Sunday 4 March 2018

Diversification VS Focused Investing


I supposed everyone heard this kind of story before:
SOMEONE focused investing at shares of a company,
then the share price rose for more than 10 times,
that SOMEONE invested successfully and became super rich,
a successful example of getting rich through shares investment!

 Sounded very encouraging, full of hopes, interesting, right?

 Of course,
old topic like buying Public Bank shares,
then hold it for many man years and became rich,
this kind of example I will not talk about it.
This is a way that everyone knew, everyone agreed,
but not a lot willing to do it~

 Actually not just Public Bank,
for the past 10 years, shares price of a lot of companies also rose a lot,
example like NESTLE, DLADY, F&N, AEONCR, LPI and so on.

 The latest examples which happened last year were KESM, HENGYUAN and so on.

 So here is the question,
even though you bought those shares that the price rose a lot,
but actually how much did you earn?

 After seeing the price rose,
of course we would say that we should ALL IN and focusing investment at that company,
but at that time before knowing the price will actually rise so much,
do you dare?

 If not dare and you only invest a certain portion of your capital into it,
how much can you earn?
If the capital is small,
you can only earn a few thousands only,
how to get rich?

 Of course,
I am here not to encourage everyone to simply ALL IN, simply focused investing.

 At the investment world,
there are a lot of debates between Diversification VS Focused Investing.

 Those who support Focused Investing will say that,
by focusing your capital, only the return of portfolio will be higher.

 However,
what if you focused investing at the wrong company?
All the years that you spent waiting for the price to rise,
aren't that all wasted?

 Those who support Diversification will say that,
by diversifying the investment, then the risk also diversified,
so if one of company that you invested bankrupts,
you will just lose not all but a portion of your capital.

 However,
the risk diversified, eventually the return of investment also diversified.
Let's say if I Focused Investing at AEONCR only last year,
then the return of my investment will be more than 50%........

 Are you actually willing to lower down your return of investment every year,
just to diversify the risk?

 Anyway,
there are some fixed impression at investment world that,
the story of getting rich by Focused Investing sounded more interesting.

 Why?
The reason is simple.
Which type of story is more interesting?
A normal boring story or an exaggerated interesting story?

 For example:
A. That girl has very thin waist and long legs.
B. That girl has a lower body like a snake.
Which example will leave a deeper impression, easier to stay in your mind?

 Especially long long time ago,
when there was no vocabulary and the ancients passed knowledge by telling story only,
which type of story will be easier for people to remember and pass to next generation?

 If that girl who has very thin waist and long legs came to modern world,
and found out that she became an existing which her upper body is human but lower body is snake in ancient story,
how will she feels about it?

 Ooops, I talked too far...........

 The thing is........
human A fully concentrated all the money and focused investing at T company only, then shares price rose a lot a lot, and A became very rich.
OR
human B diversified and invested at a few companies, every year earned good returns, and then became very rich.
Which story sounded more interesting and able to spread out quickly?

 I believe everyone heard this sentence before:
"Put all your eggs into one basket, and watch it carefully."
If you hold a lot of shares of the company,
or you are able to be director, then of course no problem.

 However,
as a retail investor,
there are many insider news that we wouldn't know about it.
If we still do Focused Investing,
it is like putting all eggs in one basket, then seal the basket in a black box,
you can only watch from outside the black box,
never get to know how are the conditions of the eggs inside,
even the eggs are rotten,
you wouldn't know.

 There is a certain kind of person,
which is definitely not suitable for Focused Investing.
The 25% of that person's investment portfolio were consisted of AEONCR shares,
then the shares price rose a lot,
until AEONCR took up 35% of that person's investment portfolio,
and that person started to have hard times to fall sleep at night...............

 Yeah right,
that person mentioned above, is me~

 Anyway,
even though I wrote a so much,
but it doesn't mean that I am 100% opposed to Focused Investing.

 It is just that............

 Before you deciding to go for Focused Investing,
did you consider every aspect of things?
Did you decide just because of a quote from a famous investor?
Did you decided after listening to a story?
Is that story really trustworthy?
Are your personality really suitable for Focused Investing?
Which investment method do you think is more suitable for yourself?

 Investment is about doing own thinking, making own decision.

 Thanks for reading.








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