Top up shares or increase exposure to companies?

[youngone]

Diversify is good.

I have invested in 8 companies with capital value of $1000 each. I now have saved up close to another $1000.

My question is, do I stick to the current 8 companies and add more units ith the left over cash? or buy more companies and get exposure.

My game plan is to holding it for a few years, and hopefully get the most profitable results.

 

[Tysonboss1]

Re: Top up shares or increase exposure to companies

There are pros and cons with both options,

Generally the less knowledge you have the more important diversification is. Some schools of thought say you should hold up to 30 companies, others suggest only 6. I personally like to hold around 10, But I do have a heavier weighting to those that are the best value and have the most up side.

 

[moreld]

Re: Top up shares or increase exposure to companies

That is a very tough question youngone, that would take a whole book to answer properly. Actually make that many books, one for each differing view. So please take the following as a very broad answer.

• Diversify to protect capital, concentrate to accumulate.
• Never invest in more companies than you can follow the story of.
• If you are unable to determine your current best opportunities, using whatever investment strategy you prefer, then you should completely diversify via an index fund.
• Compare any new purchase to what you already own. Your existing companies are your hurdle and any new investment has to be a better opportunity than existing. If you can't determine that then diversify via index fund.
• Risk vs return is my preferred approach and I like at least 1:3, i.e. for every $1 at risk I want a possible $3 return. I generally create three scenarios for companies, worst, expected and optimistic. If company is trading at $1 and I see worst as $0.60 then optimistic would need to be $2.20. It gets more complicated than that. The main point is have a strategy that you apply consistently and track so you know how you are performing.

While modern financial theory says diversification is good, that does not make it so. You need to find what works for you.

If you always invest in your best opportunity then you won't go far wrong. Existing holdings should be favoured as you should know the story and that is a possible edge, depending on your insights.

Invest within your wheelhouse, your area of expertise. For example, if you're an electrical engineer, then you should probably stay away from biotech and invest in engineering companies.

Hope that's of some help.

 

[inq]

Re: Top up shares or increase exposure to companies

I would be waiting for a larger amount to invest. Unless you pay a tiny amount in brokerage, say the average of $20 a trade you are having to have a 2% increase in share price just to make up the cost of trade, then a further 2% before you sell. Then adding inflation etc. you need circa 6% before you start making any real money.

The minimum I generally buy in is around 4k, however would possibly put in 1-2k if it was a punt on an extremely risky speccy.

In relation to the question: 8 companies is a fair bit of diversity. Invest in companies which have the fundamentals to increase their EPS and DPS. Shares aren't pokemon cards, if you treat them as such you are only cutting yourself out of good returns.

 

[So_Cynical]

Re: Top up shares or increase exposure to companies

The trend followers mite tell you to put that 1k into the portfolio stock you hold that has gone up the most, to pyramid into your biggest winner, some investors mite tell you to follow the "dogs of the dow" type theory and put that 1K into the stock you hold with the highest dividend yield...low cost averager's like me mite be inclined to put the 1K into the stock that's fallen the most in your portfolio.

In 3 or 6 months time you will find out what you should of done. aint the share market fun.

 

[youngone]

Re: Top up shares or increase exposure to companies

There are pros and cons with both options,

Generally the less knowledge you have the more important diversification is. Some schools of thought say you should hold up to 30 companies, others suggest only 6. I personally like to hold around 10, But I do have a heavier weighting to those that are the best value and have the most up side.

Thanks Tyson. I like the idea of expending my portfolio. I also think 10 is a good number to keep.

 

[youngone]

Re: Top up shares or increase exposure to companies

That is a very tough question youngone, that would take a whole book to answer properly. Actually make that many books, one for each differing view. So please take the following as a very broad answer.

Invest within your wheelhouse, your area of expertise. For example, if you're an electrical engineer, then you should probably stay away from biotech and invest in engineering companies.

Hope that's of some help.

Hi Dean and everyone.

Thanks for the technical analysis and breaking it down for me.

Another question

I have a cousin who is 17 but is very keen on jumping the wagon. Is it possible for a 17 to have a comsec account.

 

[moreld]

Re: Top up shares or increase exposure to companies

I have a cousin who is 17 but is very keen on jumping the wagon. Is it possible for a 17 to have a comsec account.

Must be 18.
https://www.comsec.com.au/public/OnlineOrigination/App_PDF/CDIA_Terms_Conditions.pdf

 

[Tysonboss1]

Re: Top up shares or increase exposure to companies

I have a cousin who is 17 but is very keen on jumping the wagon. Is it possible for a 17 to have a comsec account.

I bought my first share when I was 14, It had to be bought under my mum's name in trust for me. But it would hardly seem worth having to do that if he is 17 and just has to wait a few months.

I think he should spend a few months building his capital and reading some of the great investment texts before jumping in. that way he will make better decisions.

But I wish him all the luck, the earlier you start your learning curve and your investing the better.

 

[Logique]

..My question is, do I stick to the current 8 companies and add more units ith the left over cash? or buy more companies and get exposure..

I don't want the time and effort of fully researching, analyzing and following 8 plus companies. That's what I pay my superannuation managers to do.

Sell some of the original 8 and put the freed up effort into the ones you keep (that's what I'd do, forum rules say can't give advice you understand).

 

[Tysonboss1]

I don't want the time and effort of fully researching, analyzing and following 8 plus companies.

Sell some of the original 8 and put the freed up effort into the ones you keep

I find that suggestion a little weird, On one hand you are saying that you don't want to spend time and effort conducting analysis on companies, which in my mind would suggest you need greater diversification, But then you go on and suggest less diversification and greater focus.

Even conducting the best analysis any indiviual investor can apply does not give one complete protection from unforseeable events, and if such an event happens and you are holding only say 2 or 3 companies you can suffer large losses that would have been far less disturbing if you had say 8 - 12 companies.

A lot of the time the investors that perform the best over say 20years are not the ones that had lots of brillient gains, But just the ones that had sound returns but avioded any disasters.

 

[Logique]

I find that suggestion a little weird ....A lot of the time the investors that perform the best over say 20years are not the ones that had lots of brillient gains, But just the ones that had sound returns but avioded any disasters.

I'm not argueing against diversity, not for a minute, and there's a guy called Warren Buffet who exemplifies your last statement.

Just saying that my diversification resides within my superannuation policy. For stocks that I personally manage, I've found that it's hard to unearth a gem, and even more work to research and monitor afterwards, including the risk management of stop loss, buy gain etc.

No way would I ever want more than 4 or 5 tops.

 

[inq]

You can effectively manage less baskets than more, so more shares does not mitigate risk, it can increase it.

You cannot get a baby quicker by getting 9 girls pregnant.

 

[Tyler Durden]

I don't want the time and effort of fully researching, analyzing and following 8 plus companies. That's what I pay my superannuation managers to do.

If only they did that...

 

[youngone]

You can effectively manage less baskets than more, so more shares does not mitigate risk, it can increase it.

You cannot get a baby quicker by getting 9 girls pregnant.

Sorry i dont agree with you or the logic behind getting 9 girls pregnant, thats kind of like comparing apple to seaweed.

I like having different eggs, i feel that i can manage my share with less risk, as well as learning to manage and keeping myself abroad different sectors. Im learning alot about energy sector.

I suppose the bottom line is, I want to be a pro investor, cant be a pro in 10 years if i dont take some risks.

 

[Tysonboss1]

I've found that it's hard to unearth a gem, and even more work to research and monitor afterwards

I aggree, as I said earlier pros and cons in both extremes. Warren buffet himself recomends 6 companies for the Most skilled enterprizing investor. Even warren has made a couple of big mistakes and had he had less diversification he would not have the record he has today.

But each investor has to make his deceision based on investment stratergy and personal skill level, there is no right or wrong answer.

Walter schloss who worked with Ben graham at the same time as warren buffet has also achieved great investing succes using extreme diversification normally over 100 shares, graham himself used extreme diversification also.

Here is a great video, in it the investment house graham is taking about is his own investment operation.

.

 

[inq]

Sorry i dont agree with you or the logic behind getting 9 girls pregnant, thats kind of like comparing apple to seaweed.

I like having different eggs, i feel that i can manage my share with less risk, as well as learning to manage and keeping myself abroad different sectors. Im learning alot about energy sector.

I suppose the bottom line is, I want to be a pro investor, cant be a pro in 10 years if i dont take some risks.

Not my logic buddy, from Roger Montgomery's book "Value.able". It was either from him or Warren Buffett, I forget which.

Of course diversification is good, however with such small investments it would be wiser to save up more to do large buy in's etc. I sincerely doubt you have researched to a depth which would be required to hold more than 8 stocks currently. Working out RoE forecasts, debt management etc. But each to their own, if you want to buy in stocks at 1k intervals sacrificing 2% profit each trade, so be it.

 

[Julia]

Tyson, would it be at all possible for you to just post your own thoughts on some threads without arbitrarily accompanying these with multiple Warren Buffet or Roger Montgomery videos?
It's really getting to the overkill stage.

 

[youngone]

...But each to their own, if you want to buy in stocks at 1k intervals sacrificing 2% profit each trade, so be it.

I cant do much in my given position, rent and studying full time isnt helping either. Its not much of a choice really. But i would like to think that next 10 years will be better if i can learn as much as i can now

@ Tyson. Thanks for the video. ;D

 

[inq]

I cant do much in my given position, rent and studying full time isnt helping either. Its not much of a choice really. But i would like to think that next 10 years will be better if i can learn as much as i can now

@ Tyson. Thanks for the video. ;D

Paying a mortgage while studying full time is harder, so cry more.

Now I'm just being mean.

Saving for longer as opposed to putting it in the market would generally be a wiser option. Fear of 'missing out' whilst saving for the rest of the money isn't a wise investment motive, it's not exactly like we're in a raging bull market right now.