In Diversity we Trust
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It is unfortunate that diversity which is natures best tool for us to evolve is often found lacking in the species which should be best equipped to maximise its benefits.
Becoming narrower diversity is also a key trait for success in finance but often overlooked. That is the theme of this weeks newsletter.
So Dive in
Numbers that matter to us 📉📈
Markets are on an uptrend and the result season till now hasn’t thrown any big surprises
Gold continues its uptrend with it crossing 50k threshold mid-week. Goes on to show that in India gold as an asset class still represents the highest epitome of safety
TL;DR- Best of Articles, Tweets and blogs 📖📖
Automatically the best reads of the week in one place
Avoiding the zeros by Nick Maggiulli
The better strategy for investors then is not to try and win, but to not lose. Too many people in the financial community (especially FinTwit) obsess over the “optimal” way to invest when their time would be better spent steering clear of actions that could lead to ruin
BulletProof Investing by Prof. Sanjay Bakshi
A portfolio should be protected not just from permanent loss but also from serious hurt
The Global Solvency Crisis- Do watch the video as it correlates the excess cash in economies and yet the fragilities of the economy.
For many small businesses, operating on a think margin, a ~20% drop in revenues is the difference between a profit and a loss. Consumers will tighten their purse strings, companies will reduce wages and lower CAPEX in anticipation of lower revenues in the immediate future. So the speakers think that a credit crisis is on its way.
Chat with Jason Calacanis- He talks about his learnings from Poker and how to construct a diversified portfolio
Angel investing is about playing a game where the implied odds are beyond what exists in the normal world. So then you have to re-configure your brain and your brain chemistry because you can withstand 50 losses, a hundred losses, and make up for it with the 101st that pays off 200 to one.
Chart of the week. A look at emerging market returns for the last 15 years.
Courtesy: https://novelinvestor.com/
When to sell a stock or Mutual Fund?
Last time we wrote about why automation is a great strategy. However, even with automation, our minds force us to keep thinking about when to sell. The market is going down let me cut losses or the market is going up, so let me book profits.
Ben Carlson, in this fantastic article, suggests what are the points when you need to sell your stocks.
When you need to rebalance.
The simplest form of selling comes when you have a target asset allocation in mind and religiously rebalance back to your target weights on a set schedule or pre-determined threshold.
After stocks were up more than 30% in 2019 that would have resulted in selling some of your shares to buy more bonds, cash or other investments following a big run-up in prices. And after stocks dropped more than 30% in the spring and bonds acted as a ballast to a diversified portfolio, that would have meant selling some of your fixed income and buying more stocks. Now that shares have risen 40%…you get the picture.
When you need to diversify.
You don’t want to be forced to sell your stocks during a nasty bear market for spending purposes, so at some point, even investors with the highest tolerance for risk realise they need to keep a chunk of their spending needs in cash or bonds.
When you’ve been proven wrong about an investment thesis.( toughest to execute)
Every investor should perform a premortem that signals when it’s time to pull the plug and bail on an investment idea that didn’t pan out.
This can be harder than it seems because What if I just wait until it breaks even?! or What if it rallies right after I sell?! are both rather compelling arguments in a loser position.
When you’ve determined your risk profile, time horizon or circumstances have changed ( That is why we always say Risk profile is dynamic and not static)
It would be best if you also considered how your current circumstances impact your risk profile. Sometimes you need to dial down the risk because you’re in a better place financially than you expected. Maybe you received an unexpected windfall or don’t spend as much as you budgeted for.Last time we wrote about why automation is a great strategy. However, even with automation, our minds force us to keep thinking on when to sell. The market is going down let me cut losses or the market is going up so let me book profits.
What we wrote:
A snapshot of what we wrote across mediums
Tweetstorm on Diderot Effect. This is an effect which argues that once you buy a high-value thing all other possessions start to seem trivial and then you want to buy them also. Thread
The world of EMI’s using the theme of movie Vantage Point: Blog
How to do Financial Planning in 2 minutes: Blog
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