Investment Tip - Diversify, diversify, diversify !
If I mention the name - Jim Cramer, does it ring a bell? Do you know who is he? (see above)
Apparently, Mr Cramer is a multi-faceted talent:
An American tv personality.
An author.
An entertainer.
Ex-hedge fund manager.
Host of CNBC’s Mad Money.
Anchor host on CNBC’s Squawk on the Street.
Does that qualify Mr Cramer as a bona fide investor?
According to the US general public / opinion — “Yes”.
Looking back when I first got reacquainted with stocks investment, I read a lot, trying to play catch up.
That was when I first chanced upon Mr Cramer.
Leveraging his theatrics to his full advantage, he managed to bring across his viewpoint on (a) US market’s direction and (b) US stocks, which are ins or outs.
Naturally when I came across his latest, I cannot help and stopped what I was doing to read the post.
Here is the skinny:
In his Sun, 19 Nov 2023 CNBC Finance post, Jim Cramer argues that diversification is a losing strategy for investors this year, as most sectors, underperformed the market.
He claims that only a handful of stocks, have delivered consistent returns, while the rest have either been dragged down by one or more factors: (see below)
Inflation.
Supply chain disruptions.
Regulatory pressures.
Geopolitical tensions.
List of “handful stocks”:
His suggestions (to investors & readers):
Focus on these winners. (see above)
Avoid spreading their bets too thinly across different industries and asset classes.
For next year 2024:
He questions whether US market will be any different?
He expects the Fed to raise interest rates further.
He thinks US economy will slow down.
My Viewpoints:
I kind of “disagree” with Mr Cramer's view that diversification is crushing investors, be it this year or any other year for that matter.
I was “trained” to invest with the guiding principal of “not putting all eggs into one basket”.
While it is true that some stocks have outperformed the market, it is also true that they carry:
Higher risks.
Higher volatility.
Diversification is not just about (a) maximizing returns, but also about (b) minimizing losses and (c) managing risks.
By investing in a variety of sectors and asset classes, investors can reduce their exposure to specific shocks and uncertainties that may affect one or a few stocks.
Diversification also allows investors to capture opportunities in different segments of the market: Eg.
Value.
Growth.
Dividend.
International and emerging markets.
Diversification is not a one-time decision, but a dynamic process that requires constant (a) rebalancing and (b) adjustment according to changing market conditions and personal goals.
As for coming year 2024, I also disagree with Cramer's prediction that it will be similar to 2023 in terms of market performance.
The possibility that the Fed will tighten monetary policy remains at large.
The economy definitely faces headwinds in coming 2024, given the mounting debt & debt threshold only goes up and never down. (see below)
US National Debt. In 5.5 months, US burnt through 1 Trillion dollars
Based on official data available so far, inflation should moderate.
Supply chains will improve as the pandemic gradually fades into the background.
As a “glass half full” person, there may be new catalysts for growth and innovation in sectors such as:
Biotechnology. Moderna Inc ($MRNA).
Renewable energy. eg. $Clean Energy Fuels(CLNE)$.
E-commerce.
Cloud computing.
In summary, I think it is premature and imprudent to write off diversification as a viable investment strategy for anytime in the year.
I believe that investors should maintain a balanced & diversified portfolio that reflects their (a) risk tolerance, (b) time horizon and (c) financial objectives.
One final “assumption” that I want to qualify is — in the course of diversify one’s portfolio, the “duties” of an investor remains status quo.
He/she is still expected to invest in:
Sun rise sector/s in the US market; not sunset ones.
Stocks of companies that are well-managed.
Stocks where its beta rating is closed to the “1.x” range.
In short, it is “value investing” in the course of building one’s diversified portfolio of stocks.
I cannot think of anyone else but Mr Warren Buffett, who exemplify my definition of stocks diversification.
One only needs to look at Berkshire Hathaway’s stocks holdings to know what I am trying to bring across. (see below)
BRK.A - Top 10 holdings by value
Basically, Berkshire Hathaway’s list of Top 10 stocks can be grouped into the following sectors:
Technology - 1
Financial svcs - 3
Consumer defensive - 2
Energy - 2
Industrial - 2
Need I elaborate further? Dun think so right!
Do you think there is a need to diversify one’s portfolio of stocks?
Do you think in the course of diversification, select “value” stock is an important decision?
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
Diversity can be very different, in different markets and in different sectors
wait and see the direction first and then invest
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