It's great browsing around the Web and seeing all those financial blogs. Young and old people who have money goals and want to attain them. They really put great efforts in doing so. We all have to tip our hats off to them.
It's refreshing to think not everyone is hooked on its credit card. There is hope for the Master Card generation after all.
Seriously. Congrats folks.
But, for the "good part", there is also a lot of "the bad and the ugly" part. While, like I said, their goal is praiseworthy, you have to feel sorry for some of these people.
They have kept their budget tight, they know they shouldn't be spending greater than what they earn, they all have brokerage accounts and, yet, they make the stupidest financial mistakes -- some of them are managing a great deal of money like clueless monkey.
It's sometimes laughable. Other times it's plain scary. Here's a few thoughts about those blogs.
Diworsification is a concept first introduced by former manager of the Fidelity Magellan Fund, Peter Lynch. He used the concept to explain how some companies drifted away from there core business, simply because it was trendy to diversify their operations. A fruit company, for instance, would go out,
and buy, out of the blue, Commercial Buildings in order to diversify its assets. Doesn't matter if this company knows nada about real estate. It's diversification, duh!
Well, this concept is also applicable to investor.
Being invested in various companies which operate in different sector of activities is what we call being diversified, and it's a key element to every investor's portfolio.
- Being invested in 25 mutual funds, that respectively own an average of 200 companies in roughly 30 countries is bad. Adding stocks from the same companies you already own through your funds is plain stupid. Diworsification. And how about those fund fees?
- Owning more than 25 stocks is crazy. How do you get the time to closely follow all those stocks? I wonder. Let me tell you : you can't. So basically you own a couple of stocks that you can't follow and thus you count on other people to tell you how the stock is doing. Big mistake. Diworsification.
- Owning the 6 big Canadian Banks. Or all the telecoms. Why ? Two of those would do, maybe three if you push it. Diworsification.
- Owning stocks for less than 500$. It's not worth it pal. Keep your dinero in cash and wait until you make a significant buy. 500$ or better. I would go as far as to say 2 000$ and more. Keep your commission fees low. Who needs 8 shares of Endbridge right now? It takes time to build a portfolio. If you can spare it, well buy yourself 250 companies via your Bank's mutual funds. Otherwise, wait. The key principal to value investing is to buy a great company as cheap as possible. Go read Benjamin Graham. Now!
I will catch you on the flip side. Next post I will be making a Financial update.
PS disclosure: I bought some more Barrick Gold shares (ABX) today. A great company that is selling cheap at the moment. Go back to reading Graham, I said....