Here's a view which coincides with what I've been thinking for some time (and therefore may be an example of extreme confirmation bias on my part). Jim Rogers, co-founder with George Soros on the Quantum Fund says: "diversification is just something that brokers came up with, so they don't get sued. If you want to get rich ... you have to concentrate and focus."
https://news.thestreet.com/independ...ogers-on-why-not-to-diversify-portfolios.html
In this view, it's not all about length of time in the market. That'll just get you plodding returns (like the 2% my pension returned in the last year). My big gripe, though, is that diversification doesn't actually protect you. Yes, it'll save you from company- and industry-specific risk, but as long as you steer clear of stupid stuff the biggest risk by far is market risk which you can't really protect against.
So looking out for value buys and concentrating on a very small number of stocks seems to me to be reasonably sensible. So far I've managed to make a return of about 20% in six months while testing this strategy, though obviously that is much too short a time period to draw any inferences.
So looking out for value buys and concentrating on a very small number of stocks seems to me to be reasonably sensible.
So far I've managed to make a return of about 20% in six months while testing this strategy, though obviously that is much too short a time period to draw any inferences.
Will let you know how it goes next year.
You will have to wait around 20 years to have any meaningful evidence that any out-performance or under-performance is due to anything other than the randomness of returns.
Brendan
I dont agree with this at all. The whole point about picking a single share is that it avoids the randomness of returns.
If I think share X is undervalued and buy into it with a 6 months time horizon, I am entitled to regard the profit or loss I make beyond the market return as down to my skill and courage. Luck of course plays a part but that is true in any area of human endeavour.
One success or failure of course does not prove that there will be a consistent pattern into the future.
I may be a naive and inexperienced investor but I do know my maths.You will have to wait around 20 years to have any meaningful evidence that any out-performance or under-performance is due to anything other than the randomness of returns.
Brendan
So far I've managed to make a return of about 20% in six months
If you're one-nil up after two minutes it doesn't make you the better team, but it certainly increases the probability that you are. What level of evidence would you consider significant?Six months? That's almost like saying you're the better team when you're one nil up after 2 minutes. The game has only just begun.
Can't be certain, but I'm not sensing a whole lot of agreement with my position.
"diversification is just something that brokers came up with, so they don't get sued. If you want to get rich ... you have to concentrate and focus."
A full season. 90 minutes * 38 games.If you're one-nil up after two minutes it doesn't make you the better team, but it certainly increases the probability that you are. What level of evidence would you consider significant?
If you're one-nil up after two minutes it doesn't make you the better team, but it certainly increases the probability that you are. What level of evidence would you consider significant?
A full season. 90 minutes * 38 games.
In investing that would be 20 years at least.
Good point, Steven. Maybe I'm just trying to inject a bit of stimulation. I do have to admit the thought of slapping my cash in someone else's fund makes my eyes glaze over a bit. I want to have a bit of fun with this.Concentrated stock picking is liable to give you the same result. You can get the really exciting highs but you are very open to the devastating lows too (like a drug!!).
Also good questions. Part of my answer is that the fund manager has to stay invested all the time. To quote one of them: "there's no other game in town". I, on the other hand, don't have to. My needs are few. I can cherrypick the best value buys or I can stay away altogether. Ok, I still have to figure out what they are, but with only needing to trade a handful of times a year I can buy the significant dips (along with learning a bit of analysis along the way). And let's not forget that most active fund managers don't outperform the market either.Then we get to have you got the skill to pick the correct stock? Active fund managers have highly skilled people and millions in resources. They talk to CEO's, they talk to their competitors, the do tons of research before buying stock. And even still, they get things wrong a lot of the time. You are competing against these professionals. Are you going to put the same time and effort into analysing a company before buying? Where are you going to start?
20 years is absolutely arbitrary. As is 6 months. There's nothing scientific about it.Ok, so not trying to be smart or anything, but now let's get down to where you plucked 20 years from (same as Brendan previously). Is it because it sounds like a long time? Let's try to be a bit more scientific. If someone -- using whatever strategy of their choice -- has a random chance of being ahead of or behind the market at the end of each year, then the chances are a million to one against them beating the market every year for 20 years in a row (a million being the twentieth power of two). I don't think we need anything like that level of certainty to demonstrate that their strategy has something going for it. I'm not even suggesting that this binary end-of-year measurement is the right way to do it, but we have to have some metric, otherwise it's just completely arbitrary.
Take the US market over the course of its history (I think it's 1871 to present day).
Taking a one day time horizon, and all observations over the period, investors have been up 52% of the time. Not far off a coin toss.
However, taking any 20 year time horizon, an investor has NEVER been down.
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