Posted on February 3, 2010 - by AK71

Excuse me, are you an investor?

Photo by Anonymous9000

We have heard many times the advice that we should diversify our investments to minimise risk. For those of us who have read books about Warren Buffet, we would also remember something along the line that diversification is for the “know nothing” investor and for the “know something” investor Warren Buffet, when he identifies something good, he goes in big! He doesn’t diversify, he concentrates! Of course, this is probably viable for us if we were in the same league as Warren Buffet and, of course, if we were in the same league as him, I wouldn’t be blogging here and you won’t be reading my blog. Maybe, there should be at least two more categories of investors: the “know a bit more” investors and the “know a bit more than a bit” investors.

I started out as a “know nothing” investor in my university days and would buy anything analysts recommended. Chasing after the flavor of the month was a regular exercise. I would be very happy if I made money and would be very sad if I lost. I had no technique to speak of and did not employ FA or TA. I did diversify since I must have had more than twenty different stocks in my portfolio at any one time. Did that help to reduce risk? I think not.

I was constantly worried about whether my stocks would make or lose money. I didn’t know what they were doing most of the time. I would jump at the slightest noise. Now, I’m sure just reading this short paragraph has stressed you out.

A couple of years after graduating from university, I did a diploma in business administration.  One of the things I had to learn was financial accounting and that started me on FA.  I became a “know a bit more” investor.  Of course, my portfolio was still very diversified and it had many counters brought forward from my ”know nothing” days.  It was really time consuming to go through every stock and much of my FA was half baked. Read more…

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