Diversify or die

Houston and Silicon Valley experts advise investing outside the box

The Bayou City knows energy. Silicon Valley knows tech. But each can't only invest in what they know. Getty Images

There's an adage in investing that you should only invest in what you know. Generally speaking, this is a good rule — if you do not understand a company product or have no experience with its industry, then investing in a specific company could be risky. Yet, there are times when it's necessary to get out of your comfort zone and try something new and adventurous. The challenge is determining how to do that.

We are financial advisors from Houston and San Francisco, and we frequently do just that — encourage our clients to explore investments out of their comfort zones.

In Houston, we understand energy. As of 2017, Texas accounted for 37 percent of the nation's crude oil production and 24 percent of its natural gas production. And as of January 2018, Texan oil refineries accounted for 31 percent of the nation's refining capacity — and that is just oil. In 2017, Texas lead the country in wind-generated electricity and generated a quarter of all wind power in the US. It is safe to say, we feel comfortable talking the language and investing in the energy industry. Whether it is machinery fabrication for upstream, construction of pipes for midstream, or refining downstream, some Texans are comfortable investing in these areas.

In San Francisco, we understand tech, whether it involves social media, silicon, or apps. We have five of the top 10 most prominent tech companies in the world. In 2018, the technology industry accounted for around 62 percent of all office leasing activity in San Francisco. The Bay Area also dominates venture capital investment, accounting for 45 percent of all capital investment in the U.S, in large part because of tech startups in the area.

Naturally, we see that some investors in our hometowns feel comfortable investing extensively in these two industries. Sometimes, these investments take the form of venture capital, other times they are individual stocks.

For Houstonians, allocating all of their investments to the energy industry carries too much risk should the energy industry falter. The same is true for San Francisco with venture capital and technology.

Therefore, we encourage investors to diversify their portfolios by placing funds in multiple vehicles and equities with the knowledge that different industries will react differently to market ups and downs. While there is never a guarantee of the outcome, diversification is one of many factors critical to long-term investment success.

For Houstonians and San Franciscans, there are other industries we understand in which we can invest. For example, Houston boasts the largest medical center in the world with roughly 361,000 people employed in the healthcare industry. While San Francisco employs roughly 277,500 in tourism. If you're looking to diversify your portfolio, look around to see the opportunities in which other people are investing. You may be surprised about what you learn, and ultimately how comfortable you can become investing in industries you may be unfamiliar.

We do not recommend ever investing in a product or industry that you have no understanding of at all. However, if you have excitement about an investment opportunity and feel there is potential for growth to your portfolio, your investment may prove fruitful in the future. Still, please seek out a financial advisor to help.

------

Joseph Radzwill is senior vice president and financial adviser with the Wealth Management Division of Morgan Stanley in Houston. Victoria Bailey is a financial adviser with the Wealth Management Division of Morgan Stanley in San Francisco.

Baker Botts is connecting the dots between its HQ, its startup-focused Silicon Valley outpost, and Texas accelerators. Nick Bee/Pexels

In order to keep up with the growing startup ecosystem in Houston, Baker Botts is connecting the dots between its Silicon Valley venture and entrepreneurial hub to strategic partnerships in its headquarters of Houston.

Houston-based Baker Botts L.L.P., an international technology and energy law firm, established its Emerging Companies and Venture Capital arm in Palo Alto, California, in 2009. Now, in order to tap into Texas startups, the firm has created strategic partnerships with three accelerator organizations: The Cannon, Station Houston, and Capital Factory.

"These three strategic partnerships provide an exciting opportunity to showcase the depth and breadth of our technology sector experience in the startup, venture capital and entrepreneur community," says Baker Botts managing partner, John Martin, in a release. "We have a history of working with emerging and technology companies throughout their full life cycle, and we expect these partnerships will expand those opportunities more broadly. Some of our firm's largest clients are businesses with which we have worked since they were startups themselves."

This news comes on the heels of The Ion breaking ground on July 19, the release notes, which represents another major collaborative effort and advancement of innovation in Houston.

"It is exciting to see Baker Botts expand its involvement with the Houston startup ecosystem," says Brad Burke, managing director of the Rice Alliance for Technology and Entrepreneurship, in the release. "The firm has a long history of supporting entrepreneurs in the region and has been a partner and supporter of the Rice Alliance and the Rice Business Plan Competition since 2002. The firm's expertise and connections will be of great value to startups in the Houston region. With the launch of the Ion in midtown, the launch of new accelerators, and the support of firms like Baker Botts, Houston is poised to transform its entrepreneurial landscape."

The strategic partnerships will put each accelerator and innovation hub in direct communication with Baker Botts' Emerging Company and Venture Capital practice, led by Brian Lee, partner-in-charge of the firm's Palo Alto office. The ECVC provides advice for entrepreneurs and startups, as well as connects them with investors and various industry professionals.

"In forming these partnerships, Baker Botts will be working with a range of innovative, Texas-based companies from the ground up," says Samantha Crispin, Baker Botts' technology sector chair, in the release. "One of the most intriguing aspects of these partnerships is the expected cross-pollination of our Texas and California ECVC practices and that the most promising companies will gain exposure to potential investors, including those in Silicon Valley."