High conviction vs diversified

Interested in peoples approach. If you are looking for 20% + annual returns annually would you look for a high conviction strategy or a more diversified portfolio of growth stocks? What is your ideal number of stocks to own?

I think life would be easier if Ark just filed the necessary forms for UK ISA’s but hey ho :upside_down_face:

I’ve changed from diversified to high conviction several months ago. I used to roll with ETFs and some defensiveish stocks. Was pretty heavy on the emerging market side.

I then decided that $TSLA is the best place to be. I’m now subsequently 90% Tesla. This switch didn’t happen overnight. I slowly reallocated over a few weeks. Selling and buying TSLA dips.

5 figure portfolio btw. So not small potatoes where it wouldn’t matter if I lost it.

Edit: Hindsight 2020 and all. But if it hadn’t been Tesla, would do it again but with Apple.

Diversification is a hedge against ignorance - Warren Buffett.

Good companies that you understand will always beat the market.

image

My performance: (You can see where I started to switch strategy, currently 43% up.)

image
image

Basically I figured out I have a really high risk tolerance. I’m really not too bothered if the market goes down. In fact I wish for it. Covid was the best thing that could’ve happend for my portfolio. You can see I start increasing deposits as the market takes a turn.

4 Likes

This is amazing! Great post. I like Tesla, square, ‘genomics’ and renewables - basically sectors or businesses that will literally change the world.

Currently I have 16 stocks in the portfolio but have been thinking about going high conviction in 2 or 3 and perhaps another 3 at a much smaller % (stop my fomo)

Glad your switch has been a positive one.

Out of interest what are your thoughts on snowflake long term? It’s one I have been thinking about but the valuation is scary

1 Like

Thanks.

I bought it as a pretty speculative play. I think big data and analytics has only just started. I think it will grow very much in line with AI technologies. Yeah valuation is high and what not. But if I could’ve thrown a few thousand into Facebook at IPO. I would be sitting pretty now.

FB fell hard the following months after IPO. We all know what happens after that. I don’t know what’s going to happen with SNOW. I didn’t do any due diligence on the financials. They are losing money, whatever.

1 Like

Thanks I agree. I’ll take a closer look

I would spread the portfolio by 50% in high conviction strategy, and 50% with some diversification, growth stocks and maybe some dividends. Half of my portfolio is in 3 stocks, Tesla (26%), Apple (17%) and Facebook (8%).

For the ideal number of stocks, in my opinion, it is less than 15/20, which gives more time to follow the companies, what they are doing, how they are doing and so on. And also should have 4/5 stocks at least, to have some diversification, even if you are 100% convinced by one company, does not matter how much you believe in it, you should not go all in on that.

1 Like

You made quiet few changes then.
Not so long ago.

Yup. I honestly don’t see any company growing faster or more than Tesla will. Sold everything buying the battery day dip/aftermath. 2D :crescent_moon: I held onto some Apple because it was one of my first shares in a company. Also google becuase of spaceX/starlink connection.

@arafath98 Yup don’t do what I’m doing if you can’t handle the risk.

I admire folks having such high confidence in companies which value run so far ahead from any reality.

Apple and TSLA if looked from historic lenses will bring poor returns in upcoming decade for any investor in current pricing/valuations.

Anyway hopefully all turns out the best for the brave once. :slight_smile:

This is kinda intended to kickstart retirement. It’s not meant to be my sole means of living. I’m taking the maximum employer match for my pension which is in a boring world index fund.

If I can kickstart it early in 20 years or earlier because of a few successful companies, I’ll be happy. It won’t be the end of my retirement if it goes the other way so to speak. The way I’ve come to look at it is, anything other than bankruptcy should be fine. And yes I know a high percentage of companies go out of business. Like 99%. But I just really believe Tesla is one of those 1% companies that is growing.

I get what you’re saying about Apple. In fact this could be one of the riskiest times to own their stock. There is no guarantee that they can continue to innovate and acquire new customers. Like IBM it could only go downhill from here.

1 Like

I get you, I don’t have gut/stomach to put my hard earned cash into such risk. Yes, potential upside can be mind-boggling, but then I consider risk. Eek :slight_smile:

I just see TSLA in “honeymoon” phase now, all is shine and dandy. Once it reaches certain maturity, we have yet to see will it be able to sustain the growth rate and if so at which pace. This will be deciding factor for future valuations. Because at one point valuation will matter.

Lots of IFs and BUTs.

Apple is a beautiful company and I keep hitting myself for summer 2019, when I went income chasing. But lessons learned. :thinking:

2 Likes

I don’t think Apple will be in decline like IBM, they are becoming a services company also. Maybe not growing as they did till now, but there’s still room for growth.

I didn’t specifically mean that it would. I was more commenting that the risk is highest now, I guess because of the need to change some business models due to less innovation in the hardware space. Edit: Also their market penetration seems to be reaching a peak. iPhone sales have clearly been falling because they aren’t reporting it. So there are things that go against the largest US company, because it’s that.

I wouldn’t own the company if I thought it was only downhill from here. But you can never know I guess is my point. Which is why you say don’t go all in with one company. But yolo lyfe yo.

Every individual differs according to their risk tolerance and experience. I can guarantee you that you will always find a few successful people using any given strategy. However, there is overwhelming evidence that low risk strategies generate better returns consistently over time. The way I approach it is to do both. For my pension fund I go low risk and for my ISA that’s where I take the licence to experiment but I still go 50 percent high risk and 50 per cent low risk strategy. You can make any strategy work as long as you can handle the consequences.

1 Like

Great thread, interesting to read what people do. I’m started like 1 month ago, but i’?m going more diversified and like 20-30% specific more risk stocks

That’s not a portfolio. You’ve basically bought tesla and that’s it.
To topic, it depends. If your not clued up on stocks, diversify through funds or multi pick. As buffet says, diversification is an excuse for ignorance. Ignorance to not knowing everything. And that’s fine when it comes to stocks. When it comes to portfolios, proper management is diversification across sectors, not stocks as such.
You don’t want one position to wipe you out.
In the case of the guy holding 90% tesla, this is not a portfolio. If tesla were to be wiped out, the portfolio doesn’t exist. If EVs fell overnight, he’s also wiped out. If Nio or another player come out with crazy news putting them into pole position, tesla will take a major hit.
It’s a very poor example of portfolio management. Anyone can spin a wheel and come up trumps.
I could suffer a few wipe outs in my portfolio, and I’d still have enough positions and capital left that I’d continue without much problem. That’s the power of diversification. Good investment protects against the downside while growing safely. Poor investment thinks about the upside gains in isolation and is willing to be wiped out by one stock(as can be seen above).

1 Like

Yup. Please don’t do it.

If you are interested in cloud-based SaaS like $SNOW, then maybe this blog is for you — https://hhhypergrowth.com/

1 Like

So check out what just did with about 10% of my holding in TSLA:

image

Maybe we’ll find out if I am really effn stupid or not in a few days.

there’s no doubt about that Nick, the question is will you be effn stupid rich or effn stupid poor in a few days :wink:

1 Like