Worldwide diversification with UK company shares.
Discussion
Fairly obvious, but a discussion might be helpful, perhaps especially for new investors.
The funds industry in particular seem very keen to promote diversification. Funds specialising in every corner of the globe seem to be available.
Mr Warren Buffett, considered the most successful self made investor, talks down the need for diversification.
"If you own (shares in) three really good businesses, then you diversify by purchasing twenty more, your overall performance will be harmed by those extra purchases."
Many top UK business (FTSE 100 members) trade all around the world and have offices and manufacturing plants in many different countries. That automatically provides geographic and currency diversification with just one business.
During the past few weeks the US Dollar has become more valuable compared to GB Pound. FX rate has moved from 1.36 to 1.31.
Several top UK international companies do their accounts in US Dollars. The currency movement mentioned has therefore increased revenue, profits and dividends for the UK shareholders. Just one example of how it works in practice.
Jon39 said:
Fairly obvious, but a discussion might be helpful, perhaps especially for new investors.
The funds industry in particular seem very keen to promote diversification. Funds specialising in every corner of the globe seem to be available.
Mr Warren Buffett, considered the most successful self made investor, talks down the need for diversification.
"If you own (shares in) three really good businesses, then you diversify by purchasing twenty more, your overall performance will be harmed by those extra purchases."
Many top UK business (FTSE 100 members) trade all around the world and have offices and manufacturing plants in many different countries. That automatically provides geographic and currency diversification with just one business.
During the past few weeks the US Dollar has become more valuable compared to GB Pound. FX rate has moved from 1.36 to 1.31.
Several top UK international companies do their accounts in US Dollars. The currency movement mentioned has therefore increased revenue, profits and dividends for the UK shareholders. Just one example of how it works in practice.
https://www.pistonheads.com/gassing/topic.asp?h=0&...
Finding the needle in the haystack is moderately tricky - even for Buffett who has undershot the index for a long time (although to be fair partially expected as he is/was a value investor).
https://www.sciencedirect.com/science/article/abs/...
"The majority of common stocks that have appeared in the Center for Research in Security Prices (CRSP) database since 1926 have lifetime buy-and-hold returns less than one-month Treasuries. When stated in terms of lifetime dollar wealth creation, the best-performing 4% of listed companies explain the net gain for the entire US stock market since 1926, as other stocks collectively matched Treasury bills"
You’re probably not as good an investor as Buffett. Buying 3 good businesses (and only 3 good businesses) is easier said than done!
Americans also tend to have a somewhat more parochial view of international diversification than those in other geographies. This is due to the sheer size of the US market. So “just buy the S&P” or “just buy a US total market fund” is a more diversified strategy than “just buy the FTSE100” or “just buy a UK total market fund”.
But sure, you will have international exposure through FTSE ownership.
Americans also tend to have a somewhat more parochial view of international diversification than those in other geographies. This is due to the sheer size of the US market. So “just buy the S&P” or “just buy a US total market fund” is a more diversified strategy than “just buy the FTSE100” or “just buy a UK total market fund”.
But sure, you will have international exposure through FTSE ownership.
FX rates can also move against us. GBP is still low vs the USD and though I’m no FX trader I felt that we could see GBP strengthen as Brexit and Covid went into the rear view mirror. This would make your USD assets lose value.
It’s also worth pointing out that many funds are FX hedged to reduce the FX risk.
It’s also worth pointing out that many funds are FX hedged to reduce the FX risk.
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hstewie said:
hstewie said: as most people won't be able to do what he did.
Shouldn't be too difficult to emulate (if you had a cheap source of leverage) using factor tilted offerings (which to be fair weren't available when he was first starting out). Put it another way, his returns aren't down to alpha. https://papers.ssrn.com/sol3/papers.cfm?abstract_i...
"Berkshire Hathaway has realized a Sharpe ratio of 0.79 with significant alpha to traditional risk factors. However, the alpha becomes insignificant when controlling for exposures to Betting-Against-Beta and Quality-Minus-Junk factors. Further, we estimate that Buffett’s leverage is about 1.7-to-1 on average. Therefore, Buffett’s returns appear to be neither luck nor magic, but, rather, reward for leveraging cheap, safe, quality stocks. "
For a novice like myself I consider purchasing shares in any single company a pure gamble.
Reading various threads on here I've not seen many posts in which someone has done decent due diligence before making a purchase. They mainly seem to check Reddit or try and time the market.
For me, I have just purchased a few index trackers, buy and forget...
Just wished I had done it years ago though! S&P 500 is up nearly 4000%
Reading various threads on here I've not seen many posts in which someone has done decent due diligence before making a purchase. They mainly seem to check Reddit or try and time the market.
For me, I have just purchased a few index trackers, buy and forget...
Just wished I had done it years ago though! S&P 500 is up nearly 4000%
Jon39 said:
Fairly obvious, but a discussion might be helpful, perhaps especially for new investors.
The funds industry in particular seem very keen to promote diversification. Funds specialising in every corner of the globe seem to be available.
Mr Warren Buffett, considered the most successful self made investor, talks down the need for diversification.
"If you own (shares in) three really good businesses, then you diversify by purchasing twenty more, your overall performance will be harmed by those extra purchases."
Many top UK business (FTSE 100 members) trade all around the world and have offices and manufacturing plants in many different countries. That automatically provides geographic and currency diversification with just one business.
During the past few weeks the US Dollar has become more valuable compared to GB Pound. FX rate has moved from 1.36 to 1.31.
Several top UK international companies do their accounts in US Dollars. The currency movement mentioned has therefore increased revenue, profits and dividends for the UK shareholders. Just one example of how it works in practice.
Yeah getting big into coca cola in 1988 when coke was $2-$3 for 10% of the company is fine then but would you do it now? Coke is worldwide so had growth potential then.
Same with Apple.
When I was at School apple computers were a joke and the company have had big misses all through the years.
The recent influx of investors are day traders looking to get rich from youtube pump dumps or huge loss making tech companies trying to get in early. Except they are not priced at early pre revenue levels when they become availbale to the common pleb like you and I.
I did it myself got hyped into buying xpeng at peak and basicly broke even with holding for a year averaging down.
Now I take Warrens other advice is to buy great companies at "good" prices.
Boring is the way to make money,
Same with Apple.
When I was at School apple computers were a joke and the company have had big misses all through the years.
The recent influx of investors are day traders looking to get rich from youtube pump dumps or huge loss making tech companies trying to get in early. Except they are not priced at early pre revenue levels when they become availbale to the common pleb like you and I.
I did it myself got hyped into buying xpeng at peak and basicly broke even with holding for a year averaging down.
Now I take Warrens other advice is to buy great companies at "good" prices.
Boring is the way to make money,
Benbay001 said:
Give us 3 FTSE 100 companies you think will out perform the market and I will try and provide a counter thesis.
Sorry, although I have obtained a fortune over 30 years from one FTSE 100 company (through many stock market crashes), I cannot forecast the future of business, or economics. It is all just too unpredictable.
That company was not a new wonder firm. They had already been trading for 80 years, before I started buying.
Ask an analyst, they are always keen to make recommendations, about how other people's money can be invested.
I have said before, my system is purposely simple. Chart the overall portfolio percentage starting at zero through each calendar year. Only takes 10 minutes each Friday. If the progress looks good during most years (don't expect to win every year) in relation to your chosen benchmark line, leave your holdings unchanged. Be patient and let compounding work its magic.
You would have to rethink your holdings if performance lagged repeatedly, but luck was with me, so that has never happened.
Only concentrate on the overall figure.
Certainly luck is involved, but having a disciplined system is a core requirement, to know what is happening. It can also be of help with reassurance during crashes, often the worst time to sell.
I like the quote above, 'Boring is the way to make money'.
Edited by Jon39 on Friday 18th March 21:47
Jawls said:
You’re probably not as good an investor as Buffett. ....
You win the topic award Jewis, for the most obvious comment possible.
YOUR PRIZE - If Derek Chevalier does lectures about complex investment formula and chart inversions, you might be able to have a seat at the back of the class. Important to keep awake though, because there might be a test afterwards.
...................................................
Your comment did make me wonder though. Surely I cannot have ever beaten Berkshire, but it might be interesting to take a look.
Well, what a surprise, I have achieved 10 annual wins (shown in bold).
The percentage figures highlighted in green, is beating the UK market.
WB tells much better jokes than me though, although he told one recently, which I had heard before from Tommy Cooper.
It is interesting to compare the annual US market performance with UK.
Jon39 said:
YOUR PRIZE - If Derek Chevalier does lectures about complex investment formula and chart inversions, you might be able to have a seat at the back of the class. Important to keep awake though, because there might be a test afterwards.
https://www.betafolio.co.uk/blog/2022/03/21/the-da...
"The reason for such intensive marketing is that fund managers know that people will often choose investments based on how frequently they appear in the news, social media or billboard advertising. Disciplined research or due diligence involves far too much work for most of a time-poor population."
"Unfortunately, the result of these mental shortcuts is many people end up with portfolios that are overly concentrated, excessively risky, expensive and opaque."
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