If you're wondering what to do in the current stock markets you are definitely not alone. I myself have certainly wondering what to do in the current volatile times. In this piece I would like to discuss what I have done, the reasons I have done what I have done, and how I see the future going forward. I will also be discussing about the views and investment mantras of my business heroes, and how their views back up the moves I have taken and plan to take. I won't however be mentioning any specific stock tips, because I don't want to be seen as giving specific stock advise. What I will be doing in this article instead, is giving the reader an insight into how I have positioned my portfolio, and how I have utilized some of the advise of my investment heroes.
What I have done with my stock portfolio in the past month is to go from being 99 percent invested in stocks to about 75 percent. The reason that I sold some stock to move into some cash was however, not at all panic selling. The real reason I did is because I believe that once this current period of high volatility is drawing to a close, there will be some seriously good opportunities coming up in some specific areas of the market. This move and this philosophy of mine comes directly from one of my top investment heroes, Mark Cuban, who admits that he himself takes an entirely different approach to investing than the masses.
Firstly, it is probably obvious to all the readers of this blog that no professional investment advisers would ever advice their clients to have 99 percent or even maybe 75 percent of their portfolios invested in stocks. Even more surprising is that three months ago I sold all of my stocks, and then a couple of weeks later after the market had dropped 10 percent, I piled back into a small group of only three stocks. A common mantra of the investment adviser community is to widely diversify, because it will sufficiently protect against market risk. But my response to this is that the only reason to diversify is because the individual does not have time to do the adequate research into specific companies. My other response to this is that wide diversification will only create returns that mimic the broader market. Admittedly the broader market has done quite well, returning between 9-10 percent over the past 100 years (in America). This is a pretty good return and handily beats the rate of inflation. But it is again my belief that if the average investor wants to invest in individual stocks, then it should always be their aim to beat the market. If not, then it is probably best to just invest in a broad stock index and to sit back and get 9 percent, along with very low fees.
If however the individual plans on investing in individual stocks, then I think that it is essential to take (as Mark Cuban says) a different approach to investing than most people. The first point to mention regarding this, is to say that people have different personalities, and each person's individual investment approach needs to take account of their individual personality type. Like for example if you like the idea of renewable energy, then you should focus on investing in renewable energy stocks. What I'm talking about is that people need to be invested in stocks that interest them, because in order to stay on top of their investments, and more importantly to beat the market, they need to watch them closely. This 'watching your investments closely' is an old adage from Warren Buffett, who is a strong advocate of having a concentrated portfolio of stocks, and then watching them closely.
The next investment hero of mine who I would like to add in some ideas from is Peter Thiel, one of the founders of Paypal and the earliest outside investor in Facebook. In his recent book Zero to One, Peter advocates that 'technology' rather than 'globalization' will shape the future of humanity. What he means by this, is that whereas globalisation is all about copying what others have done, technology is all about creating new stuff. Essentially he shows that technology has to be way of the future because it moves humanity from zero to one. Globalization on the other hand just shifts things from one to one. In country terms he says that China is following the globalization route whereas the United States, particularly Silicon Valley is following the technology route. This philosophy of Thiel's explains the reason why I invest solely in U.S. stocks, and it also gives a reason as to the type's of companies I like to invest in.
In summary, I am of the firm belief that if people are content on investing in individual stocks and consequently intent on beating the market, then it is essential that they think differently to most. Furthermore, I think that in order to do this it is important that they study the methods of those great investors in the past or in the present, in order to get an insight into the methods that made them successful. It is not however I believe in the best interests of people that they try to exactly copy the methods of others. People have to mold their own investment methods. Molding your own investment methods is something that will take a combination of time, study and practice. I am not done yet in molding my own method, and won't be for some time. But my mantras' of investing in technology companies (that will move the needle from zero to one), having a concentrated portfolio in some specific areas, along with practicing an investment technique that is different from the masses, are three mantras' that I am sure will stay with me throughout my investment life.