‘Sow your seed in the morning, and at evening let your hands not be idle, for you do not know which will succeed, whether this or that, or whether both will do equally well.’

—Ecclesiastes, 11:6

 

There’s one free lunch in finance. It is open to all. But the benefits of it are often missed.

You reap what you sow. Yet many people fail to sow at all, or restrict their opportunity to just one or two areas.

Sometimes they fail to invest at all, leaving funds in the bank. At the mercy of inflation.

Or they buy a rental property near their home. Concentrating all their eggs in one basket, with scant day-to-day profits.

 

 

Diversification is the key to spreading your financial risk

 

Diversification is also the key to participating in an array of good opportunities.

When it comes to the financial markets, some believe diversification means being across many stocks and shares. Hundreds, if not thousands of them.

In actual fact, studies on diversification show that investment into around 16 listed companies could give you 90% of the benefits. Over-diversification would simply give you the market return.

Warren Buffett is a practitioner of a concentrated diversification strategy. Over longer periods of time he has beat the market. And avoided ‘diworsification’ by being in a concentrated portfolio of businesses that he truly understands.

This makes perfect sense to me.

In the Wholesale Portfolios we run, at any one time, we’re generally actively buying 6 to 8 compelling opportunities. And following another 8 to 15 businesses.

We follow their financial updates. Their industries. And their news. We’re constantly looking to buy quality assets at the right price. And this often means waiting.

A set of opportunities this size can be reasonably understood and monitored. New opportunities enter. Some leave, as they become too expensive or the upside moves on.

The radar is optimised.

 

Sow your seeds

 

Investing, by its nature, takes time to grow and deliver.

The key is to sow a little seed in the morning and the evening.

Even Warren Buffett does not know which seeds will grow. It appears he got it right on Apple [NASDAQ:AAPL] — but perhaps not on Kraft Heinz [NYSE:KHC]?

Still, his portfolio has delivered. His holding company, Berkshire Hathaway [NYSE:BRK.A], is up 200% in 10 years.

So, keeping all this in mind, what’s our strategy?

Well, during the day, we’re often ‘nibbling’ at favoured stocks on the Australian or the US exchanges.

And four nights a week, in the later evening, on the London or other European markets.

This steady nibbling at opportunity can build a diverse portfolio for growth and income over time.

Occasionally, when market opportunity presents, we’ll go beyond nibbling — to taking some very meaningful bites.

 

 

On opportunity…

 

A strategy of constantly seeking a focused range of opportunity can be helpful not only in investing, but in life.

We do not know which seeds planted will turn out well.

Some will fail. Some will succeed.

Indeed, those that do fail, they provide the best learning for future planting.

If you’re not seeing opportunity in front of you right now, sometimes you just have to make changes.

Some years back now, I found a dearth of opportunity in New Zealand. Things were drying up.

We moved to Europe and found new opportunities.

Since the pandemic, the world has changed. This is presenting crisis, the upside of which is also opportunity.

There are many listed businesses still available in the markets at a discount. In our Premium News Service, we are covering their prospects.

Keep sowing and you will one day reap.

So we wish you the very best with your planting.

 

Regards,

Simon Angelo

Editor, Wealth Morning

 (This article is general in nature and should not be construed as any financial or investment advice. To obtain guidance for your specific situation, please seek independent financial advice.)

Important disclosures

Simon Angelo owns shares in Berkshire Hathaway [NYSE:BRK.A] via portfolio manager Vistafolio.