Diversification? So easy and yet so difficult.
To get a better grasp of the analysis, put on Norah Jones: Black Hole Sun from YouTube or similar on your TV.
Diversification in relation to what? In relation to individual stocks or companies, in relation to the industry, in relation to a geographical area, in relation to investment style, time, or what on earth? Easy and simple, just like life.
Rule one: diversification concerns your assets, not you.
Rule two: you have the free choice to make your assets, in this case, your money, do good or not care one bit.
No one wants their money to do evil, which is called pursuing maximum profit. The outcome of that is something entirely different. Fortunately, in recent years, responsible investing has yielded better returns than other types of investing. Quite interesting. Is it perhaps because non-responsible entities have stagnated anyway, while adaptable ones better consider the changing playing field, including responsibility? You tell me, but be careful not to take a political stance when discussing investments. The rhinos of the past are slowly fading away.
Rule three: Never, ever put more than 20% into one thing. Never, even if greed says otherwise.
Rule four is related to this. Your own head is always the best capital. Don’t fall in love, don’t even get infatuated with your brilliant investments. If you get excited about your investment, it’s easy to trick you. Everyone who has fallen for a pyramid scheme is sure that.
Rule five: Learn to laugh at yourself. Now, if I don’t act and put over 20% into one thing, the opportunity is gone. Laugh at your greed and caution at the same time, perhaps with your fist in your pocket, and state that you are not your greed nor your caution. You are you, and that’s enough. You can comfort yourself with a cider and the knowledge that statistically, only one in five has succeeded in this situation. If you’re still annoyed, think about your children’s future or something. Soon you’ll be able to laugh at the emotion on which all pyramid schemes are based.
The thread already explained the difference between a large bank’s stock/mixed/bond funds, ETFs, and direct stock investments.
You can play a sure game with ETFs by going with the flow. You won’t win big, but you won’t lose either, unless you happen to buy at the peak and panic when the value has dropped by 30%. What goes up, comes down, and vice versa. With an ETF, you can buy and forget more securely than, for example, with a single stock. It’s pointless for a forgetful person to pay the bank 1.5 - 2.5% annually for a fund (says even someone who owns several financial firms).
There is incorrect information higher up in the thread. The stock game is not a zero-sum game. On average, everyone wins, but not in practice; a small group wins a lot, and a large group loses.
When the effect of price changes is removed, the difference between gold and an average stock is that gold produces nothing, whereas stocks on average yield a profit every year. Gold is just gold, which is not yet known to multiply. The price of gold fluctuates up and down, but stocks are also shares in profit-making companies. Gold does not yield in the same way. Gold is a barren choice.
Stocks are a share in a company and entitle you to a portion of the profit, whether it is distributed as dividends or left in the company, which then increases its equity, which can later either be distributed as dividends or allowed to increase the company’s value.
If it’s a good company, the items remaining on the balance sheet go towards expanding the business. This happens within the company’s strong balance sheet. It is an investment. A thriving company won’t collapse from a couple of years of corona.
Investing in large bank funds is foolish due to fees, thinks Juurikki. ETFs are better but don’t offer an intellectual challenge. As an investor, you will soon learn how to reasonably evaluate individual stocks if you wish.
Juurikki believes it’s worth starting with just a few key ratios: P/B, P/E, debt-to-equity ratio, and estimated growth percentage. Nothing else is needed at first.
And it will surely comfort you to know that more experienced investors will start to overthink after this basic level and ultimately perform worse overall than you, even if they boast about winning tickets on the forum and keep silent about losing ones. Then they cry that the index cannot be beaten, the poor things.
Juurikki plays a boringly safe game of “doubling stock capital in 8-15 years is enough.” At these valuation levels, you won’t lose sleep, as it can’t go much lower.
If you feel that you understand the big picture of the economy, you can diversify with an ETF-based fund diversification. Juurikki played international growth with funds from 5-9/2020, and it went well. That was lucky. Now, the portfolio only contains direct holdings, all of which are profitable, and 20% cash waiting for Trump volatility.
What is your view of the period from 10/2020 onwards?
If you don’t have much experience, it’s advisable to make your own choices based on ETFs and other non-large bank funds, so that perhaps 20-35% goes into individual stocks.
So what stocks should one buy? On these forums, people mainly talk about bad companies, i.e., overpriced eternal growth promises, into which you can certainly put your money fine, but getting it back or making a long-term profit is another matter.
Juurikki doesn’t understand anything, but takes the rule seriously: P/B 0.5 - 1.5, P/E 7 - 15, debt-to-equity ratio under 40%, prospects good or even better, boringly stable, then it can’t go too wrong.
Rights are shared, and responsibility is shirked.
Indeed, every single stock has an owner, and few owners consciously want to lose to the market or even incur losses (there are stocks on the stock exchange that have lost almost all their value in recent years, but someone still owns them).
