Hi Vievk,

 

U r a wise man.

 

I'll give u my example and how the diversification works if the investments choosen are foolish or based on misplaced trust.

 

This is from 1997 to 2001 start. Invested in 1 co  and loaned to 12 different friends and relatives. Nobody paid and investment in Westinn Hospitality of Chennai became 0.

 

Diversification for the sake of it is meaningless.

 

What's your view?

 

Best wishes,

 

 

 

I will take Deep's point first. I think, investing in MF doesnt make any sense in case one's aim is to learn investing. You cant learn to swim by seeing others swim, or trying to toe-test waters. You have to dive, the only thing you can do to protect, is to wear a jacket/tube of some sort. When applied to investing, it can mean investing in some recognised companies, premium type companies. I remember, even though Kabra extrusiontechnik was one of the first companies I did some work on in my college days, but it was an OBC where my dad allowed me to invest first. Because, he made it mandtory for me to invest in only A-group companies.When he started to feel that I am reasonably okay with my investments, he made me write 10 stocks where I will never be a seller until and unless a pecific price is reached. And i still remember what was my first stock in that list....it was none other than GE Shipping and the price I wrote against that was 275. But such training made me an extremely rigid person with respect to my style. Now, I simply cannot sleep with less than 200 stocks in my list.

 

All i intend to say is that one must groom oneself first before assuming he has any expertise in a field. Deep, I dont think returns has anything to do with diversification/concentration. Its more a matter of discipline, rather than concentration/diversification.

 

Now, I will reply to your point, Mr. Merchant. Anything for the sake of it, is a wrong practice, be it concentration or diversification. A day trader who just invests for a day and loses in the one company he choses for himself is also fooling himself by concentrating on that single 'gem'.

 

I think, the ultimate objective of any investment plan is to generate a cash flow, either immediately or after a period or to prepare it like a stream. This is where I believe most people go wrong. When one plans about his investment, just alongside he has to keep a cash flow ready. People dont know their risk capital, although they talk about appetite.

 

I know Mr. merchant, I wont be making any sense to you.....but nonetheless, I aim to learn by being a participant here rather than trade on paper.

 

Yes, concentrated portfolios suffer from something which we call event risk! Someday sometime it has the potential to get anyone. SO if yu are holding 4 stocks the ideal concentration would be to have 25% in each so even if you get hit by an event risk you lose 25% assuming that the others make up for each other.

 

Once you are in this game of betting big when it matters you will never be able to bet small and also betting big will save you from several problems beause you would have nightmares in trying to control risk.

 

Had I had a 30 stcoks portfolio I would have definetely bet on some of the brokerage stocks because I was always fascinated by their growth but risk control measures saved me from doing this.

 

Hence I chose to be with Yes and Axis and though they have fallen they are still above or equal to my purchase price (though purchase price matters nothging to me).

 

In fact in the excel sheet where I manage my portfolio their is no column for purchase price and profits. I want to be relieved of the baggae of purchase price which is of historical significance only.