# All on one share or spread out the risk a bit?



## fredd (8 October 2009)

Just wondering how many different shares do people on here have? Is it risky to have all your money in just 1 share? Or better to have a few to spread the risk out a bit?

What do you people do?


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## Krusty the Klown (8 October 2009)

Always a good idea to dilute the risk by spreading your capital. As long as it's cost effective. If you only have $5K then one company should be fine, as brokerage will eat in to your returns for multiple holdings.

As you capital increases you can spread the risk into different sectors, companies, regions etc.....


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## gooner (8 October 2009)

Krusty the Klown said:


> Always a good idea to dilute the risk by spreading your capital. As long as it's cost effective. If you only have $5K then one company should be fine, as brokerage will eat in to your returns for multiple holdings.
> 
> As you capital increases you can spread the risk into different sectors, companies, regions etc.....




I agree with Krusty's comments.

That said, really good money can be made by choosing just one share, if it performs. But the risk of losing all your money with just one share is really high, particularly if a spec stock.


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## skyQuake (8 October 2009)

gooner said:


> I agree with Krusty's comments.
> 
> That said, really good money can be made by choosing just one share, if it performs. But the risk of losing all your money with just one share is really high, particularly if a spec stock.




Agree, that would be for more experienced punters (and/or gamblers)


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## Putty7 (8 October 2009)

Im relatively new to the forum, I have a good sized capital base to work from and dont mind taking a punt when there is some upside, that said the best laid plans can become unhitched when throwing into one share, recently I had most of my capital tied to a small oil company because of an upcoming hole to be drilled, a solid floor under the share, a bit of upside to be realised and the timetable worked in to plans I had to diversify into other companies that also had upcoming drilling but at a later date. Because of a 3 week delay to the drilling it has thrown my timetable out and while the result may still be good in the long term, I decided to diversify anyway to eliminate some risk and maybe realise greater profit elsewhere in other companies. The risk was always going to be great with being heavily invested in a specy share and I am more comfortable being spread over a number of companies even if it costs me some profit.

 Just an example for you to consider, there was no harm done apart from brokerage costs which while not ideal doesnt hurt me that much overall, whatever you decide to do the biggest two things I have learned and it is re- iterated through some of the other threads by the more experienced traders, patience is a key factor and a lesson I have learnt the hard way, the other is to have a plan and stick to it taking your emotions out of play. Good luck whichever way you go


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## Garpal Gumnut (8 October 2009)

banska bystrica said:


> Hedders,
> I wasn't an existing shareholder. My broker puts me in some of these insto/sophisticated investor placements and with this one, I am happy to hold for 20c+ rather than stag like I did with ELD.






banska bystrica said:


> After today's trade I now hold 1M MOS, half of my targetted holding. Very comfortable buying at 13c and will keep accumulating whilst it trades at 13c.
> 
> Once the gas storage deal is finalised, the stock will spike and the historic chart will be about as useful as Kleenex.






banska bystrica said:


> No inclination to own MOS 12 months ago. You cannot be in all stocks. Diversification is a hedge for the ignorant.
> The gas storage upside is what I like. Circa 20c-24c is my target price. I would then exit as this is not "ten bagger" potential and that's what I look for when holding long term.




https://www.aussiestockforums.com/forums/showthread.php?p=497643#post497643

The above quotes are from a sophisticated investor banksa bystrika who has bought millions of Mosaic Oil recently. He was contacted by his broker because he is sophisticated during an institutional placement and bought them at 0.115.

He has since bought a few million more at .13.

They closed today at 0.125.

No doubt he will buy more. 

He is sophisticated and does not believe in diversification.

I, in my ignorance do believe in it, and I would advise any newbies to diversify.

He is the first sophisticated investor to share his insights on ASF and I would urge you to follow his progress in Mosaic as you may learn from the trading of his millions of shares. I'm pretty ignorant , so I'll definitely be following him. Thank god for sophisticated investors to lead us out of this recession.

gg


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## Sugar Dunkaton (8 October 2009)

i think it depends on your risk profile - if you have the capacity and want a low risk portfolio, diversify as much as you want - but not just between equities, but also between asset classes.

If you want the chance to make some serious money (and are willing to lose money to get there), increase your risk by lowering your diversification.

see this book, The Zurich Axioms - it is simple to read, and has some "alternate" investment approaches - ie - if you can sleep at night you're not risking enough.

http://www.neif.org/Zurich_axioms.pdf - ebook.


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## brty (8 October 2009)

Putting everything on one stock would make you a bold trader, especially if it was a penny dreadful.

The following from Ed Seykota is apt...



> “There are old traders and there are bold traders, but there are very few old, bold traders.”



”” ~ Ed Seykota

brty


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## gooner (8 October 2009)

Sugar Dunkaton said:


> i think it depends on your risk profile - if you have the capacity and want a low risk portfolio, diversify as much as you want - but not just between equities, but also between asset classes.
> 
> If you want the chance to make some serious money (and are willing to lose money to get there), increase your risk by lowering your diversification.
> 
> ...




I like to sleep easy at night. It is good for your health and soul. And having a blue chip portfolio helps me do that. It is not exactly diversified industry wise  as have a large energy component, but is spread across WPL, STO, OSH, with smaller amounts in NXS, AWE and TAP. Also hold some TLS on a trading basis with a target of $4 to exit.  Also hold some small holdings  in various companies in case of discounted SPP/capital raisings

I would consider having one stock, but only if I had most of my money in cash


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## Putty7 (8 October 2009)

A good example, thanks Garpel, like you I will follow the progress, I have owned these shares at one stage based on the same theory although without the exit price attached. 

When I first seriously invested in the market I bought a bundle of Rio Tinto shares at $42.50 when they dropped from the mid $60s, a week later they had dipped under $30 and had slightly recovered to $32, I have worked for Rio Tinto in iron ore and even though they carried a lot of debt, I figured they would survive as they were superior in a lot of areas with their mining compared to rival Bhp, there were other factors as well but I knew I was right to buy them even though I hadnt picked the bottom of the market. My first newbie mistake was to listen to others who thought I was crazy to have most of my cash tied to one share, that Rio was vulnerable and would more than likely go down with debt. They didnt, and even though they were not out of the woods reached high 60s/low 70s before they had a cap raising which dropped them to the low 50s. The confidence in my decision buckled early and I sold out at $39.50 as they came up, my emotions got the better of me, listening to others who were not experts got the better of me and I lost sight of why I had bought them in the first place. 

Basically it was my first lesson in trading (one of many). I dont think there is anything wrong with Investing in one share or to be diversifed, I think a lot depends on your own personal style and nature, the pressure associated with a one share investment is greater as is the risk, but so may be the reward.


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## fredd (8 October 2009)

Thanks guys! Its really good to hear examples like this


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## Lammy (9 October 2009)

Thanks for this topic.

I am a complete beginner and therefore thinking about investing small to start with (5K) in blue chip shares. 

As this is such a small sum, reading from prevoius posts it makes sense to me to invest in one company as the brokerage fees would be high for multiple small trades. I am thinking about investing in a well known bank such as ANZ or another blue chip company from another area. 

I know it has been mentioned that diversification reduces risk as you spead your portfolio of shares across more than one industry and multiple companies. However, since I am still not confident, would investing small in a single blue chip company that taps into everything (ie- Wesfarmers owns coles, bunnings etc etc) be a good move as the company itself is quite diversified in what it does and therefore less likely to be affected by downturns in an particular area? 

So for a beginner, would this be an okay move according to the more advanced members?

thank you


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## son of baglimit (9 October 2009)

something i was asked year ago, when i did diversify.

how many stocks do you own ?
how many stocks do you watch ?
how much do you know about each stock you own ?
how much do you know about each stock you watch ?
do you invest on the words or advice of others, your own research, or a mix of these ?
do you have time & resources to do all you own research ?
with what you plan to invest, IF it were to vanish overnight, would it be a minor setback, hurt enormously or be the end of you ?

having considered all of these, i realised for MY situation i didnt need to diversify. i wanted to minimise MY risk by doing my own research, rather than rely on the advice or thoughts of others. i used others information initially for guidance on what to look for, but then were able to RELY on my own research to make decisions. i had sufficient time & resources to research FULLY one stock, while also building a sound knowledge base of others within the sector, both locally and internationally, both competitors & not, to build sufficient confidence to invest, and therefore RISK, my entire investment pool in one stock.

the GFC was a temporary setback to all of this. while i was very confident my investment, and just as importantly the company itself, would survive the GFC, and it did handsomely, the overall market dynamics and how the GFC would effect the SP of a company whose market cap was under $300m was one thing i wasnt prepared for. losing half my capital (paper losses), and watching my stock lose 80% of its value from its peak was quite sobering. however having researched to the extent i did, and the confidence i had in that research, i rode this bump and used it to make even further investment.

having now doubled my capital again, with strong confidence of plenty more to come, i relax and await the day i can use these growing funds for the reason i invested in the 1st place - to retire early.

use diversification for a reason, not because a book, magazine, someone on TV or someone on a stock forum told you to. invest for the same reason.


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## The Owls (9 October 2009)

My share portfolio is for a SMSF so I have to be conservative and look for a reasonable to good dividend. I have chosen the 4 major banks plus Bendigo Bank and for a good dividend (If they continue) Telstra. The percentage of shares are Financial 85.55% and Telecommunications 14.45%. I currently have some extra money to invest and am looking at other shares outside the ones I currently have. What is the thought of other people-should I stay with the banks or look at others. If I should look at others please advise which companies you feel could fit my needs. I understand any replies that I receive are not financial advice but only an opinion. 
I have thought of contacting a broker but am unable to research brokers that would suit-If someone knows of a good broker in the Sydney area I would be grateful for their name. Thank you in advance for any advice.


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## gooner (9 October 2009)

The Owls said:


> My share portfolio is for a SMSF so I have to be conservative and look for a reasonable to good dividend. I have chosen the 4 major banks plus Bendigo Bank and for a good dividend (If they continue) Telstra. The percentage of shares are Financial 85.55% and Telecommunications 14.45%. I currently have some extra money to invest and am looking at other shares outside the ones I currently have. What is the thought of other people-should I stay with the banks or look at others. If I should look at others please advise which companies you feel could fit my needs. I understand any replies that I receive are not financial advice but only an opinion.
> I have thought of contacting a broker but am unable to research brokers that would suit-If someone knows of a good broker in the Sydney area I would be grateful for their name. Thank you in advance for any advice.




The only comment I would make is that if the crap really hits the fan in an Australian recession, banks being so highly geared get absolutely whacked share price wise. Looks as though we have been lucky this time. You may want to reconsider such a high weighting to financial stocks.


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## tech/a (9 October 2009)

Risk can be controlled wether it be one stock or multiple.
5 stocks with 1% risk on each is of course the same as 1 stock with 5% risk.

Or is it?

Now we can argue who is taking more risk and wether the diversification actually limits risk or if the portfolio heat is the same in each.


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## Garpal Gumnut (9 October 2009)

Ben Mandelbrot and Nick Taleb have written a nice article on diversification and risk.

Its worth a read. Its about 5 years old but still relevant.


gg


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## kam75 (9 October 2009)

Garpal Gumnut said:


> https://www.aussiestockforums.com/forums/showthread.php?p=497643#post497643
> 
> The above quotes are from a sophisticated investor banksa bystrika who has bought millions of Mosaic Oil recently. He was contacted by his broker because he is sophisticated during an institutional placement and bought them at 0.115.
> 
> ...





I think it was Ed Seykota that once said, "There's old traders, and there's bold traders.  But there are no old bold traders".  

The one thing I've learned is that the market can do anything anytime.  All it takes is one bad rumour to leak out and your stock's off down the ****ter.  

Money management and diversifying are THE MOST IMPORTANT components of any trading system.  In fact, I believe that they're more important than being right in the markets.

Now as for MOS, I would not touch it if it was Warren Buffett himself buying.


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## Garpal Gumnut (9 October 2009)

kam75 said:


> I think it was Ed Seykota that once said, "There's old traders, and there's bold traders.  But there are no old bold traders".
> 
> The one thing I've learned is that the market can do anything anytime.  All it takes is one bad rumour to leak out and your stock's off down the ****ter.
> 
> ...




lol

Yes, the black swan annihilates shares like MOS.

Have a look at the MOS thread mate. Buy at 8 and sell at 24 is the way to go with MOS. In between shows it can go fro 3 to 30, but its a matter of tolerance and you are depending on kind people donating through placements to pay the staff.

Money Management and Diversification are the two most important elements  in both investing and relationships with women.

gg


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## gooner (9 October 2009)

tech/a said:


> Risk can be controlled wether it be one stock or multiple.
> 5 stocks with 1% risk on each is of course the same as 1 stock with 5% risk.
> 
> Or is it?
> ...




Guess it depends on how you measure risk - amount invested or a VAR measure based on volatility of the stock


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## Julia (10 October 2009)

Lammy said:


> I know it has been mentioned that diversification reduces risk as you spead your portfolio of shares across more than one industry and multiple companies. However, since I am still not confident, would investing small in a single blue chip company that taps into everything (ie- Wesfarmers owns coles, bunnings etc etc) be a good move as the company itself is quite diversified in what it does and therefore less likely to be affected by downturns in an particular area?
> 
> So for a beginner, would this be an okay move according to the more advanced members?
> 
> thank you



Lammy, I understand your reasoning about the diversification within WES but that alone doesn't necessarily make it a good share to own.  (I'm not saying it is or isn't).  More important is (a) how well run the company is, and (b) how the market perceives the company, i.e. what the share price is doing.

One piece of advice that Warren Buffet (I think) offered is "only invest in what you understand".  e.g. you know what is involved in, say, Woolworths because you probably shop there, buy liquor from their grog shops, petrol from their petrol outlets and maybe even gamble at their gaming venues.
So maybe that would be one to consider.

I'd agree with your suggestion that with $5000 you only want to be buying one stock.  I'd strongly suggest you go to the ASX website www.asx.com.au
and read through their Education section.
Then, for an understanding of how price action works, spend around $35 and acquire "Secrets for Profiting in Bull and Bear Markets" by Stan Weinstein, available through the ASF bookshop, I think.  



son of baglimit said:


> use diversification for a reason, not because a book, magazine, someone on TV or someone on a stock forum told you to. invest for the same reason.



Great advice.



The Owls said:


> My share portfolio is for a SMSF so I have to be conservative and look for a reasonable to good dividend.



I don't understand why you need to focus on dividends just because the shares are contained within a SMSF.  Why not equally focus on growth?



> I have chosen the 4 major banks plus Bendigo Bank and for a good dividend (If they continue) Telstra. The percentage of shares are Financial 85.55% and Telecommunications 14.45%. I currently have some extra money to invest and am looking at other shares outside the ones I currently have. What is the thought of other people-should I stay with the banks or look at others. If I should look at others please advise which companies you feel could fit my needs. I understand any replies that I receive are not financial advice but only an opinion.



As Gooner has said, you've weighted very heavily into the finance sector.
I'd never do that for obvious reasons.
Why not some good quality industrials, or consumer staples, healthcare companies?  There's a huge variety of companies out there in different sectors, so maybe you could consider reducing your financial bias.

Are you intending to keep TLS because it has a reasonable dividend, regardless of what the SP does?   Will the "good dividend" still feel good if your capital value falls significantly?  I'm not suggesting it will (I haven't looked at TLS for years) but you need to think about this.
Ditto any stock that you buy "for the dividend and franking".



> I have thought of contacting a broker but am unable to research brokers that would suit-If someone knows of a good broker in the Sydney area I would be grateful for their name. Thank you in advance for any advice.



Do you mean you are considering using a full service broker so you can access their advice?  Do you realise what they charge in comparison with online brokers?  There is a heap of research available on the internet for free.
Don't get sucked into going to a full service broker where on a purchase of say $10,000 worth of shares you can pay up to $400 in brokerage.


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## Lammy (10 October 2009)

Thanks Julia for the tips 
will take your advice to heart
cheers


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## drsmith (11 October 2009)

Garpal Gumnut said:


> lol
> 
> Yes, the black swan annihilates shares like MOS.
> 
> ...



With regard to the corporate dependence of kind people donating through placements, such mining of shareholders pockets does have its advantages.

The geologist can always be sacked to save costs and there's no expensive mining infrastructure to build/maintain.


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