Quote:
Originally posted by pwd72s
No more than 4% of the equity side of a portfolio should be in a single stock...just my opinion. Here's another weird stat to consider. There are over 7,000 mutual finds out there...some load, some no load, some with high fees,some with low fees...all claiming they hold the key to success. Guess what? With all the MBA's doing analysis, with all the computer programs they have, with all their monitoring of all the world's markets, their reading of corporate quarterly reports...less than 5% of these funds beat the total market index. And the names of the 5% that do outperform the total market index change in any given year. I'm supposed to analyze a single stock among all the offerings? Nope...Everybody is looking for the next Microsoft, and I'm sure such a company is out there, along with countless thousands of others that will fail. As soon as you have a sure way to pick only the winners, let me know.
|
That is overall good advice/opinion
if your goals on investing is "preservation of capital."
If you do decide you want to seek extreme growth, and can tolerate the risks on the possibilities of loss of your capital, then you won't follow the "safe" rules about investing.
If you look for investments with virtually no risks, then you have to be ready to settle for investments that give you virtually no return.
There is also room for
both speculative trading and conservative investments if someone wants both in their life. (You can own both a Porsche 930 and a Dodge Caravan and not be living a contradictory life.)
Of course, if you think that before you can make any investment decisions that you must first find some "sure way to pick only the winners" you are approaching the topic with the wrong attitude.
The key is to understand the risks; know what has to happen for an investment in a specific position to pay off, and know the opposite, what can happen that would cause you to lose money. Know yourself, what you want, what risks you are willing to take.
When making an investment decision, you are trying to predict the future; there will be knowable variables (like the history of the specific investment you are considering) and unknowable ones. The "unknowables" are
not all just "wild gambles." You
can come up with "probabilities" on the chances of specific unknowable variables happening.
Sometimes you may make a decision to put money in a position with a high probability for losses if you know there are very high return potentials if certain improbable, but possible, things happen. In such speculation, you actually
expect losses -- this is very much the case if you purchase options for a speculative position in the underlying security.
And don't listen to the people with the MBAs; they're almost all idiots! (Which explains why most of them can't outperform the indexes.)