Want to learn how to invest

[Boyd]

I have a strong preference for picking a directly held portfolio of 10 blue chip shares. I pick these at diversified random.
Brendan

In the grander scheme of things, is this the same as trying to pick "winners" (i.e. not "losers")? I mean there are hundreds of thousands of blue chip share companies, aren't you basically trying to pick ten that aren't "losers" here? Why do you think that's easier then picking 10 "winners"? I don't quite understand the difference between your strategy and trying to pick winners.

 

[Sarenco]

I am curious what people consider to be a "blue chip" stock.

My understanding is that the phrase comes from the world of poker and refers to the biggest betting tokens available. In other words, it simply refers to mega cap stocks like Apple, Exxon etc.

However, I wonder do people consider the phrase to imply some attribute other than market cap?

In either case, I don't really understand how the stock pick is random - either stocks are chosen on the basis of their market cap or on the basis of some other criteria.

For what it's worth, I think stock picking is nuts for the vast, vast majority of private investors. Choosing to hold a portfolio of only 10 stocks from the thousands of stocks that are publicly traded across the globe is stock picking whatever way you look at it.

 

[Gordon Gekko]

There aren't really hundreds of thousands of such companies...there's probably only a couple of hundred.

Academic research suggests that you should have at least 30 companies.

Having said that, you wouldn't be on the worst track in the world if you picked 10 globally diversified companies, avoiding those with a higher probability of blowing up. The problem is which ones!

e.g. Diageo, Colgate, Nestle, Coca-Cola etc.

My own approach is to use funds and ETFs.

 

[Rory Gillen]

Hi Rory

I don't think that either you or anyone else can pick winners. So I don't believe in the equity analysis which you do and which I understand you train people in. There are a few exceptional people who break the rule e.g. Warren Buffett.

I am not a fan of ETFs by the way.

I have a strong preference for picking a directly held portfolio of 10 blue chip shares. I pick these at diversified random.



Brendan

Let the debate continue Brendan because I believe you are fundamentally misunderstanding the issue. No one, especially myself, is suggesting we are likely to pick the winners above others. Rather, it's my core belief that most private investors find it difficult to achieve the returns that stock markets offer over time due to improper understanding of risks, a lack of understanding of value, excessive trading, and insufficient attention to costs.

If, as a do-it-yourself investor, you can get the above right you are well on your way to getting the returns available. As stock markets have provided returns of circa 4-5% above bank deposits over the long-term, then choosing to invest in stock markets with your savings is done in pursuit of those superior returns.

You mention that you buy companies yourself and diversify. Good. But what about those who don't know how to assess a stock or fund. On your line of reasoning, everyone is born understanding how to invest.

This is as true as saying that to drive a car all we need to do is open the door, get in and start the engine. Poppycock. You must learn how to drive, you must understand the risks and so doing you can mitigate the risks and obtain the benefits of driving.

So, too, it is with investing. One should surely take the time to understand what it's about, what the risks are, how to mitigate the risks and obtain the returns on offer. No doubt the next line of objection here will be that you can learn it all in a book. Maybe some can. But perhaps some are better off getting some quality training!

I don't think I've come across a website that is so overwhelmingly negative on anything that suggests how to improve. I'm hoping there's some other sane voices on this forum than the ones I've read so far!

 

[Dan Murray]

I believe....fundamentally......that.........No one, especially myself, is suggesting we are likely to pick the winners above others. Rather, it's my core belief that most private investors find it difficult to achieve the returns that stock markets offer over time due to improper understanding of risks, a lack of understanding of value, excessive trading, and insufficient attention to costs.

If this is true - why not advise investors to put their money into low cost indexed funds and "stay the course" (i.e. not try time the market, etc.)?

 

[Rory Gillen]

If this is true - why not advise investors to put their money into low cost indexed funds and "stay the course" (i.e. not try time the market, etc.)?

Dan, that's because many do not know how the markets operate, why they've delivered better returns than bank deposits over the decades etc. You're assuming everyone starts off with the basic knowledge already in place. In addition, there are assets other than equities that can produce positive returns but without the same level of sensitivity to the general economy.