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| Thursday, June 07, 2007 |
| Divine Diversification? |
Just some food for thought. How much should you diversify? Is diversification that divine?
From academic books, diversification in equities reduces risk, which is true IF you know how. But is this broad approach good for retail small time investors like us?
The saying is always not to put all eggs in to one basket. But whats the point of having so many baskets when you only have a few eggs? Remember, baskets are not free (transaction costs) and if your eggs are not worth much, there's no point in getting so much baskets.
I have suffered from overdiversification in the past, holding plenty of penny stocks, and I do understand the difficulty in managing them (imgaine walking around carrying lots of baskets). Ever since, I have reduced the number of eggs (holdings) and increasing their position size.
Of cos, there is this risk that one might lose the basket, that is why one must always be vigilant about it. With a clear mind (without fear or greed) and decisiveness, risk incurred due to human cognitive bias are significantly reduced.
In conclusion, my take is NOT to overdiversify. And what I do know for certainty is that baskets dont come cheap, and in reality, there is more room for error if I am carrying too many baskets.
P.S. wanted to post the charts of my holdings but I was too tired yesterday. Maybe I will do it tonight.Labels: NenixDreams Fund |
posted by Nenix @ 8:46 AM   |
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| NenixDreams Fund |
| Fund launchprice on 1st August 2006= $1
Target for 2007 = Beat STI index
Current price of NDF as of 1st Oct 2007 = $1.58
Current price of STI as of 1st Oct 2007 = $1.54
Difference with STI index is 0.04
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