The importance of diversification

Originally, the title of this article should be “Awful August”, but I revised the article, I decided to change to the current title, and I want to bring out the importance of diversification.

Let me talk about the situation in this month. In percentage, this month is the most retracement in a single month after the January 2016, I have no intention to calculate carefully and I know that it should be about double-digit retracement. The stock market crash has not arrived, but my portfolio has decreased faster than the stock market!

The worst month in recent years is definitely January 2016. The combination is up to 20% in the most single month, but unlike this month, the HSI also fell sharply by more than 10%, so the portfolio was losing. City, but relatively better than this month, because this month’s Hang Seng Index is only a few hundred points down the whole month, in percentage terms, only about 2%, the decline is far lower than my portfolio.

But my situation is certainly not the worst. The key is that I have always implemented the concept of diversification that has been emphasized for many years. Based on the stock price at the beginning of the month, the two most heavily stocks: Orange Sky Golden Harvest (01132) and Lifu China (02136) have a shareholding ratio that is less than 25% of the portfolio. The remaining 5% shareholding is counted as Heavy warehouses, and nearly 30% of the proportion of cash, it is generally difficult to have a retracement of more than 10% in a single month in this deployment, so this month is a rare experience in recent years, because the most important orange days And the fourth largest position of Guangdong Transport (03399) also fell, but I was unexpected.

Some friends have asked me privately before, why do I have confidence in Orange Sky and Lifu, but the position per share is still less than 15%, instead of raising to more than 20% of each share, bet it on 1 game? My response is still the same sentence: Diversification of investment, control the capital proportion is my risk control approach.

This investment philosophy is a valuable experience that I bought back with a lot of money many years ago. I wonder if you have seen my own experience sharing before the 2011 seal: my stock market experience (5) – ending articles? The long article focuses on an unforgettable experience of my past:

Long-term investors may have an impression on 143. In the same year, they represented Samsung in China and Hong Kong. Their performance and dividends were quite good, so I bought it based on the above reasons. After the purchase, the stock price was calm for a short period of time, then suddenly fell sharply at the beginning of 2002. At this time, news about the company’s tax evasion in the country and the arrest of shareholders were heard, but the company denied it, the results and dividends announced in the year of 2002. It is also very good, so I also believe that the company has no problem and buy more shares, the original share of the portfolio is only 10% which increased to 30%.

then, the stock price has stabilized. On September 2002, the stock price has once again plunged. At this time, the company also issued a notice stating that the former major shareholder and chairman had no relationship with the company, and its external affairs were not related to the company. Stupid also knows that the previous rumors of tax evasion is true. Only the waking feeling is too late. After all the shares are cashed, the actual loss is as high as 60%. The entire portfolio is also reduced by 15% and the losses are heavy.

Since then, the company announced its annual results in early 2003. It has earned 240 million from half a year, and it has become an annual eclipse of 230 million. Samsung has also abandoned 143. The stock price has since fallen back and has become a plentiful stock.

The lesson is no matter how much confidence you have when buying, you must control your bets, especially the second and third-line stocks and private enterprises with low transparency. If the original limit is strictly limited to 10%, the final loss is limited; the most wrong thing is that the subsequent increase in holdings will make the loss double, and because of this, I will pay more attention to diversification in the future.

I often emphasize the concept of diversification, but many netizens still like to take a single win or concentrate on holding shares. Concentration of holding shares is of course conducive to better returns, but the relative risks will be higher. The risk of holding a shareholding will not be reduced because you are holding a fund-loving stock or a blue-chip stock. Just look at how many blue-chip stocks and fund-loving stocks have fallen this month due to poor performance or policy issues. It is not empty.

I may have been too embarrassed. I should have written a few articles before the same topic. This may be the last time I write an article on this investment concept, because the personal investment style is very difficult to change. Today, some netizens may feel that I am justified and will try to follow them, but after a row, I will unconsciously return to my investment style and preferences, unless I seem to have had a painful lesson.