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manishdave
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   Posted: 16/Mar/2008 at 10:40pm |
A Question -
Assume that somebody is bullish on particular sector and he/she has many different within the sector. For example in finance you can have private bank, psu bank, brokerage, insurance, housing finance etc. Or in commodity it is gold/base metals/agri/oil, mining companies/oil exporers etc. Same in infra space you can have many companies.
Now if somebody is bullish and heavily weighted in sector but many investments, is it concetration or diversification? Or diversification in concentration?
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BubbleVision
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Posted: 16/Mar/2008 at 10:48pm |
Originally posted by manishdave
Now if somebody is bullish and heavily weighted in sector but many investments, is it concetration or diversification? Or diversification in concentration? |
Manish jee...I would term it as "Diversification in Concentration" because
- One have many diverse sectors to invest in, however you choose one ....That is "Concentration".
- Within "Concentration", one can diversify within may different instruments - Stocks, Bonds, Currencies (if applicable), or Underlying (if applicable).
- Stocks can then be diversified in terms of different companies
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You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer!
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Vivek Sukhani
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Posted: 16/Mar/2008 at 11:07pm |
Originally posted by manishdave
A Question -
Assume that somebody is bullish on particular sector and he/she has many different within the sector. For example in finance you can have private bank, psu bank, brokerage, insurance, housing finance etc. Or in commodity it is gold/base metals/agri/oil, mining companies/oil exporers etc. Same in infra space you can have many companies.
Now if somebody is bullish and heavily weighted in sector but many investments, is it concetration or diversification? Or diversification in concentration? |
I think its a case of diversification in concentration. Its concentrated for the single reason that all the assets of the portfolio are exposed to similar risk and have an identical return expectation. If the sector does well, all do well and if the sector does bad, all suffer. So, its not a place of diversification. I believe, the very motive of diversification is to reduce the standard deviation of the expected returns of the portfolio. In case that objective is defeated its not a case of diversification.
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shivkumar
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Posted: 16/Mar/2008 at 11:12pm |
Originally posted by basant
Originally posted by Vivek Sukhani
Basant Sir, since you said that the last one is the most excellent, I have a simple question.....Isnt this sometimes too dangerous....????
I think one should always work out the consequences of failure before taking a huge plunge.I think this has to do a lot with the concentration theme. |
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 baggage of purchase price which is of historical significance only.  |
oh, oh. then how can you say PRIL was a 100 bagger or whatever if you don't keep track of purchase price and profit margin? 
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Vivek Sukhani
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Posted: 16/Mar/2008 at 11:16pm |
Originally posted by shivkumar
Originally posted by basant
Originally posted by Vivek Sukhani
Basant Sir, since you said that the last one is the most excellent, I have a simple question.....Isnt this sometimes too dangerous....????
I think one should always work out the consequences of failure before taking a huge plunge.I think this has to do a lot with the concentration theme. |
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 baggage of purchase price which is of historical significance only. |
oh, oh. then how can you say PRIL was a 100 bagger or whatever if you don't keep track of purchase price and profit margin?
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Thats where the mind of an investigating journalist comes in......
However, in spirat I believe what Basant Sir meant was that its of little significance to him...how many bags you finally make up will depend upon when you sell that stock, everything before that is notional.
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manishdave
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Joined: 05/Aug/2006
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Posted: 16/Mar/2008 at 11:26pm |
Originally posted by Vivek Sukhani
Originally posted by manishdave
A Question -
Assume that somebody is bullish on particular sector and he/she has many different within the sector. For example in finance you can have private bank, psu bank, brokerage, insurance, housing finance etc. Or in commodity it is gold/base metals/agri/oil, mining companies/oil exporers etc. Same in infra space you can have many companies.
Now if somebody is bullish and heavily weighted in sector but many investments, is it concetration or diversification? Or diversification in concentration? |
I think its a case of diversification in concentration. Its concentrated for the single reason that all the assets of the portfolio are exposed to similar risk and have an identical return expectation. If the sector does well, all do well and if the sector does bad, all suffer. So, its not a place of diversification. I believe, the very motive of diversification is to reduce the standard deviation of the expected returns of the portfolio. In case that objective is defeated its not a case of diversification.
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Sometimes doing diversification in concentration is not bad idea. WB - proponent of concentration recently did so in Korea. For him things looks very cheap and he didn't know much abt companies. So he purchased basket of 20 stocks there. So investors in concentration camp(no pun intended) should consider this in certain situations.
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basant
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Posted: 16/Mar/2008 at 11:27pm |
Originally posted by shivkumar
Originally posted by basant
Originally posted by Vivek Sukhani
Basant Sir, since you said that the last one is the most excellent, I have a simple question.....Isnt this sometimes too dangerous....????
I think one should always work out the consequences of failure before taking a huge plunge.I think this has to do a lot with the concentration theme. |
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 baggage of purchase price which is of historical significance only. |
oh, oh. then how can you say PRIL was a 100 bagger or whatever if you don't keep track of purchase price and profit margin?
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I do file tax returns! Also what I meant was it does not remain before my eyes always. If I bought Reliance at rs 1800 I will sell it at Rs 1200 also if I think I should.
For me the purchase price becomes irrelevant the moment the trade is executed that si what I wanted to imply.
Edited by basant - 16/Mar/2008 at 11:35pm
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basant
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Posted: 16/Mar/2008 at 11:31pm |
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Now if somebody is bullish and heavily weighted in sector but many investments, is it concetration or diversification? Or diversification in concentration? |
It is bad concentration. Very seldom does a No. 4 in the sector outperform No. 1. It happens when stocks are coming out of a bear market.
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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