Australian (ASX) Stock Market Forum

Would you put all your eggs in one basket?

The OP was ruminating on diversification!


This is real tough question I reckon.

Asset allocation theory is lost on me. I’m happy to only have equities and a default position of cash (near cash equivalents). I would hold other assets if I found they provided better returns, but maybe through a lack of research and understanding on my part I haven’t yet found better returns in other asset classes over the long run.

As for diversification within equities.

I have set myself some rules.

When Fully Invested I have a minimum of 12 Companies and a maximum of 18. These numbers drive how much capital I allocate to each business – the market will dictate the mark to market diversification which I step in to cap at a max of 25% for any one company.

The minimum number of holdings is there as a protection against unknowns and because I am a minority holder with no control over management. The maximum number of holdings is to force focus. The 25% M2M cap is there for my psychological comfort.

These rules are the balancing act between knowledge/comfort/ambition. I seem to think about these rules more than nearly any other aspect of my plan and bedding down a definitive answer has always alluded me.
 
When Fully Invested I have a minimum of 12 Companies and a maximum of 18.

Do you ever find yourself buying or searching for additional opportunities that may not be of the same quality just to hit the 12 company minimum that you've set?

Those rules do sound reasonable though.
 
Do you ever find yourself buying or searching for additional opportunities that may not be of the same quality just to hit the 12 company minimum that you've set?

I don’t have trouble finding enough quality companies. It is a fact that the probabilities of a higher return come from the first pick then the 12th. But the key word here is probabilities. The future is unknown the outcomes therefore must be uncertain – I am happy to take the risk control over trying to shoot the lights out. I have experienced to much of my own bias applying analysis, continually see lack of clarity in publically available information and seen too much fat tail stuff to chance being lucky when I don’t have too. :2twocents
 
... I am happy to take the risk control over trying to shoot the lights out. I have experienced to much of my own bias applying analysis, continually see lack of clarity in publically available information and seen too much fat tail stuff to chance being lucky when I don’t have too. :2twocents

Perhaps you care to elaborate on the "fat tail stuff".
 
... I'd attempt to explain it, but others will most likely do it better.

So, more risk in the world than we were previously led to believe!

Ok! So now we need to be more risk averse.

Unfortunately, risk and reward are related!
 
Perhaps you care to elaborate on the "fat tail stuff".

The future seems to accomplish the improbable more often than history would suggest. Just because something hasn’t happened or seems unlikely based on history – it’s not worth betting your financial life on it not happening down the track.:2twocents
 
I don't wish to lecture anyone on the benefits
or otherwise of diversification! ...Before I leave the topic I would like to mention this:
There was a time when half of my portfolio was related to the "Price of Gold"
The bottom line seesawed for months till I had it figured out!
^^ from a post 13 years ago ^^
What's going on with this one Dona? Frozen?
yes, frozen. and probably irretrievable.
 
All the cackleberries in one basket. No way. Old, old saying "don't put all eggs in one basket"
without seeing what the fund was invested in , it would depend on the sales pitch

several current managed funds talk about the diversity of investments within the portfolio , so the actual trap , is all the investments under one fund manager ( or in one product )
 
All the cackleberries in one basket. No way. Old, old saying "don't put all eggs in one basket"

Well I’m strongly in the opposite camp.
Here is why. Like just about everyone I am averse to risk and one of the ways drilled into us to diminish risk is diversification. So had spent the larger majority of life diversified.

But something happened, and this applied to ALL aspects of investment , trading, property, business. Even relationships.
(1) It’s easier to control risk directed at one entity than many, expecting all to conform at the one time is un realistic. Sure strong bull runs in anything level the field somewhat but

(2) The challenge is to find an out performer in whatever your investing in and take appropriate risk militating measures while putting all eggs ( in this area ) in the one basket.

(3) It’s easier for me to be correct in shorter timeframes in stock and futures that can be minutes or hours . In property the window is longer as is business and people. But making decisions quickly is really a key.

(4) if I look at investment in one entity I can leverage it with more $$ s Than spreading it thinly. As this is a Stock forum I’ll concentrate on trading.

(5) With one entity I can make a decision right or wrong without having to consider others in a portfolio ( systems trading is different although picking the best system for a market isn’t ) . I can remove the risk altogether or I can add quickly, take some off the table ( but have learnt all in all out the best action )
In minutes , hours or days. It has to be very clear to me.

(6) you only need to find yourself on a positive outlier move when your all in that can change your financial position permanently. All in should be a portion of your net worth.

I guess you may need to be a particular personality, I find it easy but others I know are petrified of loss, any loss.
But rather than buying say 5 stocks I’d rather buy 1 that is out performing take the same risk as I would on 5 belt it until it’s obvious that I’ve exhausted the move and bank my profit removing any risk.

Oh and free carry isn’t free it’s your profit —- like having a win at the pokies and proclaiming that your playing with “ Their money “ wrong it’s yours you can and should go home with it !

Don’t be like everyone else or you be just like everyone else.
 
(1) It’s easier to control risk directed at one entity than many, expecting all to conform at the one time is un realistic. Sure strong bull runs in anything level the field somewhat but

yes BUT does that particular person have the ability to monitor that investment and adjust when needed promptly ( many are totally immersed in their career path )

weathering the cycles is one thing , but sometimes a drastic change is coming/needed

i try to put NEW funds in the best place ( i consider ) available


(2) The challenge is to find an out performer in whatever your investing in and take appropriate risk militating measures while putting all eggs ( in this area ) in the one basket.

that is harder than it looks , especially if using historic data to evaluate the 'out-performer ' ( all my 10-baggers were totally unexpected at the time of buying in , as were my total losses )

now you might be fortunate , and get a pointer from a genuine expert who will get you set early ( say CBA soon after the float )

(3) It’s easier for me to be correct in shorter timeframes in stock and futures that can be minutes or hours . In property the window is longer as is business and people. But making decisions quickly is really a key.

quickly is tricky with property ( unless you 'fire-sale ' it )

in other assets getting the deal done is as important as making the decision
(4) if I look at investment in one entity I can leverage it with more $$ s Than spreading it thinly. As this is a Stock forum I’ll concentrate on trading.

i avoid leverage wherever possible but each to their own
(5) With one entity I can make a decision right or wrong without having to consider others in a portfolio ( systems trading is different although picking the best system for a market isn’t ) . I can remove the risk altogether or I can add quickly, take some off the table ( but have learnt all in all out the best action )
In minutes , hours or days. It has to be very clear to me.

in general that is sage advice , but a current guest just spent the three months in various hospitals instead of the expected two weeks , as such his finances were flying by themselves ( and are probably going to do so again next month after a follow-up visit to the original hospital )

( personally i expect something BAD to happen before year's end , despite having selected 12,500 for the XAO in the comp. )
Oh and free carry isn’t free it’s your profit —- like having a win at the pokies and proclaiming that your playing with “ Their money “ wrong it’s yours you can and should go home with it !
it is my profit 'running ' and yes i still sometimes decide to crystallize that profit when i need some funds or feel it is wise to use the parachute , now take TNE it looks like it is paying a trivial return , but the original buy in price was $1.10 so even if i was still fully invested

Balance DateDividend TypeCents per shareCcyFranked %Ex-Dividend DateBooks Close DatePay Date
31/03/2025Interim6.600AUD65.0029/05/202530/05/202513/06/2025
30/09/2024Final17.370AUD65.0028/11/202429/11/202413/12/2024
31/03/2024Interim5.080AUD65.0030/05/202431/05/202414/06/2024
30/09/2023Final11.900AUD60.0030/11/202301/12/202315/12/2023

let's say it is currently paying 15 cents a year in divs that is north of 13% a year

now if another stock ( like the KPG or delisted ISX ) gets to a ridiculous capital gain but doesn't or stops paying divs there is a strong chance i with crystallize those gains

when i first started investing i inherited a large parcel of WOW ( more than half the portfolio back then ) , but it kept stumbling and stumbling , so i kept reducing and reducing .


that inherited portfolio unless had some 'household names ' that rose and failed over the decades ( like Mount Isa Mines , and Ansett ) so learned the lesson even top tier companies can vanish from your portfolio

( and finding a good replacement can be very difficult at times )
 
Well I’m strongly in the opposite camp.
Here is why. Like just about everyone I am averse to risk and one of the ways drilled into us to diminish risk is diversification. So had spent the larger majority of life diversified.

But something happened, and this applied to ALL aspects of investment , trading, property, business. Even relationships.
(1) It’s easier to control risk directed at one entity than many, expecting all to conform at the one time is un realistic. Sure strong bull runs in anything level the field somewhat but

(2) The challenge is to find an out performer in whatever your investing in and take appropriate risk militating measures while putting all eggs ( in this area ) in the one basket.

(3) It’s easier for me to be correct in shorter timeframes in stock and futures that can be minutes or hours . In property the window is longer as is business and people. But making decisions quickly is really a key.

(4) if I look at investment in one entity I can leverage it with more $$ s Than spreading it thinly. As this is a Stock forum I’ll concentrate on trading.

(5) With one entity I can make a decision right or wrong without having to consider others in a portfolio ( systems trading is different although picking the best system for a market isn’t ) . I can remove the risk altogether or I can add quickly, take some off the table ( but have learnt all in all out the best action )
In minutes , hours or days. It has to be very clear to me.

(6) you only need to find yourself on a positive outlier move when your all in that can change your financial position permanently. All in should be a portion of your net worth.

I guess you may need to be a particular personality, I find it easy but others I know are petrified of loss, any loss.
But rather than buying say 5 stocks I’d rather buy 1 that is out performing take the same risk as I would on 5 belt it until it’s obvious that I’ve exhausted the move and bank my profit removing any risk.

Oh and free carry isn’t free it’s your profit —- like having a win at the pokies and proclaiming that your playing with “ Their money “ wrong it’s yours you can and should go home with it !

Don’t be like everyone else or you be just like everyone else.
i see your point Mr @tech/a but then risk management is the issue:
market get suspended, stocks enter trading halt or you lose internet/get run over by a bus, go in holidays.
We all went thru these
With age/experience, i get your point much better than i would have in my 20s but acknowledge also the occurrence of black swans..global ones or specific to some ie WAF this month.
Yet, you do not have outperformers without going into more volatile stocks.
Mr @frugal.rock has outstanding results but this is playing with very volatile penny stocks, not the BHP or CBA of the asx.
So my current half baked approach from a risk adverse person based on this legacy.
ETFs (the summon of diversification) for sectors: i do not invest in BHP or Rio much for example, more a resource ETF..i ride the sector, avoid company specific risks.
bhp or rio atey not going to outperform their sector in a generic way
And i play with smaller cap gambles: lyc, ltr, waf(🥴)
and if there is no quick returns, i am out.
My system trading approach is separate
as is my heavy PM investments
so far so good
Out of brick RE, as you mentioned, far far too slow fir action, but i am in indirectly with a money lender: better than picks and shovels, lend the capital for these picks and shovels.
overall diversified....
each to his her own, based on age and financial position but when young and penniless could be the time of gambling it all, or start this new enterprise...
 
Yet, you do not have outperformers without going into more volatile stocks.
not always , my biggest winners have been small caps ( at the time ) that were solid , boring and so unexciting that fund-managers ( at the time ) skip over them to 'the exciting stocks '

when i first bought into Blackmores in 2013 ( at under $25 ) it was just a stock for 'health nuts , then came 'the China growth narrative .. and ka-boom

HSN ( bought in 2013 @ 81.5 cents ) a boring little founder-led software company selling software services to utilities

JYC ( bought in 2013 @ 36 cents , ) in those days a caravan/RV maker .. but i could see the 'grey nomad wave coming ' some they moved into kitchens and beds , but i didn't see that evolution coming

but to find those out-performers you do need to research deep ( or have prior understanding in that area )

multi-baggers can take off from any price range ( but can also have BIG dips later ) like say APE
 

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I largely agree with what @tech/a has said, but it's not for everyone.

Currently I'm holding 11 stocks.
One of them is around 44% of holdings.
It didn't start that way.
Multiple purchases into strength, some sells on supply weaknesses, and last week a little profit taken to pay some bills and to add to some other holdings that are showing some promise.

Being such a large weighting of the portfolio, I'm watching it closely. Much more intensive scrutiny than anything else in the portfolio.

I'm carefully carrying and ready to put that basket of bum nuts easily onto the ground in one deft movement, IE; sell all in one hit, if need be. Market liquidity is very important in this regard! Gappy order books, very low volume trading are generally avoided, but have been traded successfully, however a much greater patience toleration is required.

In the small cap space, I have learnt that some FA screening needs to apply, for me anyway, particularly in the financial position of said stonk, before I enter the trade off TA.

Usually a 5 to 10 minute manual screening of FA is enough if it's a quicker mover. If there's time, like on the weekend, I'll do a deeper dive of around 20 to 30 minutes.
 
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