Saturday, September 22, 2012
Whenever we meet fellow investors, friends or analysts first question we ask immediately after meeting them is “ Any new pick?” Some people we know live to find next multi-bagger. Every day (yes, every day) these friends come up with new stock(s) as next multibagger(s). We are really zapped that these so-called smart people are able to create conviction in so many stocks almost on daily basis. Some bloggers we know post long term pick almost on daily basis. They come up with 10 stocks in a month. Can any investor who talks to these analysts be able to buy so many stocks in portfolio? Even if someone buys one new stock in portfolio imagine net return of his portfolio over period of time.
Our view is wealth is made not from diversification but from concentration. Analysts and investors should realize multibagger cannot come on daily basis. It is our general tendency to give more importance/get high conviction to a new stock than a stock we found/bought 6-9 months back. Personally, whenever we find a new stock or get an idea from some friend we try to study the stock with open mind but we do NOT forget that what we already own may be a better stock than newly found. We constantly read/analyse about stocks we already own which enables us to generate conviction. We have discipline of NOT owning more than 5 stocks, which make up 90% of our portfolio at any point of time. We have been benefited from this discipline greatly but our friends find us so boring because as and when they ask us for a good property stock we suggest zero debt property company from India's large automobile group or when they ask us stock from Agriculture sector we suggest our favorite group's flagship company or when they ask for API company we suggest large Auto parts group's API company and so on.
However, Having said all these note that our above strategy may NOT be suitable for every investor so one should make own judgement.
Today time for this gyan as we are not able to find any new stock :-).