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  #1  
Old 12-04-2005, 08:16 AM
Degen Degen is offline
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Default Diversification

My strategy up to this point has been to put all of my investment money in one or two investments that I think are excellent. Whether this be a hot stock or a piece of real estate or a business or whatever. I've been taking my whole pile and shoving it behind ventures I see as outstanding.

I'm 25 and a professional poker player...I embrace calculated risk taking.


This article reinforces my position:

Recently in the Portfolio thread somebody suggested this was poor.


Anybody care to weigh in on either side of this?
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  #2  
Old 12-04-2005, 08:27 AM
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Default Re: Diversification

Younger people can gamble more with their money (i.e not hold bonds, T-bills).
Your capital allocation is most important, that is, where you put your money.
Putting all your money in 1 venture is not very smart.
Put 20% in bonds, the rest in 5-10 stocks and experience the magic of compounding.
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  #3  
Old 12-04-2005, 09:09 AM
Warren Whitmore Warren Whitmore is offline
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Default Re: Diversification

I like your style. Another quote from Warren Buffett from "Buffett & Gates on success." "When you see something exceptional that is not the time to read a book called the fundementals of the efficient market theorem. It is the time to take the thumb out of your mouth."
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  #4  
Old 12-04-2005, 09:37 AM
Degen Degen is offline
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Default Re: Diversification

[ QUOTE ]
Put 20% in bonds, the rest in 5-10 stocks and experience the magic of compounding.

[/ QUOTE ]

Also known as 'diversification'

Other than you saying that my strategy 'isn't smart' do you have any other thoughts to add on why?
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  #5  
Old 12-04-2005, 10:32 AM
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Default Re: Diversification

[ QUOTE ]
[ QUOTE ]
Put 20% in bonds, the rest in 5-10 stocks and experience the magic of compounding.

[/ QUOTE ]

Also known as 'diversification'

Other than you saying that my strategy 'isn't smart' do you have any other thoughts to add on why?

[/ QUOTE ]


Sorry mate, I was referring to that you donīt have to diversify
in the sense of investing in 20+ stocks,mutual funds,bonds,t-bills, or index funds.

But it would still not be smart to invest in just 1 venture. There is no such thing as a sure thing, you are simply not getting the return that justifies the risk.

Are you implying that if you invest in more than 1 venture, say two stocks, than that is 'diversification' ?
Surely not.

In the end it all comes down to how much money you have.
If it is $1000, then go ahead and throw it at 1
stock/venture.

If you however have say $100,000-$1,000,000 Than you have to be more passive.

Thatīs just my opinion
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  #6  
Old 12-04-2005, 11:13 AM
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Default Re: Diversification

If a perfect system existed, everyone would use it and the market would cease to fluctuate.

The upside of your system is that if you're right, you'll clean up; the downside, you might wake-up one morning and find that much of your net worth has disappeared.
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  #7  
Old 12-04-2005, 02:10 PM
DesertCat DesertCat is offline
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Default Re: Diversification

[ QUOTE ]
My strategy up to this point has been to put all of my investment money in one or two investments that I think are excellent. Whether this be a hot stock or a piece of real estate or a business or whatever. I've been taking my whole pile and shoving it behind ventures I see as outstanding.

I'm 25 and a professional poker player...I embrace calculated risk taking.


This article reinforces my position:

Recently in the Portfolio thread somebody suggested this was poor.


Anybody care to weigh in on either side of this?

[/ QUOTE ]

Well, you are a pro poker player. Do you embrace playing for your entire bankroll at a single game, no matter how fishy you think it is? Why would you manage your portfolio less expertly than you handle your bankroll?

Actually I don't totally disagree with the approach, I in fact have a goal to get my portfolio down to 5 stocks. It never happens, due to the vagaries of relative prices to value ratios of what I'm holding and what I can buy. But I'm around ten stocks now, and have three stocks that are over 50% of my portfolio.

But I spend all day every day researching stocks. Expecially reresearching my existing holdings. I don't own any "hot stocks". Everything I own is cheap in relation to it's true value, so I limit my downside risk carefully. My "bankroll management" strategy ensures that worst case, if I totally whiff on my research and have a position go to zero, I can't lose more than 20-25% of my portfolio.

In reality, most stocks have almost zero chance of total loss, so I'm typically taking the risk of a 10-15% loss from a single position dropping by half or more before I discover my mistake. One exception is that I occasionally take some positions where the risk of the stock going to zero is much higher than normal (but have much higher than normal upside if they don't). I will never put more than 10% into one of those positions, not matter how good the upside.

One of your previous posts stated you were 100% GOOG. I think this is tremendously unwise. It's not just a question of GOOG being a good co., it's a question of whether the market is overvaluing it or not. You have all sorts of risk, from competition, to valuation, to market size and growth.

Another post indicates you use stop losses to protect yourself. This is okay, but stop losses are also a way of missing out on big gains, just because they were proceeded by a small dip. The reason to own a stock is that you believe in it's upside and it's current valuation. Selling it when it's cheaper and more attractive isn't a route to riches.

As far as private businesses go, I have a friend who's made millions from starting software companies. He is a certifiable business genius. He put it all in his latest venture. He is now flat broke and near bankruptcy. Twenty years of hard work is now gone, he's starting over. That may not scare you at 25, but it sure will at 40.

In summation, I only recommend focused portfolios if you really understand how to research and value investments. Even then, you have to follow a porfolio strategy to control risk. Otherwise take the passive approach and get an index fund.
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  #8  
Old 12-04-2005, 03:53 PM
Ed Miller Ed Miller is offline
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Default Re: Diversification

[ QUOTE ]
One of your previous posts stated you were 100% GOOG. I think this is tremendously unwise. It's not just a question of GOOG being a good co., it's a question of whether the market is overvaluing it or not. You have all sorts of risk, from competition, to valuation, to market size and growth.

[/ QUOTE ]

While DesertCat's entire post was excellent, I wanted to requote this. The idea of concentrating your portfolio into a few superstar investments is one that has its place... IF YOU ARE VERY KNOWLEDGIBLE.

With all due respect, I believe your judgement isn't developed enough yet to make concentration work for you. Mine certainly isn't either. There are intelligent people like DesertCat who spend 40 hours a week, every week, researching, reevaluating, making mistakes and learning from them. I don't think you've done that... and until you do, there are levels of knowledge you haven't yet attained.

I don't know your story, but I have the feeling that you are long on smarts, but a little short on experience. I think if you continue to invest your portfolio heavily in stocks like GOOG, you will get horribly burned one of these days.
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  #9  
Old 12-04-2005, 04:44 PM
Uglyowl Uglyowl is offline
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Default Re: Diversification

Out of a field of 7,500 actively traded stocks you should be able to come up with 5-10 that are good values.

There are so many wild cards out there that make not diversifying to a certain extent foolish.
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  #10  
Old 12-04-2005, 06:20 PM
AceHigh AceHigh is offline
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Default Re: Diversification

[ QUOTE ]

Anybody care to weigh in on either side of this?

[/ QUOTE ]

It's risky, I like to have around 5-10 stocks. But I'm sure you can be successful doing it.

If you are going to take this strategy I think you have to get out of your losers fast. Really fast, maybe stop loss at 4% or so. That might be too fast. Especially because I often end up with smaller, more volatile stocks.
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