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I agree with this except I think if you know a stock or two is good, diversification is unnecessary. I’ve only had two stocks in my portfolio for the last ten y

I agree with this except I think if you know a stock or two is good, diversification is unnecessary. I’ve only had two stocks in my portfolio for the last ten years.

SCUSKU 5y ago
I am happy for you that your 2 picks have been good. But most likely you have been lucky (maybe you picked AMZN, TSLA). Modern portfolio theory states that diversification gets you closer to better returns on average with lower risk. [1] https://en.wikipedia.org/wiki/Modern_portfolio_theory#Diversification https://en.wikipedia.org/wiki/Modern_portfolio_theory#Divers...
- SavantIdiot 5y ago
  Methinks 'johnwheeler' is full of it and probably just discovered reddit, WSB, and stonks
- johnwheeler 5y ago
  I would say people who picked amzn and Tesla are lucky. The jury is out on amzn. Bezos did something no public company ever did to the extent he did. He put customers before profits in an extreme way. Then, he built another multi billion dollar unit from scratch with AWS. So far, it’s worked out but the PE makes it speculative nonetheless. But the gap is quickly closing making it an investment grade issue. I don’t know so I leave it alone knowing I’ll regret it one day. That’s fine. I stay away unless I’m 95% sure. I would say s&p 500 represents 100% certainty overtime, because if it wasn’t, life as we know it wouldn’t be the same anyway we’d have bigger problems. Tesla is just a dumb gamble. There’s no justification at all for its price and history shows us what can happen with auto stocks.
kevincrane 5y ago
Same for the lottery, if you just know which numbers are good then you only have to buy one or two tickets ever and you're set for life.
- ProAm 5y ago
  You cannot study about lottery numbers however. Whereas studying business isn't impossible.
  - stouset 5y ago
    All of the available evidence demonstrates that even experienced fund managers with access to extensive, expensive, and focused research on the companies they invest in perform no better on average than VTSAX. Further, there’s no strategy to find the winning fund managers. The distribution of winners and losers over time seems to be exactly what you’d expect from random chance, and even fund managers who’ve been successful for years have the exact same odds of having their next year be awful as anyone else.
- johnwheeler 5y ago
  This is a bad analogy. The stock market is not a lottery. It’s a place to buy and sell shares of a company. Most people treat it like a lottery and that can serve you rather than hurt you if you know what you’re doing.
  - blaser-waffle 5y ago
    For all the DD you do, there is no predicting the future. Plus there is a very real incentive for companies to do shady things, e.g. Volkswagon or Enron. Are you sure those companies you're holding aren't lying out of their ass? Can you prove that? Like, unless you're in the accounting dept. at those firms -- or someone who can otherwise get those numbers -- you can't. At that point it's gambling. It may be akin to counting cards, where you can make probabilistic guesses, but best case is still uncertain. Otherwise you're rocking a very special secret, or are manipulating the market. But for the rest of the us stock plebs, is effectively gambling.
    - johnwheeler 5y ago
      Yes.
z2 5y ago
Ultimately it's about risk (permanent loss) control, and if you've done the research into those couple of companies, have high confidence in their continued success, and are diligent in continuing to update your views, then it sounds like you're managing risk well. There's always the chance of unknown, idiosyncratic, and potentially disruptive factors though--from a financial planning and risk management perspective, even founders are urged to diversify away from their own company's equity eventually, regardless of how successful they are.
- johnwheeler 5y ago
  Yes there’s a bigger chance of a black swan event. You have to answer for yourself if the extra point or two of cagr is worth it.

I agree with this except I think if you know a stock or two is good, diversification is unnecessary. I’ve only had two stocks in my portfolio for the last ten years.

SCUSKU 5y ago

I am happy for you that your 2 picks have been good. But most likely you have been lucky (maybe you picked AMZN, TSLA). Modern portfolio theory states that diversification gets you closer to better returns on average with lower risk. [1] https://en.wikipedia.org/wiki/Modern_portfolio_theory#Diversification https://en.wikipedia.org/wiki/Modern_portfolio_theory#Divers...

SavantIdiot 5y ago
Methinks 'johnwheeler' is full of it and probably just discovered reddit, WSB, and stonks
johnwheeler 5y ago
I would say people who picked amzn and Tesla are lucky. The jury is out on amzn. Bezos did something no public company ever did to the extent he did. He put customers before profits in an extreme way. Then, he built another multi billion dollar unit from scratch with AWS. So far, it’s worked out but the PE makes it speculative nonetheless. But the gap is quickly closing making it an investment grade issue. I don’t know so I leave it alone knowing I’ll regret it one day. That’s fine. I stay away unless I’m 95% sure. I would say s&p 500 represents 100% certainty overtime, because if it wasn’t, life as we know it wouldn’t be the same anyway we’d have bigger problems. Tesla is just a dumb gamble. There’s no justification at all for its price and history shows us what can happen with auto stocks.

kevincrane 5y ago

Same for the lottery, if you just know which numbers are good then you only have to buy one or two tickets ever and you're set for life.

ProAm 5y ago
You cannot study about lottery numbers however. Whereas studying business isn't impossible.
- stouset 5y ago
  All of the available evidence demonstrates that even experienced fund managers with access to extensive, expensive, and focused research on the companies they invest in perform no better on average than VTSAX. Further, there’s no strategy to find the winning fund managers. The distribution of winners and losers over time seems to be exactly what you’d expect from random chance, and even fund managers who’ve been successful for years have the exact same odds of having their next year be awful as anyone else.
johnwheeler 5y ago
This is a bad analogy. The stock market is not a lottery. It’s a place to buy and sell shares of a company. Most people treat it like a lottery and that can serve you rather than hurt you if you know what you’re doing.
- blaser-waffle 5y ago
  For all the DD you do, there is no predicting the future. Plus there is a very real incentive for companies to do shady things, e.g. Volkswagon or Enron. Are you sure those companies you're holding aren't lying out of their ass? Can you prove that? Like, unless you're in the accounting dept. at those firms -- or someone who can otherwise get those numbers -- you can't. At that point it's gambling. It may be akin to counting cards, where you can make probabilistic guesses, but best case is still uncertain. Otherwise you're rocking a very special secret, or are manipulating the market. But for the rest of the us stock plebs, is effectively gambling.
  - johnwheeler 5y ago
    Yes.

z2 5y ago

Ultimately it's about risk (permanent loss) control, and if you've done the research into those couple of companies, have high confidence in their continued success, and are diligent in continuing to update your views, then it sounds like you're managing risk well. There's always the chance of unknown, idiosyncratic, and potentially disruptive factors though--from a financial planning and risk management perspective, even founders are urged to diversify away from their own company's equity eventually, regardless of how successful they are.

johnwheeler 5y ago
Yes there’s a bigger chance of a black swan event. You have to answer for yourself if the extra point or two of cagr is worth it.