All on one share or spread out the risk a bit?
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Krusty the Klown
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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.....
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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Agree, that would be for more experienced punters (and/or gamblers)
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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
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
Garpal Gumnut
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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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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.
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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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...
brty
The following from Ed Seykota is apt...
”” ~ Ed Seykota
brty
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 raisingsI would consider having one stock, but only if I had most of my money in cash
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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.
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.
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
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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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.
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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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.
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.
tech/a
No Ordinary Duck
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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.
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.
Garpal Gumnut
Ross Island Hotel
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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
Its worth a read. Its about 5 years old but still relevant.
gg
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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.
Garpal Gumnut
Ross Island Hotel
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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
Guess it depends on how you measure risk - amount invested or a VAR measure based on volatility of the stock
