The ease of internet access & boom of social media has not only changed the way we live, but also the way we think. The unending desire to be active on Twitter / WhatsApp and getting involved in every conversation has ‘kind of’ become a matter of showing off the expertise.
Until last month, I used to be part of at least a 100 stock market groups. Some were investment only groups, while some where pure technical. Some were also trying to be different than most but were just the same nonetheless. I was present in these groups for one reason – NETWORKING.
Opinion on everything..
Many, if not most, who are endlessly active on social media have this tendency to voice opinion on everything. Be it a company, sector, or anything else. I believe participating is one of the ways to make yourself comfortable and announce it to the world that you are part of the clan and are extremely knowledgeable.
Many groups have rules that make members continuously post messages and participate.
However, I have now realized, that it is really waste of time.
..and its impact on decision making
When you are used-to have an opinion on everything, your focus is not where it should be. Not many spend time reading the annual reports, or listening to the conference calls or reading the management letters. Most prefer to be active in some group and just cut short the process. This does not help when it comes to investing.
For e.g. L&T Technology Services is one such company that many retail investors hold in a portfolio. I still get many PMs asking which one to buy – LTI or LTTS? And it always leaves me surprised that how can someone have such question at all?
LTTS has not performed & has been a range bound for nearly 2 years now and retail investors have lost the patience. When you cut short the process of learning and outsource it to discussions in some WhatsApp groups, your conviction is fragile. You really don’t understand the impact of macro on micro level and vice-a-versa.
The value of knowing less
When people want to know everything about everything, often they have a very diversified portfolio. However, this is not the only reason for having over-diversified portfolio. But the more compelling reason for over-diversification is not understanding the value of knowing less.
Know fewer companies, but know them really really well.
Concentrated portfolio is an outcome of this thought process. You really don’t have to know about Pharma companies, AND Chemical companies, AND Telecom companies, AND NBFCs, AND Banks, AND FMCG, AND Retail.
When you have a concentrated portfolio, all that you have is to know everything about those limited number of companies and ignore everything else.
A common narrative is – Do not put all your eggs in one basket. This narrative is bullshit.
Why don’t we realize the value & importance of not knowing everything, but knowing everything about only handful & turn the narrative upside down?
which is – Know everything about some and then put all of your eggs in one basket and just watch the basket very closely.
Let us accept the fact that nobody has become super successful by over-diversifying the portfolio. People have been forever cutting short on learning, knowing, and outsourcing the knowledge process to social media groups. The outcome is borrowed conviction.
And then to find a solace, another narrative is built by saying that it is risky to have a concentrated portfolio. Let me ask this question – When you choose your education path such as Engineering or Medical or Commerce or Finance, do you not see the risk of concentration? I mean, if you are doing engineering, why not take anatomy also to de-risk the over dependence on engineering subject?
The reason you have a conclusive career after your education is you are focused on ONE stream for nearly 7+ years. Why don’t we bring the same logic to investing?
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