One of the advantages of having an independent practice is that I get the opportunity to pick and choose the types of presentations and conferences that I attend. Rather than listening to biased corporate spiels and sales pitches, I’m able to hear from some of the leading minds in finance. I also get the opportunity to meet advisors from around the world and hear their insights. From chatting with these colleagues, I’ve learned that investor behaviour is the same pretty much everywhere. At … [Read more...]
Why investors should assume prices are fair
Which company would you rather own: a highly profitable retailer with a history of growing dividends, or a stodgy manufacturer in a dying industry? And would you rather invest in an emerging economy with a snowballing GDP, or a nation mired in recession? When I put these questions to investors, the answers seem almost ridiculously obvious. Common sense would say you should buy profitable companies with glowing prospects, preferably in parts of the world with vibrant, growing economies. But … [Read more...]
How many stocks do you really need?
How many stocks does an investor need to be truly diversified? In The Intelligent Investor, first published in 1949, Benjamin Graham suggested that you could minimize portfolio volatility with as few as 10 stocks, and that idea persisted for decades. By the 1980s it was still common for finance textbooks to suggest that once a portfolio contained 10 or 15 stocks, anything more was "superfluous diversification." Today, the conventional wisdom has not changed much—if you Google “how many stocks … [Read more...]
The allure of stock picking
The stock portfolios I build for my clients consist of thousands of companies around the world. I don’t pick individual stocks, nor do I recommend this to anyone who asks my opinion. But every so often I hear from a client who wants to include individual companies in his portfolio, and I have to explain why this isn’t a good idea. I can understand why people want to do this: choosing individual stocks offers the promise of dramatically outperforming the market. But that’s only half the story. … [Read more...]
The long term investor’s advantage
Equities have a positive expected return, but we often forget that the payout does not come every year, and it does not follow a straight line. That’s why our investment strategy is based on discipline, broad diversification within and across asset classes, and long-term thinking. In November 2011, researchers Andrew Ang and Knut Kjaer published a paper called Investing For the Long Run, which identified several advantages enjoyed by investors with a long horizon. First, they can ignore … [Read more...]
