Quant Macro Investing

Risk Taking Disciplined

Diversification?

Invest like the best

Washington Post

http://www.washingtonpost.com/wp-dyn/content/article/2009/10/23/AR2009102304301.html

Jim Rogers, chairman of Rogers Holdings: Diversification is garbage — it’s something brokers invented to avoid getting sued. You only need four or five good ideas in your life to get really rich if you avoid mistakes. And the one way to avoid mistakes is to stick with what you know. Then, when you see a major development in your area of expertise, you’ll know better than Wall Street when to buy or sell.

October 25, 2009 - Posted by | ABCs for Investing

11 Comments »

  1. Yes, I can’t agree more. Try to invest in the industries that you know well. It will be better if you are more familiar than the traders at the wall street.

    As I know, some very astute crude traders worked in oil companies before they moved to their trading posts.

    If one is not in the industry, he can also ask if his friends worked in the industry. He is likely to tell you something dark in the industry. It ‘s good to listen to these stories before making decision.

    Comment by Angelo | October 25, 2009 | Reply

  2. I think diversification can save your life, what we need is not over-diversify your portfolio.
    As I know, people hate diversification because many people misuse it and use the term ‘diversification’ to shadow their weakness.

    Comment by Frank Fong | October 25, 2009 | Reply

    • To diversify a equity portfolio, you at least need 30 or 50 stocks. It really depends on your time and expertise. If you are institutional asset manager, it is a must. In case of individual investor, let’s buy a ETF if need to monitor 30-50 stocks.

      Personally, my portfolio consists of 5-10 super growth stocks (EPS compound annual growth > 40% ), which I understand thoroughly, to an extent of expert level. This is a balance of risk and return.

      Comment by Angelo | October 26, 2009 | Reply

      • Just want to add more about the choices of individual investors. For further diversify risk, investors can choose some “funds of funds”. Back to the topic, “funds of funds” are becoming popular, and are there any implications for the advantages of diversification??

        Comment by HK warwicker | October 27, 2009

  3. Hi! Coincidentally, Jim Rogers and Warren Edward Buffett share the same philosophy of investment strategy. When I read a book about Edwards, he advises us not to hold many stocks in the same time as it weakens my attention and afford in each stock. Indeed, I think only a few stocks in the market worthy to be hold for a long time.

    Also, I have a one question about ETF. ETF is a open to the stock market. Let say commodity ETF. Its price is not purely affected by the price of the commodity, but also the demand and supply of the stock market. Thus, compared with the traditional commodity fund, isolated from the stock market, which one can reflect a true value of the commodity and which one can earn a larger return in general?

    Comment by Pun Wai | October 27, 2009 | Reply

  4. Coincidently, Warren Edward Buffett and Jim Rogers share the same philosophy of an investment. I read a book about Buffett. He advised us not to hold many stocks at the same time as it weakens our attentions and afford on each stock. Also, I think there are only a few stocks in the market which are worthy to hold for a long time.

    Also, I have a question about ETF. Let say commodity ETF. It is open to the stock market. Its value does not only affected by that of the commodity, but also the demand and supply in the stock market. Compared with a traditional commodity fund, isolated from the stock market, which fund can reflect the true value of the commodity and get a higher return?

    Comment by Pun Wai | October 27, 2009 | Reply

    • When compared to a closed end fund, a open end fund will have more market volatility and you have to pay a spread, and the prices kept changing during the trading hours. For a closed end fund, you only have one single price each day.

      It’s not quite accurate to ask/say if you can get a higher return from a closed end or open end. The major difference lies on their different operating styles.

      Normally actively managed fund will charge higher expense because they actively managed it. ETF is a passive one and the expense should be lower.

      Comment by Angelo | October 28, 2009 | Reply

      • So, in your view, compared with the open fund, what is the advanatage of the closed fund?

        Comment by Pun Wai | October 28, 2009

      • As I know, there are active managed and passive manage ETF. Also I think both ETF reflect the true value of its assets(shares, commodity) becuase they are all traded in the market and the values are determined by the market demand and supply.

        Comment by HK warwicker | October 28, 2009

  5. Concerning HK Warwicker’s comment, theoretically, I exactly agree with you. However, are there any recent studies or research, camparing with the performance of closed and opend fund , to meet the theory?

    Comment by Pun Wai | October 28, 2009 | Reply

  6. To Pun Wai: the advantages of closed end funds, compared to the opened end funds, are that firstly and the most importantly, the managers tend to keep less cash and do not have to worry about the fluctations in the financial market because they do not need to raise money for redemptions, and thus, they can keep the existing portfolio (which give them more freedom). Secondly, there are no expenses of creating and redeeming shares after IPOs.

    Comment by HK warwicker | October 28, 2009 | Reply


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