I happened to find myself in a new pick-and-weigh dried-food stores the other day in Tanglin Mall. It wasn’t exactly a chance happening, though.
I met, Emily, one of the co-founders of Scoop, on a MoneyFM radio show one morning. And I promised her that I would give her shop the once-over. I did, and I was not disappointed….
…. I even picked up just enough ingredients to make myself a fresh batch of homemade muesli. The operative words being “just enough”. Customers can decide exactly how much of each item they need to buy…..
….They can even bring their own containers, which I did. Very environmentally friendly. No wastage. Insanely clever.
That got me thinking. There must have been over a hundred different items on offer. So, how many different ways are there to pick, say, 20 separate types of dried fruit, nuts and grains from 100 bins?
The answer is a mind-blowing five hundred quintillion. That’s five followed by 20 zeros….
…. Investing can be a bit like that too.
Lets’s say we would like to build a portfolio of 20 different stocks from a pool of 100 well-researched companies that fit our requirements. There are five hundred quintillion combinations.
That is both exciting and daunting at the same time. Where on earth do we start?
It is little wonder that some investors give up on investing, especially when we can be fed a continuous stream of new recommendations, with each suggestion supposedly better than the one before!
But the secret of investing is not to buy a never-ending string of shares, willy nilly . That would be crazy and, perhaps, irresponsible.
A better way could be to put together a robust portfolio of stocks in a meaningful way. And, importantly, make sure that the portfolio performs optimally.
Consequently, it is important to put into our portfolio only those companies that we are comfortable with. We also need to understand what each stock does, why it should be in the portfolio, and how it can work in concert with other shares.
Know your onions
Point is, not all stocks behave in the same way. Nor should they.
For instance, we wouldn’t expect a confectionary company to deliver the same kind of returns as a rubber-glove maker. But that doesn’t mean we should invest in one at the expense of the other. They can even fit surprisingly well together.
Peter Lynch once said that we should put our stocks into categories. In other words, we need to know our onions….
…. So we need to understand what each company does. By doing so we should have a better idea of what we should expect from them.
A waste of time
There is something else…. if we choose and combine our stocks carefully, then the portfolio could outperform money in the bank. But a badly assembled collection of stocks can be worse than a waste of time.
At The Smart Investor we aim to show you how we can construct stock portfolios using a variety of shares.
But showing and doing are two very different things.
So, we will explain how we assemble our own portfolios using our own, very real, money. There is nothing quite like writing out a cheque to show commitment.
I can’t wait to show you mine.
That’s all for now. Please sign up to Get Smart for more information on how we can invest smartly.
I might even tell you the secret ingredient I found that turned my homemade muesli from being something quite ordinary to something quite outstanding.
None of the information in this article can be constituted as financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life.