NEW YORK ( TheStreet) -- Warren Buffett once said:"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."
Reshuffling My PortfolioAs easy as that may be for me to say, I realize this is, in fact, one of the most difficult things for investors to do -- particularly those who are often caught wanting to be right, even if it means going down with the ship. I could never quite figure the rationale behind that idea. Why not just live to trade another day? Instead, they allow their emotions to get the best of them and start treating their stocks as it if were a family member or a favorite pet. However, as the second quarter ends and the third quarter begins, I think this is one of the most important periods for investors who not only want to redeem themselves, but salvage what might be left of their leaking vessel. We have had six months to either prove how smart we are and/or confirm that we have no idea what we are doing. Nevertheless, this time we are going to devote our energy towards changing vessels - I say this regardless of whether we have been right or wrong. It goes without saying, if we have been wrong, then more than reason an adjustment is necessary. By the same token, if we have been right, do we want to risk holding these same stocks and giving up all of our gains? My problem is, I'm caught somewhere in the middle. Though I have adjusted periodically, like changing my oil, I usually make it a habit every 6 months to re-evaluate my positions and reshuffle my entire portfolio. I recommend you do the same.
What I'm BuyingFirst and foremost, since we are talking about vessels and ships, any portfolio that does not contain an anchor such as technology giant Apple ( AAPL) might as well prepare to sink.
Apple systematically does things to widen its lead in any market it chooses. The fact of the matter is, nobody has been able to really appraise the company and explain in a comprehensive fashion what its true value is. Although it has received a price targets as high as $1,100 the company has recently demonstrate that its ceiling is really whatever it wants to be. For Apple, its specialty has always been capturing the imagination of consumers. It seems that by virtue of its four-digit target, its stock has also just started capturing the imagination of investors as well. The question is, if $1,100 is possible, why not $1,500 or $2,000? I realize that perhaps I'm getting a bit ahead of myself, but that's because Apple has always stayed ahead of everyone else. So as an investor, I am inclined to believe that "getting ahead of myself" means catching up to Apple's real value. Keep that $1,500 target in mind. It's not as farfetched as it may sound. The next three stocks I will be looking to add are Cisco ( CSCO), Microsoft ( MSFT) and Oracle ( ORCL). This may sound somewhat hyperbolic, but I expect all three to have an Apple-like recovery over the next couple of years, particularly Cisco, which I think by 2015 can triple its current valuation. This is all due to how it has positioned itself as the future leader of mobile device traffic. In disappointing fashion, Wall Street continues to discount this potential by slapping the company with a P/E of 12. Despite the disrespect, the company just continues to churn out one good quarter after the next. Value investors would be wise to hope onboard. The stock is safe, it's not going anywhere but up and in the meantime it pays an excellent yield. Like Cisco, both Microsoft and Oracle also suffer from the same "wait-and-see" attitude from investors. However, not only do both continue to beat their earnings estimates, they are also well positioned for the next wave of the future in cloud computing. But it seems Wall Street wants more. Microsoft clearly is ready to deliver the level of growth investors crave. Not only is it on the verge of releasing its game-changing Windows 8 operating system, but at the risk of alienating its partners it has also announced its new Surface tablet to challenge Apple's iPad.
At $30 with a P/E of 11, the stock is not factoring the market share that Microsoft is likely to gain (perhaps not from Apple) from the likes of Amazon's ( AMZN) Kindle Fire and Samsung's popular Galaxy tablet. For a lot of the same reasons, I have found Oracle to be extremely attractive at these levels. Being one who never sacrifices value for growth, I have to think Oracle has become one of the most undervalued stocks on the market -- and it pays a decent yield. The company recently announced net income of $3.5 billion, or 69 cents per share, for the period ending in May. This compares favorably to what it produced last year when it earned $3.2 billion, or 62 cents per share. So I continue to wonder how is it possible that a rival such as Salesforce.com ( CRM) can command a forward P/E that is seven times that of Oracle while it still reports negative earnings. Without question this is something that Wall Street continues to get wrong. Finally, we've arrived at Facebook ( FB). At the moment, I am now looking for a new entry point after selling recently and trying to figure whether or not if it was a stupid or a smart move. Ultimately I decided it was the latter. Since reaching a near-term high of $33.45 on June 22 the stock has now fallen below my sale level -- essentially giving back the all of the 7 percent that I had left on the table. What has worked against me in this trade is the fact that the stock does not present sufficient trading history to play on investor psychology, even from a technical standpoint. However, although my gut tells me that the next target is $28, I'm looking at establishing a position at any price under $31. Bottom Line Warren Buffett also said: "I always knew I was going to be rich. I don't think I ever doubted it for a minute." While he turned out to be right, I tend to think that even if he was not wealthy in the monetary sense, he would have still been "rich," at least by my definition. His wisdom and knowledge in the realm of investing is unmatched. Though he is not the world's "richest" man, his wealth of investment knowledge makes it seem as though he is. The bottom line is, I doubt these five stocks can get me wealthy in six months , maybe not even in six years. However, I think from what I hope to learn from taking a broader look at the market today is that the "richness" that I crave lies not only in a better understanding of my investments, but also its primary drivers. At the very least, in six months I hope to be less poor.