Diversification Can Cripple Your Returns


A method never talked about.
Over trading today is an enemy.
Control is taught by this method.
You ever hear this approach.

Why doesn’t the media talk about a concentrated portfolio approach,

The solution seems obvious.

Trading doesn’t be promoted by A portfolio composed of only a couple of equities. Brokerage firms are among the advertisers within financial news networks. These are the people that make trading for a living look easy. The want you to trade trade trade! Why they wouldn’t promote such a strategy that doesn’t involve 17, so it appears obvious. Finance sites need clicks and advertising dollars to remain alive. The cost per click for terms are extremely expensive. Terms such as “best online stock broker” are some of the most expensive searches on Google costing anywhere from $3.00 to $50.00 per click. So they have an interest in promoting active trading. So it should be no surprise and even ridiculed by the media,

Of has worked for many including our associates. The only regret isn’t giving it a name. We gave it a tagline called the “12 Trades per Year Portfolio”. In hindsight it should have been called 7 trades each year or 9 trades per year. You get the drift that we are having difficulty making it to 12 trades.

What this is not.

I’m speaking of the elimination of over-trading. Over-Trading is an easy mistake to make. We all have been guilty. Boredom make us put. A financial guru talking about option activity can cause a trade which shouldn’t have been. The thing is that you can resolve this starting now. Don’t do it. Simple as that. Stop it and stop it now. If you stop this terrible habit today and do nothing else you will see an immediate payoff. This is not rocket science, it is basic self-control. Don’t enter a trade. By making too many trades, even then you will have your losers and thus don’t compound it.

Billionaire investor Warren Buffett famously said that diversification”is protection against ignorance. It makes very little sense if you understand what you do.” He is basically saying diversification is for the typical.

To carry out this strategy.

Remain in touch with the news flow. Keep yourself informed and wait. You’re waiting for an occasion. What event, We do not know what we’re awaiting but we know one is coming sooner or later. Exercise your throwing arm by making notes about stocks while you are waiting. As an example, if the news of the week is “Gold is going to rise”, take note of what you think will happen in the next week, month or year. Notes of stocks and sectors you believe are overvalued and undervalued. Try to find upcoming trends and what the media may be talking about in another 3-6 months like we did with Nvidia (NASDAQ:NVDA). We had been writing about it in March when it was trading at $32.00. This will start getting your throwing arm ready. Like in sports you are training. The more you do this the stronger you become. Without proper training, you are doomed to fail. Surround yourself. Seek them out. You will eventually develop into a product of the individuals who surround you. Do this and when the “event” presents itself you will have the confidence to act. You won’t be afraid to go into a position with size.

The “market” is a big crybaby.

When pundits treat the marketplace like a person, I hate it.

The “market” needs this or that. The “market” wants rates to remain the same or needs a rate hike. Are you kidding me, These statements are coming from educated people! I want you to take notice how many times you hear someone in the financial media make a statement about the “marketplace” as if it’s a person. They speak of it like the market is an all-knowing being. You listen to them enough and you’d think the “market” is a 5-year-old child crying over candy! The “market” is made up of people. Guess what, People are driven by two main emotions.Fear and greed. Once you understand that greed and fear are the drivers of the game, only then can you begin to see stocks that are mispriced due to these emotions. You will begin the actual process of implementing this strategy after getting some time working under your belt. This is where the rubber meets the road.

Proponents of market hypothesis say that any new information related to the value of a company is quickly priced by the market.

This is the biggest load of bull dung sold to the investing public. If that is true how did I and a handful of friends make a little fortune by purchasing HealthSouth at .19-.40 pennies and sell it not long after for $6.00, Speaking about a example of fear and jealousy! This was a classic case. Even though I did make the percentage return of my career on this play, I look back and think of how I should have bet larger. I still get an occasional phone call from people who I shared the HealthSouth trade with say “I wished I had followed you” or “I’d have made a fortune had I listened”. That is the thing with trading, investing, speculating or whatever title you choose, you can almost always look back and see where you might have done better. The same is true with life generally. Do not let those once leave you on the sideline.

Caution:This method can be boring.

This is where it can get really boring. We wait. We wait and we wait longer. We start thinking this should be called “No Deposit per Year” because it’s boring. We think the opportunity won’t ever come. We wait more. But sooner or later it comes.

A few recent examples.

Sometimes it comes gentle and slow . This drama felt like it was in motion. Virtually every talking head was saying $20.00 Oil was coming. To listen to the media that week that the oil producers went to begin paying our vehicles to fulfill because it cost too much for them to store it, and stupid prices are here forever and there was nothing anybody could do. I’ll never forget considering the old simplistic saying “Be purchasing when they yelling and be selling when they yelling”. It seemed so obvious. So United States Oil Fund LP (NYSEARCA:USO) was the car that was chosen to trade at $7.81. USO traded near $12.00 towards the end of May. It felt so straightforward.

The United Rentals (NYSE:URI) buy in January at $46.60 didn’t feel as obvious as the petroleum play when thinking about it in hindsight. United Rentals was not a media stock darling and seldom gets a mention. While the conference call took place, the alarm went out. The stock closed at $55.84 the day before and was down more than $10.00 on the earnings miss. This felt like a major overreaction. We knew there was no threat of some other liquidity issues or a bankruptcy. It was the case of a stock becoming punished over a quarter. United Rentals traded at $49.46 only two sessions later and hit $51.08 five days afterward. Those that did market around those price levels have nothing to be ashamed as it retreated to $43.34 on February 11. But those that stayed with URI are appearing like a stock picking Rainman as $82.12 was the final number on August 23. But guess what, We shut the place for the member alerts portfolio on April 27 at a cost of $68.07 inducing the portfolio to lose out on another $14.00 of profit. Can you see how you can always look back and see how you could have done better, You can’t get too caught up in what you missed but you can learn from the event. $ 43,000 turned into $68,000. A percentage that is rarely achieved at a portfolio.

Holy Grail,

This is not the Holy Grail. Is this method bullet proof, No. Is the risk greater, Depends on which pundit answers. I can say I like the odds of picking 5 shares over a 12-24 month period than state picking 20-50 stocks. I like by entering stocks I feel 20, the odds better as I can control my risk. The risk level is up to the person. You should have a mental disaster plan in place. In a portfolio that is focused, an individual should have a escape plan. This may be accomplished with stops and/or by taking insurance on your own play through choices. Way is adding places equal to the number of shares you own. This gives you a risk level that is known. If the confidence level is high others may choose not insurance. It boils down to personal preference and risk tolerance.

This method isn’t for everyone. A person could choose to do this. But once you realize the “market” isn’t an all-knowing entity and “Fear and Greed” plays a huge part in the “markets”, you then become a better investor.


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