After reading Peter Lynch's book for the nth time, I came to realize that I am doing in wrong and not playing to my strengths. Picking stocks like a fund manager where you pick 10 stocks and more so that you are diversified does not make sense to me. Managers do that all the time so their losses are minimized, also gains.
An individual investor such as ourselves could benefit from the freedom of managing our own funds and can allocate the assets on the more concentrated ones that you are sure to likely profit within the next 10 years.
This and Warren Buffet's words that "You don't have to diversify". Is the deal breaker for me. He says, "If you own 50 stocks, do you rank the first stock as well as the 50th stocks? Do you know it as well? I don't think so..."
Mr. Buffet has a point. If you own that much of a stock, is there a way you would know that one stock is underperforming? Would you know each stock as well?
Find stocks that fits your selection criteria then concentrate on those stocks. You only need a few winners to make you a millionaire. Missing a couple of 10 baggers doesn't make you bankrupt nor lose money.
With all said and done. I reduced my stock holdings from 12 to 7. Trying to get rid of the last 1 to focus on this 6 stocks that I would like to concentrate on. 3 of which are dividend paying stocks and 3 of them are growth stocks that I expect to skyrocket for the next 10 years because of their great balance sheets and businesses. Freedom Fund has made great overhaul.
I'm trying to diversify by buying 20-30 stocks. My holdings are currently equally-weighted, but I'll adjust the weights as the months go by. Picking stocks like a fund manager makes sense to me because I'm approaching the problem from a Mathematical perspective. If I can't beat the market, why not just buy the market (or the weighted approximation of the market hehe)? I'll just "beat" the market through money management. :)
ReplyDeleteHi Simon,
DeleteI think you are right. Why make it hard for yourself in making money, where the market will almost always go up and make money. If you can't beat the market, buy the market.
But I think this is also a personal preference. I like to beat the market by buying only a few stocks that I can hold and beat the market overtime. Spreading my risk to a lot of stocks will diminish the risk but also the returns. In a way, its high risk, high return that's what I'm after.