When Less Is Not More
Key Takeaways
Many professional managers of capital and traders will boast of their ability to pick that winning stock or sector.
Evidence shows that stock-picking has a significantly lower probability of meeting your financial goals than investing with broad diversification.
Don’t lose out returns by making a guess. Invest the time-tested way.
Professional managers of capital, such as those managing mutual funds have tended to pitch their superior stock picking or market timing skills in order to justify their fees, usually running concentrated portfolios of their best ideas. How often have you read or heard investment specialists say “it is a stock picker’s market”? Let’s take a look at some data:
The evidence shows that, on average, U.S. stock funds that hold at least 100 companies or more outperform those with lesser holdings.
This is congruent with the evidence we had written previously on how a small percentage of stocks are responsible for almost all of the wealth created in the market. Diversifying more broadly gives you a better chance of receiving a positive outcome. By restricting your portfolio to a small number of securities, the odds are that you will most probably miss that one single stock that will create massive wealth for you.
The average global mutual fund holds about 80 securities, global ETFs about 2,300 securities; this is compared to our flagship portfolios that hold more than 13,000 securities.
Our core portfolios are designed this way so that they not only to capture the massive returns from the small number of stocks that drive returns, but also to effectively manage risk; to ensure that should anything unforeseen happen — sanctions on Russia, bank collapses, delistings, or bankruptcies — it would not impair the value of your portfolio to a large degree.
In the same way that you would not attempt a high risk activity such as sky-diving without professional supervision, investors can benefit greatly by relying on an adviser — having the peace of mind knowing that their plan is in the hands of a professional.
If you would like to speak to a trusted adviser on your investments or have a second opinion on your financial plan, click here to schedule a chat with us. (Our 30-minute exploratory meeting is complimentary - either Zoom or In-Person)