Mid Cap (historically the best)
Strategy: Value (historically the best)
Method: 4 metrics (Price/Free Cash Flow, PEG, Price/Sales, Price/Book)
Results
My last step is to evaluate individual balance sheets looking for large cash and low debt. The list I'm left with is usually between 10-50 companies long (this is also another simple way to judge how the market is valued). Out of what is left I usually prefer strong brands and simple businesses.
My Top Pick: GameStop (NYSE: GME)
Hugely shorted with earnings forecasts that are far too bearish for a company that consistently performed extremely well until the crash. Innovation in gaming technology (Kinect, Wii, etc.) will ensure growth opportunities for this business.
Disclosure: I do not own nor do I plan to buy shares of GameStop in the next 72 hours
