Posted by Probability > 2015-11-15 18:04 | Report Abuse

KC I am just bringing the ‘time we have’ factor into the Diversification topic as much I could understand.

I think when we buy a particular stock based on our perceived Intrinsic value (purely based Financial statements), at much cheaper price with high margin of safety, it’s like you are betting on picking a red marble (blindfolded) in pail of 10 marbles with 6 red marbles and 4 white marbles. There is something fundamentally right (logically right) that you will win (or gain).

Coz you believe the odds of this stock moving at higher pace than others is higher.

If we are betting only on one pail…say picking one marble once a year…you may even get the results to be white marble for ten consecutive years, though theoretical (also practically) in the long run you will Win eventually by betting on red marbles – precisely as per the odds 6/10 for red marbles.

So, by increasing the number of pails, I think we are just making the results appear much faster…as obviously we do not have 100 years to prove our prediction is right.

Now, that means the more pails you have the more smoother you return would be exactly as per the odds. But , that depends on ‘how many such pails’ (which you are sure it contains 6 red and 4 white) you can find….guess this is what Warren is saying by ‘know what you are doing’.

Quantity of pail in portfolio is inversely proportional to ‘how sure you are that you know the content of the pails’. The other extreme would be just betting on the Composite Index for one who has zero knowledge.

Posted by jassmen > 2015-11-16 01:36 | Report Abuse

KC,

Table 1. What the meaning of Ad price?

Posted by kcchongnz > 2015-11-16 07:53 | Report Abuse

Probability,

Thanks for your comments.

Taking your analogy, it seems that there are 7 red in a pail, and some pails have 8 red marbles.

The more interesting thing is when you draw a white marble, you get a fine of $10. But you get a red market, you are rewarded with $100.

Isn't this a great game to play?

Posted by leno > 2015-11-16 08:48 |

Post removed.Why?

Posted by kcchongnz > 2015-11-16 08:48 | Report Abuse

Posted by jassmen > Nov 16, 2015 01:36 AM | Report Abuse

KC,

Table 1. What the meaning of Ad price?


It is adjusted share price after dividends and corporate exercises. I got it from Yahoo Finance

Posted by TianTianHuat > 2015-11-16 10:21 | Report Abuse

MMODE is the Portfolio Diversification Silk Road to huat.... ha ha ha

Posted by TianTianHuat > 2015-11-16 10:21 | Report Abuse

I slowly accumulate more of MMODE..... in order to Tua Huat lah... ha ha ha.... all the way up from 33 sen.... huat lor... ha ha ha for those of you not yet Diversify to this counter can always do so... as it is NOT LATE yet.... ha ha ha

Posted by Newbhere > 2015-11-16 10:28 | Report Abuse

TO: Probability
Just my opinion.

1. In the long run, only if you are "lucky" the red marble selected will give you some little rewards or none. The higher probability would be to wipe out your principle investment by a tonne, hence being a red marble.
2. Instead of increasing the number of pails, why not increase the selection in the current pail from 1 to say 2 or even 3? Study the stock and do the necessary research until you are fully satisfied that your reasoning/rational for buying the stock with a solid basis as opposed to finding a new batch of stocks to filter. A stock which you have done your homework previously may not be a good investment at that point in time, BUT given the right circumstances may be an excellent investment later. So don't disregard the stock which you have have filtered out just yet.

Posted by Probability > 2015-11-16 11:29 | Report Abuse

Leno...look at the pail like a random mix of 6 red and 4 white which you can only pick at the end of the year (and place it back!). If its red you get the gain as per the amount you bet. Say you bet 100 if it red , you gain 100 if its white you loose 100.

Now given choice, scenario 1 - you can bet on red with RM 1000 every year, or Scenario 2 - bet 10 pails (10 picks end of the year) with bet amount of 100 on each pail.

By end of ten years, theoretically on scenario 1 you would have lost 4 times (lost 4000) and won 6 times (win 6000). Gain = 2000 in ten years.

In scenario 2, its like every year you make 200 and the return end of the 10 years is the same, i.e you made 2000 with a capital of 10000 (20% gain).

On second scenario...you did realize 20% gain every year. That means you are getting the results of 'what you believe' faster.

Now...of course its good if you can find as many stocks where you 'believe' it contains '6 red and 4 white', even more so with '8 red and 2 white' coz you return will be higher...
but invest 'as many similar stocks' you can find to prove your believe every single year.

Posted by Probability > 2015-11-16 11:31 | Report Abuse

Yup KC, you Financial statement based investing definitely look like you can find ' 8 red and 2 white ' pails...and the gain appears way higher than the loss, so its more like 9 red and 1 white..he he

Posted by leno > 2015-11-16 11:46 |

Post removed.Why?

Posted by leno > 2015-11-16 11:49 | Report Abuse

bottom line is ... diversification is to cover our ass .... from misfortune. Nothing to do with getting result faster. It is like insurance. Onli a fool want to buy life insurance to make money. Insurance is to cover misfortune. Unforseen bad luck.

Posted by Probability > 2015-11-16 12:29 | Report Abuse

leno..i agree the general concept of diversifying is to dampen the damage if it occurs...but then it also dampens the gain.

Here I am talking more about greenbalt strategy...on having a certain belief and having a number of portfolio to realize your expectations. If you are investing only on 1 or 2 stocks and hold to it...you may never get the return as per your believe in your lifetime. (OR you can achieve higher than expected - but I don't need that).

Your argument on scenario 1 & 2 is possible...everything is possible but which is a 'more sure way' to get the outcome as per your belief on the content of the pail - as obviously when u buy the stock you have a certain belief (strategy) and you just want to realize it faster. I don't need 30% CAGR, I only need 15% but I need a sure method to get that. If you only need 3.5% CAGR then you can invest in FD.

all greenbelt wants is say 15% return per annum, and then he wants to compound it by changing portfolio every year.

Posted by Probability > 2015-11-16 12:58 | Report Abuse

I think my word 'faster' is misleading...it should be 'for sure'.

Posted by leno > 2015-11-16 13:19 | Report Abuse

no ... diversify does not increase the "sure way" or fastered your believe. Diversify does dampen the gain in exchange to reduce risk of getting wipe out in one go for being unlucky. MEaning if u put everything into one stock, and something unrelated happen like earthquacke which destroy the whole company, u will be totally wipe out even though the company is very good. So, before u put everything in ONE stock, we must ask can we accept the risk of the stock being totally wipe out by unrelated circumstance.
On this i will like to recall my experience by putting everything in one stock called ANALABS in 2007, reason was i can't find or no time to find other good stock to diversify into, and i believe i can accept the consequences of the stock been wipe out because i was still actively working as doctor with very stable income ... it did not dampen my believe in value investing. It did not slower my outcome of my believe too. On the contrary to what u said ... i actually realised my gain fastest than those who had diversify.
Now, the moral is diversification does not increase your gain, does not speed up your believe, does not improve the sure way. But yet We must diversify if "AVAILABLE" "AND" "AFFORDABLE" after observing the first rule of "Margin of Safety"... in 2007 scenario of MINE ... there were no value stocks "available" for me to diversify into due to time and energy constraint.

Posted by Kevin Wong > 2015-11-16 14:25 | Report Abuse

agree...

Posted by TianTianHuat > 2015-11-16 14:38 |

Post removed.Why?

Posted by soojinhou > 2015-11-16 19:04 | Report Abuse

The only thing consistent about the market is its ability to surprise. Very little analysts foresaw the subprime crisis, and even less predicted the collapse in oil price. Diversification enables one to absorb the shocks market throw up without wiped out. I buy great companies in industries with shitty prospects for diversification. I hold Yangzijiang, a Chinese shipbuilder, and CNMC Goldmine, gold miner in Kelantan. Both are in shitty crappy industries but both continue to defy the negativity of their respective industries through much better financial results than their peers. Share price will probably remain depressed for extended time but as long as I can sleep well it's OK.

Posted by CCCL > 2015-11-16 21:53 | Report Abuse

You will surely sleep well! If the money you invested in stocks is not for your breakfast,lunch,dinner, your retirement fund or your kids education fund.

Posted by m00077 > 2015-11-17 11:02 | Report Abuse

Mr kcchongnz, you have a lot of shares with different number of stocks, all has good and healthy balance sheet but never see you holding any MARCO which has a very strong balance sheet and is cash rich. I wonder why?

Posted by kcchongnz > 2015-11-17 13:29 | Report Abuse

Posted by m00077 > Nov 17, 2015 11:02 AM | Report Abuse

Mr kcchongnz, you have a lot of shares with different number of stocks, all has good and healthy balance sheet but never see you holding any MARCO which has a very strong balance sheet and is cash rich. I wonder why?

There are hundreds of stocks having healthy balance sheet, but why must also own Marco? Do I have that much money?

Bear in mind what Warren Buffett said,

"You can't make a good deal with bad people"

That is why I never look at Marco again.

Posted by m00077 > 2015-11-17 13:41 | Report Abuse

Nice to hear your response. I don't understand you mentioned "bad people" refers to what/who?

Posted by kcchongnz > 2015-11-17 14:15 | Report Abuse

Posted by m00077 > Nov 17, 2015 01:41 PM | Report Abuse

Nice to hear your response. I don't understand you mentioned "bad people" refers to what/who?

Just ask around has anybody make any money investing in Marco?

Posted by Probability > 2015-11-17 15:16 | Report Abuse

Just exercising my brain here….too much free time….

Say you have machine gun that fires on a wall taking bullets randomly from a reservoir of bullets either made of gold or silver bullets automatically.

The reservoir has a certain fraction of gold bullets, say 65% gold and 35% silver, unknown to the person firing it or the spectators looking at the bullets fired on the wall.

If the machine gun fires only 2 bullets in a year, in 10 years it could have fired all gold bullets (20 of them) or perhaps 14 silver and 6 gold.

Say, you are a person who has the knowledge of the reservoir content exactly, you would have definitely bet on gold bullets hitting the wall, but due to the limited ‘incidents / verification’ done, as per above scenario you could have got the results exactly as per your prediction or more than you had predicted (all gold) or less than what you had predicted (14 silver, 6 gold) due to bad luck.

Now if the firing were done say 100 times a year, the ‘certainty’ is very high that you will get the results on the wall exactly as per your prediction, i.e 65% gold (not more not less) as per the knowledge advantage you had on the reservoir.

I am viewing the results of a particular stock end of the year as the firing of the machine gun (this is subject for further scrutiny). The more ‘similar’ stocks you own , the much ‘faster’ you can realize the results as per your prediction. Note I am not saying gain here, I am saying if you had selected a stocks with 2 gold and 8 silver, you will also realize their true characteristics faster.

(this may apply on greenbalt strategy, I am not talking about risk aversion where at least more than 5 stocks reduces you risk significantly, I am saying if you sure the gold bullets are much higher than then silver, buy as many similar stocks you can)

If we say that by buying a number of stocks will dampen the gain or loss, isn’t this concept is based on the same argument that the more firing you will have the more you will see the true characteristic of the stocks at large. The more you have the more it will represent the true average content of the golds and silver bullets of all stocks combined. Why can't 2 or 3 stocks represent the whole market?

I think the key thing here is finding a strategy to be sure on the content of the particular stocks, ensure that the odds of gold bullets is way higher than the silver bullets as per your expectation and find as many similar stocks to invest.

You may find only 3 stocks with 7 gold and 3 silver, and you may find 20 stocks with 6 gold and 4 silver. I am happy to invest on the 20 stocks and be certain that I get the return as I had wanted end of the year than investing only on 3 above which may turn out to be way higher than I had expected but I it does not give me the certainty I want that I will get it.

Posted by m00077 > 2015-11-17 16:20 | Report Abuse

NOTED WITH THANKS. MARCO ONLY GIVES 2% DIVIDEND LAST YEARS.

Posted by angienhp > 2015-11-17 16:40 | Report Abuse

No movement at all for "Macro". For those who own this stock just kept into the fridge.Really bad management
and bad people

Posted by Probability > 2015-11-17 22:47 | Report Abuse

Why no. of firing = no. of stocks?

Coz I believe each stock has a certain cycle time for catalysts to act on it to reflect its Intrinsic value and the time is approximately the same for each stock. So, more stock means more incidence of catalyst effects.

Contents, the gold bullet fraction = MOS , margin of safety after calculating its Intrinsic value

Posted by Anti_bias > 2015-11-18 03:14 | Report Abuse

To those who think KC Chong is great here he lost over RM 100K punting in Maybank C6. Hence he said he not rich or no money.
http://klse.i3investor.com/blogs/kcchongnz/58905.jsp

Posted by leno > 2015-11-18 08:46 | Report Abuse

Basically u are actually arguing in psychological term instead of probability. If u can calculate the probability of 1 over 6 and 10 over 60 .. u will know both are the same. U will not choose 10 over 60 claiming 10 over 60 is better or faster compare to 1 over 6.
Now, how about psychological term. Does 10 over 60 give better perspective compare to 1 over 6 ? The answer should be NO. If u understand probability, psychologically u should know both are the same. If don't understand probability, 10 over 60 or 1 over 6 are just a meaningless arguments.
... Let's go to your machine gun analogy. If u fire a pistol with 10 bullet Even though u point to right direction, there are chances u onli hit 1 bullet and miss 9 and u may be misled by the result and think u have pointed at wrong direction.
... So, u say u should use machine guns which fire 100 bullets. And might get 10 bullets hit. I ask u lar ... if u fire 100 bullets and ONLY 10 hit the target ... another 90 missed ... Doesn't this gave the same psychological effect as hitting 1 out of 10 bullets ? And u WILL think u have pointed at wrong direction because u MISS 90 out of 100 shots !!!
IT IS THE SAME !!

Posted by Probability > 2015-11-18 10:22 | Report Abuse

ok ok leno....fine.
I am just trying to figure out why Greenbalt suggested to 10 or 20 stocks under the Magic formula portfolio ( this I believe is not purely risk aversion).
I thought he is trying to ensure he has a consistent return ~min 15%
and make use of the 'power of compounding'.

Posted by arv18 > 2015-11-18 10:43 | Report Abuse

Find what works for your personality and use it. I hate diversification. But thats just me. I prefer to identify and build large positions in one or two counters. Suits me, but may not suit the small investor.

Posted by arv18 > 2015-11-18 10:47 | Report Abuse

FYI, I'm with KCNZ and am not dumb enough to buy into the SPAC nonsense/BS. It does not mean that 'certain people' had some fun and made some serious money on the initial 'buzz'.

Posted by leno > 2015-11-18 10:52 |

Post removed.Why?

Posted by leno > 2015-11-18 11:04 | Report Abuse

a bit more about the word "AFFORDABLE"
It means in financial term and ability term.
Financially mean .. u enough money to diversify or not. Can u buy 10 4d number with rm 5 ? Can ?
Ability mean ... how many stocks u can follow in term of value investing monitoring. Some can onli keep track of 5 companies some can keep track of 50. Peter lynch can keep track more than 100 stocks. I got a millionaires friends who can keep track 50. Some of them work in teams. And some who life is center over share market meaning no other life other than share market. No famili, no kids, no exercise, no movies etc.
Whereas leno can keep track up to 10 stocks. But sometimes onli up to 5 due to TIME constraint. For example, now leno am BUSY training for leno first full marathon.
So ... got understand ? eLLLLLOOO .....? Any brain matter inside your head ?

Posted by Probability > 2015-11-18 11:04 | Report Abuse

Will they learn faster that buying 4d is a losing game if they put RM 10 in each 10 numbers compare to another punter who put rm 100 in one number ?

on the above question - a logical person would learn faster by putting 10 in each 10. An emotional one wont figure it out la....

Your 'available' theory is quite in line with I said..
when you can find a stock with more gold bullets than silver as per your expectation just buy if you have the money..
so then you do agree to have more of the good stuff as long as the goodness level meets your criteria / min threshold.

Posted by Probability > 2015-11-18 11:06 | Report Abuse

hey on the 4d, a logical person would not even buy it in the first place....

Posted by leno > 2015-11-18 11:12 | Report Abuse

NO !! U got buy 4d number or not ? Buying RM 10 in 10 numbers DOES increase chances to hit the prize ! So, it can re-affirmed the WRONG belief. The catch is the higher chances to hit is "counter" by lower prize payout receive. Hitting a prize with rm 10 bet compare to RM 100 bet is different. Understand boh ? Same like your 10 stocks with higher chance to hit but because of less holding will counters your believe compare to the one who hold 2-3 or even one stock ! How many time i need to repeat this !! GILA !! GILA !! USELESS ! BRAINLESS ! I am out of here ! No more tok kok about c2peed thing . .. kepp goin incircle !

Posted by Probability > 2015-11-18 11:13 | Report Abuse

ok good that u surrender leno...
I think u might had an incident on the microwave! :)

Posted by kcchongnz > 2015-11-18 17:03 | Report Abuse

Posted by CCCL > Nov 16, 2015 09:53 PM | Report Abuse

You will surely sleep well! If the money you invested in stocks is not for your breakfast,lunch,dinner, your retirement fund or your kids education fund.


Yes, more so don't use other people's money to invest or speculate in the stock market.

Stock market is full of uncertainties, it is unknowable.

Having good sleep is a good investing strategy.