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Three investment tips you don't often hear around

Three investment tips you don't often hear around

It seems that, when it comes to stretching your money to the maximum, there is nothing new when it comes to investing, especially in the stock market. The same tips and strategies are repeated over and over againand rightly so in most cases, as they are the most sensible.

But, as this is widely seen, I will do a little exercise to go against it, showing a series of investment advice that is not usually heard out theresince they do not follow the usual line.

That's right, What we are going to see should be taken for informational purposes only. and intellectual, to think a little beyond the usual. It is true that they all have a meaning and even some data that support them, however, in no way represents advice of any kind and I do not even follow it almost never.

In fact, I'm very boring and long term in this type of investment, where the aforementioned boredom is usually a friend of the result over time.

These are the four investment tips I plan to give my children

My goal is also to show that This game is not about absolute truths, but of nuances and subtleties whose usefulness depends on the situation and the specific moment. The nuances and subtleties, what died the day the Internet was born.

Let's start with the first tip, sacrificing the sacred cow everything they teach you in Economics, Stock Exchange or business.

1. Forget diversification, at least if you want to earn more than a beer

Not diversifying leads to greater profitability

I think almost everyone here knows the most basic investment advice, diversification, summarized in: «Don't put all your eggs in one basket». The logic is good for this, distribute the investments well, so that if you lose on something, the rest makes up for it and you don't end up with a risky position in just a few amounts.

Oh, and don't forget to put a big pinch on some boring bond, now that interest rates are back, or on that company that's been breathing since 1800 and growing 1% a year.

Good advice not to lose, but it turns out that not losing and winning are not exactly the same on many occasions.

Forgetting to diversify is a recipe for earning more for one simple reason: hundreds of years later, Pareto is still right. Most gains come from a few stocks in many cases and to distribute it everywhere is to take your wealth and condemn it to the fact that most of it contributes almost nothing, neither for good nor for evil.

Especially if you don't have a lot of capital to invest, diversification is a recipe for slow performance.

What to do then?

An investment concentrated in the most profitable securities that Pareto would be proud of, something that we need in-depth knowledge of the market and the activity what we are going to invest in.

Because, of course, the essential thing is to detect and be clear about these values, because, as with all advice that is useful for something, they are much easier in theory than in practice.

Investors who are not so suspicious of foolishness, such as Warren Buffet and Charlie Munger, recommend opening the window and launching diversification through it, which they described as crutch to compensate for ignorance or of "protection against ignorance» in relation to the market.

Here is a quote from Munger in 2005 that summarizes his point of view and the reason for the advice:

Berkshire-style investors tend to be less diversified than others. Academics have done experienced investors a disservice by glorifying the idea of diversification. Because I think the whole concept is literally almost crazy. He emphasizes the fact that he feels good because the results of his investments do not deviate much from the average market results. But why would you climb into such a cart if someone didn't force you with a whip and a gun?

Having said that, which is very sensible, I will now state the opposite.

2. Don't learn about the market, copy and that's it

Copying Securities can be a good investment strategy

The previous premise is good, but some of us have jobs and lives, even if it doesn't seem like it, and it turns out that everything is much more complex than it seems at first glance. In other words, to detect these few values from before in a systematic way, it takes more experience and knowledge than many believe.

Furthermore, in this game, there will always be someone who knows and earns much more than us, just like in the Wild West there was always a faster gunslinger.

So don't learn, it's much better copy the best and that's it.

Some investment platforms, in fact, advertise this possibility, that of imitate the moves of famous investors They get good returns.

Once again, there are a thousand nuances to discuss that do not fit into the space you leave me. Personally, I would say a few things against this, but today I'm playing devil's advocate and it's true that some preliminary data seem to support that, as a general strategy, it gives better results than average.

Of course, as in the concentrated values of the first council, in this you have to choose very carefully who you copywhich is the crux of the matter.

Or perhaps, instead of doing that work, the unusual investment advice to follow was something else.

3. Invest blindly and that's it, no one seems to have any idea

Monkeys and Stock Market Experts, the former usually win

I talked about learning a lot, after all the opposite, and now I'm going to kill them both in one fell swoop by saying that maybe some good unusual investment advice is that choose values blindly.

You know, throwing a dart, drawing a bingo ball, or any other random system.

In 1973, Professor Burton Malkiel of Princeton University wrote in his book A random walk down Wall Street what a blindfolded monkey could match the profit experts when investing in the stock market.

In 2013, Rob Arnott, CEO of Search AffiliatesHe proved him wrong testing that the monkeys did not equal the experts, but surpassed them.

To do this, he carried out a test by randomly choosing 100 wallets with 30 quotas, out of a total universe of 1,000 possible values.

So he repeated this process every year, nothing less than from 1964 to 2010and observed the results, replicating the “100 blindfolded monkeys” randomization.

The conclusion was that, on average, 98 of the 100 “monkey” portfolios outperform in capitalization to the market.

Interestingly, it was not the first experiment of its kind. He Wall Street Journal he also wanted to know if Malkiel was right, and did something similar, comparing the performance of “monkeys” (random investment), amateur and professionals.

After 3 stages of competition, between 2000 and 2001this was the classification:

  1. Monkeys with +13.3 points.
  2. Experts with +4.4 points.
  3. Amateurs: -81.22 points.

Crazy, but the truth is that we have also seen more results from this style, or even above-average profitability using decision criteria as strange as Scrabble.

The explanation is largely purely mathematical, not magical, but it gives a lot to think about experts, biases in the application of knowledge, and realities. So much so that in a next article We'll take a closer look at why monkeys make better investors, plus something more surprising. about the “experts”.

Obviously, we should not take them as commandments written in stone, or even as our compass, but There is wisdom contained in these 3 eccentric tips. Because life is about those nuances and subtleties that I talked about at the beginning, and the key is usually in the details.

Therefore, there are no tips that always work, but sensible general guidelines that should be ignored at certain times, once we know and master the rules of the game well.

For example, there is also the advice of buy the dip or buy during the drop in value. Absolutely not in many casesbecause the value may not recover or it may leave money trapped in a never-ending winter, where the old people in the place still remember who bought it to dive infinite numbers of Earth, for example.

Many won't even know what I'm talking about, they won't miss anything either.

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