# Would you put all your eggs in one basket?



## burglar (13 October 2012)

Guess what I bought today?
A wicker basket to put all my eggs into!





Not this particular one but one just like it!


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## cynic (13 October 2012)

Nice basket!

P.S. If it was anyone other than yourself posting, I'd be tempted to include a snide reference to "basket cases", but I know that doesn't apply in your case even though we happen to be discussing baskets!


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## Tysonboss1 (13 October 2012)

If this is a serious question, My answer would be no.

But I guess it depends how many eggs you have, and how much you rely on those eggs.

If you only have one egg, you don't really have a choice.


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## ROE (13 October 2012)

All my eggs are in stock for the last 12 years  and will be for the next 50 years

Just make sure the eggs you put in those basket are harden eggs cant be broken


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## burglar (13 October 2012)

cynic said:


> Nice basket!
> 
> P.S. If it was anyone other than yourself posting, I'd be tempted to include a snide reference to "basket cases", but I know that doesn't apply in your case even though we happen to be discussing baskets!




Hi cynic,

Like you, I am at a loss on weekends. 
I literally went out and bought a basket like this.
Then I had to do an appraisal to see if I got value.
There is a lot of wicker about, and some of it was cheap.

But I can keep it if needs be. 
Next to the "rug beater" I bought on a previous outing!


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## burglar (13 October 2012)

Tysonboss1 said:


> If this is a serious question, My answer would be no.
> 
> But I guess it depends how many eggs you have, and how much you rely on those eggs.
> 
> If you only have one egg, you don't really have a choice.




Hi TB1,

I only have one basket.
And now I watch it very closely.


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## Calliope (13 October 2012)

burglar said:


> I only have one basket.
> And now I watch it very closely.




Ahh. As Mark Twain said;

"Put all your eggs in one basket -- and watch that basket!"


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## Uncle Festivus (13 October 2012)

Australia has - it's called China - the basket is probably made in China too?


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## springhill (13 October 2012)

In hindsight, I can think of 15-20 stocks I would put all my eggs into.
Thinking ahead, I can only think of one and that is still a moderately risky proposition.


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## Julia (13 October 2012)

The question is not clear as to whether the OP is referring to having a number of stocks as opposed to one, or holding at any one time, just one asset class.


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## burglar (14 October 2012)

The OP was ruminating on diversification!

Is it good or does it spread your cash, your focus or other resources too thinly.
Does it really reduce risk?
Or does it reduce reward?

.


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## ROE (14 October 2012)

I love for someone to show me evidence that diversification outperform
well picked 1 asset class

I cant find evidence any where......

example: diversification vs
a portfolio of well picked 15-20 stocks say CBA WOW CAB ARP DMP NVT RFG etc...
I have a few of these....

example: diversification vs
2 Residential investment properties
1 Commercial property
WDC shares for properties trust..

In my opinion you dont need diversification, you need to know
what to buy and at what price to buy and you are way ahead...

and when you dont know what to buy and at what price, money stay in Cash...


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## Julia (14 October 2012)

burglar said:


> The OP was ruminating on diversification!
> 
> Is it good or does it spread your cash, your focus or other resources too thinly.
> Does it really reduce risk?
> ...



You're missing the point of my asking for clarification.
It's not clear whether you are 'ruminating' on diversifying across a variety of companies, but with all your investment in equities, or whether alternatively you're 'ruminating' on diversifying across asset classes,
e.g. cash, fixed interest, property, shares, precious metals, fine arts, antiques, whatever.

Does that make it clearer for you?

ROE:  Agree.


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## burglar (14 October 2012)

ROE said:


> I love for someone to show me evidence that diversification outperform
> well picked 1 asset class ...




Hi ROE,

I agree wholeheartedly with your posts.
It works well for you.

I dive into and out of companies. 
I have some favourites.

Some I have bought, sold and bought again.
It reduces homework.
But has some problems you don't experience.
Correct exiting is one that comes to mind.


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## burglar (15 October 2012)

Julia said:


> You're missing the point ...




 ... deliberately missing the point?!

I don't wish to lecture anyone on the benefits 
or otherwise of diversification!


Before I leave the topic I would like to mention this:
There was a time when half of my portfolio was related to the "Price of Gold"
The bottom line seesawed for months till I had it figured out!


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## Tysonboss1 (15 October 2012)

burglar said:


> Hi TB1,
> 
> I only have one basket.
> And now I watch it very closely.




do you mean a single stock. I don't think thats a good idea, It doesn't matter how well you watch it there is always the chance that an event that is completely un foreseen can have a massive effect on any one investment,

Natural disasters, major accounting fraud, the list goes on.

I would suggest maybe a minimum of say 6 stocks.


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## Tysonboss1 (15 October 2012)

ROE said:


> I love for someone to show me evidence that diversification outperform
> well picked 1 asset class
> 
> I cant find evidence any where......
> ...




I wouldn't class a portfolio of 15-20 stocks as having all your eggs in one basket.

a Portfolio of 15-20 stocks is likely to be extremly diversified in terms of asset classes, industry, geography and riskprofile.

I think the term " all eggs in one basket" refers to holding a single stock.

I think you may aggree with me that any single stock is probably to risky buy itself, except for maybe the giant conglomerates which are diversified within themselves, eg berkshire hathaway

But even warren buffet tell people he is only 99% Berkshire.


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## Klogg (15 October 2012)

burglar said:


> ... deliberately missing the point?!
> 
> I don't wish to lecture anyone on the benefits
> or otherwise of diversification!
> ...




Hah, I can relate - at the moment, 45% of my portfolio is on one stock... and I'm up 25% on it within 7months.

I'm also in the same camp as ROE - if you make your investment decisions extremely carefully, then there's no reason why you need diversification.


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## Tysonboss1 (15 October 2012)

> ... deliberately missing the point?!




I think clarifying that point would make the discussion better






> Before I leave the topic I would like to mention this:
> There was a time when half of my portfolio was related to the "Price of Gold"
> The bottom line seesawed for months till I had it figured out




I think it seesawed for months before luck went your way for a while, which left you thinking you had worked in out :


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## Tysonboss1 (15 October 2012)

Klogg said:


> if you make your investment decisions extremely carefully, then there's no reason why you need diversification.




Even the greatest investors make mistakes, if you have all you assets in a single stock, it can turn what would have been a speeding ticket into serious car crash that can take years to recover from or worst case wipe you out.

Warren buffet has made mistakes that if it were not for diversification would have cut his steller investment record in half, and some would have wiped him out if it weren't for some good fortune and good name.

Benjamin Graham goes as far as saying a single stock holding can not be classed as an investment, but rather a a gamble.


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## craft (15 October 2012)

burglar said:


> The OP was ruminating on diversification!





This is real tough question I reckon.

Asset allocation theory is lost on me.  I’m happy to only have equities and a default position of cash (near cash equivalents). I would hold other assets if I found they provided better returns, but maybe through a lack of research and understanding on my part I haven’t yet found better returns in other asset classes over the long run.

As for diversification within equities.

I have set myself some rules.

When Fully Invested I have a minimum of 12 Companies and a maximum of 18. These numbers drive how much capital I allocate to each business – the market will dictate the mark to market diversification which I step in to cap at a max of 25% for any one company.

The minimum number of holdings is there as a protection against unknowns and because I am a minority holder with no control over management. The maximum number of holdings is to force focus. The 25% M2M cap is there for my psychological comfort. 

These rules are the balancing act between knowledge/comfort/ambition. I seem to think about these rules more than nearly any other aspect of my plan and bedding down a definitive answer has always alluded me.


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## Klogg (15 October 2012)

craft said:


> When Fully Invested I have a minimum of 12 Companies and a maximum of 18.




Do you ever find yourself buying or searching for additional opportunities that may not be of the same quality just to hit the 12 company minimum that you've set?

Those rules do sound reasonable though.


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## Julia (15 October 2012)

burglar said:


> ... deliberately missing the point?!



Why?  It's a fundamental question for any investor and to ignore it is to devalue any discussion.


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## craft (15 October 2012)

Klogg said:


> Do you ever find yourself buying or searching for additional opportunities that may not be of the same quality just to hit the 12 company minimum that you've set?




I don’t have trouble finding enough quality companies.  It is a fact that the probabilities of a higher return come from the first pick then the 12th. But the key word here is *probabilities*. The future is unknown the outcomes therefore must be uncertain – I am happy to take the risk control over trying to shoot the lights out.  I have experienced to much of my own bias applying analysis, continually see lack of clarity in publically available information and seen too much fat tail stuff to chance being lucky when I don’t have too.


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## burglar (15 October 2012)

craft said:


> ... I am happy to take the risk control over trying to shoot the lights out.  I have experienced to much of my own bias applying analysis, continually see lack of clarity in publically available information and seen too much fat tail stuff to chance being lucky when I don’t have too.




Perhaps you care to elaborate on the "fat tail stuff".


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## Klogg (15 October 2012)

A short description here:
http://www.investopedia.com/terms/t/tailrisk.asp#axzz29LRFKXve

And more details on wikipedia:
http://en.wikipedia.org/wiki/Fat-tailed_distribution

I'd attempt to explain it, but others will most likely do it better.


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## burglar (15 October 2012)

Klogg said:


> ... I'd attempt to explain it, but others will most likely do it better.




So, more risk in the world than we were previously led to believe!

Ok! So now we need to be more risk averse.

Unfortunately, risk and reward are related!


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## Klogg (15 October 2012)

burglar said:


> Unfortunately, risk and reward are related!




Only to a point... More risk doesn't always equal more reward in some circumstances.


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## craft (15 October 2012)

burglar said:


> Perhaps you care to elaborate on the "fat tail stuff".




The future seems to accomplish the improbable more often than history would suggest.  Just because something hasn’t happened or seems unlikely based on history – it’s not worth betting your financial life on it not happening down the track.


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