How do you build out your portfolio of stocks? On this episode of “The 5,” recorded on Oct. 21 , Fool contributors Jason Hall, Taylor Carmichael, and Travis Hoium tackle this question. 10 stocks we like better than Amazon.com, Inc.

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Jason Hall: “Can you talk through the art of portfolio construction? List a couple of different buckets here, thinking about growth, value, REITs, and dividend stocks. Asking some questions like percentage of capital and positioning, then things like just diversifying into various sectors, thinking about things like making it anti-fragile. During periods of uncertainty, your portfolios actually gets stronger. Then thinking about once you have a base, expanding it with capital you have coming in every month.”

I’m going to kick this off and talk for a minute and give you guys just a minute and think about it, and then you can share your own insights. I’ve talked about this a little bit before, but by and large, my stock portfolio, for many years, my strategy was to buy the best companies I could buy, buy as many of them as I could, and then own them for as long as I possibly could. That was the strategy. I’ve never been one to spend a lot of time thinking about allocation to the certain industries. If that was something that I really was concerned about, I would just buy index funds because they do that already. I’ve never really been that concerned about it. Part of it, at my age, I’m still in my early 40s, so I’m still multiple decades that I’m measuring my financial goals, and that gives me margin of safety to not be too worried about being overexposed to certain sectors for a few quarters or a year or two or that kind of thing if there’s a sector downturn in that kind of thing.

To me, the way I think about it, is as my process has evolved over time is I’ve developed a barbell strategy. On one end of the barbell, and it’s not like a balanced barbell, it’s 70-30, 80-20. But on one end of the barbell is growth. I really focus on buying companies that can grow. Typically, that means they’re smaller companies. Again, matches up with my financial goals. I have a 4-year-old, I’m 20 years from retirement. I’m measuring my goals in decades, so I need to invest generally in growth stocks, and I think disruptive companies that are growing and in industries that are growing like the cloud. It’s a hell lot easier to buy a basket of cloud stocks and have the tailwinds to make money than fall into the weeds to think I need to diversify and also maybe buy some oil and gas, too. You look at which of those sectors has done very well over the past 10 years, which has done terribly. Think about over the next 10 years, which do you think is going to do better, oil and gas or the cloud? I simplify that way and look for growth with the majority of my investments.

The other end of the barbell, dividend stocks. Companies that are typically more mature businesses or their business model means that they pay dividends, like renewable energy yieldcos, for example, they are built to pay dividends. Buy the best companies in that area that I can that pay an above-average yield that are built with strong balance sheets and abilities with the tailwinds that are going to grow their cash flows so they can grow those dividends over time. That’s my barbell investing strategy. At some point, as I get older and as I get closer to financial goals and I’m no longer a decade or two decades from something, then the way I’m going to change it is I need to start protecting from the downside, which means I need to shift some of that out of equities into cash, or maybe bonds with the right terms that are going to mature when I’m going to need the […]

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