Post by oldman on Oct 19, 2013 8:37:11 GMT 7
Even though I am a very focused investor, I still achieve a certain level of diversification in the stocks that I hold. I have intentionally shared 3 of these stocks in this website to illustrate this point.
Isetan is a well known high street retailer. Powermatic Data Systems is essentially an information technology company in the networking industry. New Wave is a commodities type company trading in alluminium products. Hence, with these 3 companies, I have invested in 3 totally different lines of businesses. The common theme however, is that all these 3 companies are asset rich and their level of cash and properties are close to or exceed their current market capitalisation.
There is also diversification in terms of excitement/ risks in the portfolio. Isetan is a solid and stable company but from an investment standpoint, it can be described as boring. In some months, there may only be a few lots traded! Powermatic Data Systems is also boring though there are usually more trades here than for Isetan.
New Wave is exciting as it is in the micro penny territory where the share price can go up and down quite quickly. Every tick change can account for a change of 10% of its share price at the current price of 1ct. The commodities trading business is also a volatile business and such companies can undergo volatile changes in profits and losses. Yes, such businesses are more risky but it does add some spice to one's portfolio.
The point I like to make is that one can still achieve a decent level of diversification even though one has a very focused portfolio. This level of diversification has to be planned in the development of one's portfolio.
In other words, before I select the stocks for my portfolio, I would have a list of all the stocks that met my stringent asset and profit requirements and from this list, I would then segregate them into the various industries and then decide which industries I want to invest in and finally, choose the best companies from my lists.
Such is the amount of work that is needed to finally select the stocks to ensure sufficient diversification in a focused portfolio. Do note that the primary objective of my portfolio is to maximise the capital returns and yet, not take too much risks. I am also not concerned with dividends. You may have different objectives and hence, your selection of stocks is likely to be different from mine. Each of us has to construct our own portfolio of stocks to fit our individual objectives.
Isetan is a well known high street retailer. Powermatic Data Systems is essentially an information technology company in the networking industry. New Wave is a commodities type company trading in alluminium products. Hence, with these 3 companies, I have invested in 3 totally different lines of businesses. The common theme however, is that all these 3 companies are asset rich and their level of cash and properties are close to or exceed their current market capitalisation.
There is also diversification in terms of excitement/ risks in the portfolio. Isetan is a solid and stable company but from an investment standpoint, it can be described as boring. In some months, there may only be a few lots traded! Powermatic Data Systems is also boring though there are usually more trades here than for Isetan.
New Wave is exciting as it is in the micro penny territory where the share price can go up and down quite quickly. Every tick change can account for a change of 10% of its share price at the current price of 1ct. The commodities trading business is also a volatile business and such companies can undergo volatile changes in profits and losses. Yes, such businesses are more risky but it does add some spice to one's portfolio.
The point I like to make is that one can still achieve a decent level of diversification even though one has a very focused portfolio. This level of diversification has to be planned in the development of one's portfolio.
In other words, before I select the stocks for my portfolio, I would have a list of all the stocks that met my stringent asset and profit requirements and from this list, I would then segregate them into the various industries and then decide which industries I want to invest in and finally, choose the best companies from my lists.
Such is the amount of work that is needed to finally select the stocks to ensure sufficient diversification in a focused portfolio. Do note that the primary objective of my portfolio is to maximise the capital returns and yet, not take too much risks. I am also not concerned with dividends. You may have different objectives and hence, your selection of stocks is likely to be different from mine. Each of us has to construct our own portfolio of stocks to fit our individual objectives.