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Question About Investments

WheelsRCool

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Aug 12, 2007
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Hey in Robert Kiyosaki's book "Cashflow Quadrant," (if I'm remembering correctly) he mentions that people should not diversify their investments, that they should concentrate on certain investments. Basically, his theory seems to be the opposite of the standard, which is specialize in a profession, diversify your investments, whereas his is do not specialize in a profession, diversify, but regarding investments, specialize (again if I'm remembering right). My question is though, isn't that dangerous? Don't you want your investments diversified so if part of the market tanks, your money isn't all in one industry? Sort of like people who had all their money in tech stocks at the height of the dot-com bubble, then lost massive sums of money because of this when it crashed (one guy went from net worth $10 billion to $100 million, another $1 billion to $15 million, etc...)??

Thanks,
---Wheels---
 

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randallg99

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Hey in Robert Kiyosaki's book "Cashflow Quadrant," (if I'm remembering correctly) he mentions that people should not diversify their investments, that they should concentrate on certain investments.
That is correct. Diversification is designed for capital preservation. Concentration is designed for growth.


Basically, his theory seems to be the opposite of the standard, which is specialize in a profession, diversify your investments, whereas his is do not specialize in a profession, diversify, but regarding investments, specialize (again if I'm remembering right). My question is though, isn't that dangerous? Don't you want your investments diversified so if part of the market tanks, your money isn't all in one industry?

If your convicition after doing DD is correct (no matter the investment), you have eliminated much of the risk and you have created the potential to create a lot of money. For example, if your conviction was to invest 100% of your net worth and buy gold just at 350 a couple of years ago, then you would have doubled your net worth by concentrating on just one single focus. Many money managers would have suggested that you would only invest 5% of your portfolio in each sector/factor/industry, etc to create 20 equal holdings. so if all 20 holdings in the portfolio remained unchanged except for the double in gold, your 5% gold investment would have amounted to a meager 5% return on the entire portfolio.


Portfolio diversification was designed by brokerage firms, along with churning, rotation, sector movements, etc because they are in the fast lane to trillions...


Sort of like people who had all their money in tech stocks at the height of the dot-com bubble, then lost massive sums of money because of this when it crashed (one guy went from net worth $10 billion to $100 million, another $1 billion to $15 million, etc...)??
Those schmucks should have sold when they made 10bil, then they would have still been worth 10bil. Greed supercedes all of the theories and do not get rich.
 

EasyMoney_in_NC

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Sep 9, 2007
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Portfolio diversification was designed by brokerage firms, along with churning, rotation, sector movements, etc because they are in the fast lane to trillions...
I would offer a much more cynical definition. They came up with those theories in an attempt to shield themselves from themselves. I mean really, isn't investing for the average Joe, nothing more than calling another average Joe, (with a shirt and tie who calls himself a "financial adviser" or "broker") for his advise on what should be "invested in" this week. More like paying to bet if you ask me. And the guy you pay to help you bet (ok call it investing if you must) is more likely to be a know nothing too. And what better way to shield a "know nothing" junior idiot (I mean broker) than to come up with BS theories that shift the blame away from him and onto "market fluctuations". All those theories say is that "we really don't know what we are doing". And just as a broken clock is right twice a day, an idiot can get lucky too as long as he's convinced you to spread your bet (oops I mean investment) around enough.

When will people ever learn? All one needs to do is look at the RE business for clues. How many RE agents have even a remote true clue as to their market and pricing....and really have their finger on the pulse? Most are idiots and or the bored housewife (no offense intended) looking for something "fun and exciting" to do. Security brokerage houses are the same type of cattle yard, herding the latest junior associates out of class through.......what could they possibly know?

I think if you find some way to make money that is based on solid DD and you believe strongly in it, jump in all the way. Your option is to blindly bet on various "investments" and hope something works out.:rant:

sorry, done now :)
wow, I guess I'm fired up this Sunday morning :)
 

andviv

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Randallg99 quote is perfect:
Diversification is designed for capital preservation. Concentration is designed for growth.
When you have something to protect then you diversify. What good is diversification going to do if you only have 10K? Take your 10K, make it 10M and then you diversify. Diversification is a defensive strategy. But first you need to have something to protect.
 
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WheelsRCool

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Aug 12, 2007
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Two quick questions:

1) What does DD stand for?

2) So when you make a large amount of money, how do you grow it further if you need to diversify to protect it. Would you need to concentrate to grow it further, or is it that at high levels of wealth, "diversifying" is a little different, for example, if you're worth $6 million, putting $3 million into a concentrated investment might be a lot, but if you're worth $100 million, putting $3 million into an investment is a lot, but won't affect you at that level the way it would at $6 million?

I mean if I took 10K and turned it into $10 million, I'd want to turn the $10 million into $100 million, and so on (I'd also do this by starting a business to build and then later sell).
 

JScott

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I mean if I took 10K and turned it into $10 million, I'd want to turn the $10 million into $100 million, and so on (I'd also do this by starting a business to build and then later sell).
Assuming you were able to turn $10K into $10M without just getting lucky, why wouldn't you use the same formula to turn the $10M into $100M?
 

CarrieW

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why would someone want to keep doing the same thing everyday for the rest of thier lives...(im assuming it required quite a bit to get the 10mil)

in my plan(in my head) is to make a good deal of money concentrating on one area then branch off into several others with the ultimate outcome of everything making me money while i do nothing at all....
 

CRBFL

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why would someone want to keep doing the same thing everyday for the rest of thier lives...(im assuming it required quite a bit to get the 10mil)

A lot of that goes toward the thought of "do what you love, the money will follow." I think almost every investment, idea, job has the potential to make you very wealthy if you play your cards right. Try and find something you can do everyday that makes you the money that you want. Sure it might be a shit ton of work, but if you love it- you're golden.

Many people that hit the Fastlane early in life have immense trouble with just calling it quits. Making money via stocks, real estate, building businesses, ect is something that they can do everyday because that is where their heart lies. It's hard for people of these personalities to sit still. (or have their money sit still!)
 

andviv

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why would someone want to keep doing the same thing everyday for the rest of thier lives...(im assuming it required quite a bit to get the 10mil)
Because it worked. If it works, why not just do it again until you reach your targeted goal?

Are you planning to do something to make it to your goal (i.e. use the investment as a vehicle to reach your destination) or to do that just for fun and if money comes then great, you'll take it?

To me my investments are the vehicle to get where I want to be. Of course, I am doing something I like so it does not seem boring, but it is a vehicle. The goal is what is important.
 

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WheelsRCool

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Buffett from my understanding is very patient with his investments and conservative as well.
 

kimberland

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Buffett cautioned that 99% of investors should go into extreme diversification.
Only those that have an idea of what to do should consider more concentration.
Of course, everyone thinks they're part of the elite, but...
Anyway, this takes a bit of experience etc to understand. Some of my trading friends have a dozen positions on at once, all buying into favorable technical patterns. Others only have a few. If you're willing to commit yourself, there's no reason why you shouldn't concentrate.(Unless you're Buffett and can keep an eye on a hundred companies at once :D)
That's the issue.
If you're going to go it alone
(i.e. not team up with a financial advisor),
it is very difficult to keep your eye on more than a dozen stocks.

For my fun portfolio,
I keep it to less than 5 stocks.
I don't have time to hold more.

For my "serious" portfolio,
I have an advisor and his staff
so although I still oversee the portfolio,
I can simply ask "what's the P/E on this"
or "what do we think will change?"
etc.
Don't have to do all the legwork myself.
 
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WheelsRCool

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Aug 12, 2007
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That's the issue.
If you're going to go it alone
(i.e. not team up with a financial advisor),
it is very difficult to keep your eye on more than a dozen stocks.

For my fun portfolio,
I keep it to less than 5 stocks.
I don't have time to hold more.

For my "serious" portfolio,
I have an advisor and his staff
so although I still oversee the portfolio,
I can simply ask "what's the P/E on this"
or "what do we think will change?"
etc.
Don't have to do all the legwork myself.
When you talk about a financial advisor, do you mean just someone who researches information for you, but you still make the decisions as to what to invest in and not to invest in? I wouldn't want to trust the management of my money to a financial person if I can do it myself, because I read that when the dot com bubble burst and the Enron and Worldcom scandals came about, etc...many people discovered that the so-called "experts" they'd hired to manage their money really weren't as smart as they had thought.
 

Rawr

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I can simply ask "what's the P/E on this"
Can I please be your financial adviser? I'll even tell you what the beta means for only a small charge of $9.99 :)


I would like to continue doing my own investments until I find a guy who is on top of things - if I lose money, I can live with that. If some other person loses my money, that is worse.
 

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