broom bundle of stocks in bull trend

 suppose we buy 30 stocks. on the day of buying they are like a bundle of sticks tied with a string.

while we often wish that the stocks in the bundle will go this way👇

we fear the stocks actually going opposite way with falling market

but that is a baseless fear which often prompts an investor into wrong actions or unnecessary anxiety

because in reality, it is often seen that the bundle of stocks behave like a broom.

all stocks going in their way depending upon their merit.

all a trader has to do is to try to pick only those stocks where the chances of all stocks/sticks in one direction (up) are higher

In fact,  even if market (index) dips, it momentary disturbs/ distorts the good stocks which again come back to their original track

Something like this

Pick good stocks in bull trend and don't worry about the broader index

Just because the world is going to hell doesn't mean good people and stocks are not living in heaven already. They are merrily marching to happiness and wealth

and the winner is.....

3 years ago I started a monthly SIP (Sytematic Investment Plan) with SBI Mutual Fund's Magnum Tax Gain'93.

I started it not because of my prudence

but because of

a) repeated edging by one Mr.Vijay (a real gentleman financial advisor whom I now trust utmost) and

b) the reason that I wanted to save some tax under section 80C but in a way which gives more return than traditional life insurance

(I believe that one should buy term insurance for life insurance and mutual fund with or without SIP for savings!) (the above mentioned fund gives 80C benefit besides market investment returns)

Frankly speaking, when i started the SIP with a small monthly contribution I was least excited!

Reason?

"It will take ages before the monthly systematic investment will becaome a fortune!" I thought.

Still, I did start with the SIP and gave 12 cheques to Vijay.

Every month it was an irritant to part with the instalment.

Many times I decided to stop the SIP after the committed 12 instalments.

But after around 8 months, one day I was pleasantly surprised to receive a dividend cheque from the MF.

It was a decent amount but it appeared many times bigger due to the surprise element!

Besides, my corpus had grown!

So, I continued with the MF after the first year as well.

Here, I wish to share that I started the SIP when the Sensex was above 20000 just before the crash!

But because of it being monthly SIP, my instalments kept entering the market at every stair in the staircase.

My SIP instalment went into the market at 20000 as well as 7500, 15000 as well as 9000, 12000 as well as 10000......

....and it is still continuing........

The annual dividends I get fund my kids annual fees automatically! Alternately, it leaves me with a handsome amount to do anything I wish to! Last year we had a grand annual family vacation in Kullu & Manali!

And the beauty is that the corpus is growing.....

.....in compounded fashion just like the prize money in Kaun Banega Karorpati (Who wants to be Millionaire).......

What was an irritant every month is today a monthly reminder of the assured and growing prosperity!

Every month I thank Vijay hearts of hearts for somehow forcing me into this equity-linked savings.

Jokingly, I have been playing a race between my savings in this MF and the growth in my self-trading earnings.

I have no hesitation in admitting that I have been left gasping behind the MF especially after this recent bull spurt!

Why I shared this story with you?

Two reasons.

First, to recommend SIP based Mutual Fund investing to everyone!

Second, to share a strange phenomenon mentioned below.

I have

never ever

never ever

never ever

thought of selling my SIP savings!

I just think of investing more and more......

I just think of topping it up whenever market is in oversold state!

whereas I rarely survive the itch to book profit in my trades!!!

What fantastic paradoxical opposite faces of my same self!!!

One is willing to not only hold all investments forever but keep adding to it! (The fund manager keeps rotating the investment into sectors and stocks as per the situation)

The other is dying to run away with the pennies after every round!

One full of stress!

One full of pleasure!!

I have least doubt who will win this race.

It will surely be the tortoise this time as well!

5 is a Porfolio, 40 is a Zoo!

We all have heard the proverb "don't put all your eggs in one basket"

Well, while it is a wise thing to do as far as eggs are concerned, for stocks it should be followed with care!

While diversification, being a defensive strategy, is good for capital protection, it rarely increases your wealth in leaps and bounds!

Warren Buffet once termed a portfolio of 40 stocks as a Zoo and not a portfolio!

He had opined that focusing your investment seems risky but isn't really.

According to Buffet, if focusing your investment in a few stocks makes you do your homework intensely then that is very healthy.

"Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing." Buffet says.

At the end of 1999 and 2000 Buffet's company Hathaway Berkshire had 70% of its investment funds in just four companies.

It is "too hard to make hundreds of smart decisions."

Even Peter Lynch said : "The smallest investor can follow the Rule of Five. The part-time stock picker probably has time to follow 8-12 companies."

"Owning stocks is like having children--don’t get involved with more than you can handle."

"All stocks in the portfolio have to pass some stiff tests and you will not know if they pass the tests unless you are able to spend time analyzing them."

Philip Fisher had rightly warned :

"......buying a company without having sufficient knowledge of it may be even more dangerous than having inadequate diversification."

To sum up in Warren Buffet's words : Diversification may preserve wealth, but concentration builds wealth.

4 kinds of portfolio diversification...

It is said "Never put all your eggs in one basket."

This logic makes Diversification of your investment logical! But diversification can also be in various ways.

I have picked the four most prominent types of diversification.

1) Within same Sector but spread across time period

2) Within same Sector in one go

3) Across Sectors and spread across time period

4) Across Sectors in one go

The first & second have got sector-specific risk still uncovered!
The second & forth have got market-specific risk uncovered.
The third is a true diversification where the risk of getting caught in sector-specific or market-specific bad times is minimised!

While the first one is Immature, the second is Risky behaviour, the third is Professional and the forth one is Amateur.

Warren Buffet had said "Diversification may preserve wealth, but concentration builds wealth."

But we forget the height he was talking from!!! Only someone as pro as him can say that.

Also, the money doesn't know that it is diversified! All that matters is whether the money has been deployed and whether rightly!!

Diversification requires multiple effort but is worth it!!! If the picks are great, even diversification can match the results of "concentration" Buffet talks about!