WWII 014: Concentrate or Diversify, Penny Stocks, Newbie Stock Investing, Does Speed of News Lead To Better Returns
In this episode of the podcast, I lay out the pros and cons of concentrating or diversifying. Here are some highlights:
· Active, educated investors
· No speculating when concentrated
· Watch correlations in the portfolio
· Higher returns by selecting only the best
· Won’t sleep as well at night
· Black swan can cause a problem
· When everything is correlated, its problematic
· Consider that some holdings may be diversified themselves
· You will achieve closer to market returns
· You will sleep better at night
· Better store of wealth
· Mix is really important if you are heavily diversified
· Not a great way to become wealthy through investing
· Mutual funds diversify, and you don’t see many stories of wealth creation using mutual funds.
· You will know much less about what is in your portfolio
The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it."
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