I tackle tough investing problems, breaking them down into clear and actionable steps.
4M | Experts can't do this, but you can..
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Hi Reader, Did you know that in 2020, 82% of professional investors couldn't beat the overall market (the S&P 500) over 10 years? This statistic got me thinking: HOW DO I JOIN THE WINNING 18%?Forget about working hard - there's a smarter approach. A legendary investor has simplified this strategy: Don't be stupid! "It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent." Charlie Munger By avoiding common mistakes, we can outperform the majority. WHAT'S THE BIGGEST MISTAKE EXPERT INVESTORS MAKE?Research by a well-respected value investment firm, shows the average fund holds over 256 stocks. The experts own too many stocks! That makes it nearly impossible to outperform the market, since they basically own the market itself. Here's our advantage Unlike big money managers, we have more freedom. We don't face the same pressures of regulators, worried investors or fears of getting fired. This allows us to take calculated risks and focus on a smaller number of high-quality companies. "If you can identify six wonderful businesses, that is all the diversification you need. And you will make a lot of money." Warren Buffett By picking a handful of excellent companies, you can potentially make significant returns. HOW MANY STOCKS IS RIGHT FOR YOU?The number of stocks you hold depends on your risk tolerance. Or how much potential loss you're comfortable with. Spreading your money across different companies (diversification) helps you weather market movements. Studies show owning around 20 stocks can be a sweet spot for reducing risk: A SIMPLE RULEHow long are you comfortable waiting for your investments to recover from a downturn? Multiply the number of years you're comfortable waiting by your expected annual return. This gives you your maximum exposure for a single company. For example, If you're okay waiting 2 years with an 8% return. This means you wouldn't want to invest more than 16% of your portfolio in one company. Remember This is simplified example and the market can vary. Diversification is key! KEY TAKEAWAYS
See you next month, Ozbourne Foreman P.S. Have feedback about today's newsletter? Simply REPLY to this email - I'll surely read it! Disclaimer: I do not provide financial advice. Any views or opinions shared are for informational purposes only and should not be considered as professional advice. Always consult with a qualified financial advisor before making any investment decisions. |
4M | Monthly Investing Newsletter
I tackle tough investing problems, breaking them down into clear and actionable steps.
Hi Reader, The share price might be the first thing you see. But, it's often the last thing you should consider. WHY SHARE PRICE ISN'T EVERYTHING? Picture this: you're in the reduced aisle of a supermarket and you've found a product on sale. Before buying, you'd consider factors like the quality, price and expiration date, right? Investing should be no different. A low share price might appear to be a bargain, but this isn't necessarily the case. For example, imagine two companies in the same...
Hi Reader, As a private investor, I've spent years exploring analysis metrics to find hidden gems. But, there's one widely used investment metric that can be deceiving.. WHAT IS THIS METRIC? Many investors use this ratio to get a quick idea of a stock's value. And I'm willing to bet that you not only know this ratio, but use it regularly: Price-to-Earnings Ratio (PE) = Current Share Price / Earnings per Share A low PE ratio can indicate a 'cheap' stock. But, it's not as simple as it seems....
Hi Reader, As you can imagine, I get a few interesting comments on my YouTube channel. But, there's one investing criticism that I get far more than any other: WHAT IS THIS HATE COMMENT? As you know, I openly share my investing portfolio on YouTube. My stock portfolio: here. You'll notice the similarities of my holdings, they each have: A quality business model. Consistent financial growth. Above average valuations. By investing in these companies for the long-term. I weigh up the stock...