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Apr 12 • 10 tweets • 4 min read
A quick thread on Diversification.

Diversification is a strategy allowing investors to manage risk by spreading their money across different investments.

Investors should have some money allocated to safety assets like cash and bonds in addition to riskier assets like stocks.
Any investor looking for a quick and easy way to help manage risk and potentially boost returns on their portfolio, should take a moment to consider how diversification could work in their portfolio.
Even a fairly aggressive investor likely should still have some cash on the side, whether that's for short-term spending or emergencies, or to deploy for investing in the future.

Likewise, when it comes to one's stock holdings, how well diversified is the portfolio?
Does it contain not only large-cap stocks, but some mid-cap and small-cap names as well, foreign stocks as well as domestic stocks.

How are those stocks allocated across sectors and industries?
If all of an investor's holdings are in just one or two sectors, or if they have large concentrations in one or two stocks, that could leave them vulnerable to severe swings in their portfolio.

This is why ShadowInvestor™ recommends (NFA) a portfolio of atleast 20-25 assets.
If you're an investor not ready to buy that many stocks right now, then you may want to consider index funds or exchange-traded funds to help reach that diversification goal.
A diversified portfolio will be different for each investor depending on their personal risk tolerance and time horizon.

What are the downsides of diversifying?

Diversification can be complex and may require more time commitment to research and monitor the new holdings.
One last risk is investing in assets that move in the same direction at the same time, called "correlation risk."

This can offset the benefits of diversification and leave investors with a portfolio that doesn't perform as they had hoped.
#diversification #portfolio #investinf #investingtips #trading #ShadowInvestor #cryptocurrency #Crypto #stock #stocks #stockmarket #Markets
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More from @shdwinvestor

ShadowInvestor™ Profile picture
Apr 11
A quick thread on Asset Allocation

Asset Allocation is an essential component of anyone's investment journey!

Fancy translation; asset allocation is the breakdown of different investments in the categories known as asset classes. Stocks, bonds, cash are different asset classes.
Within each asset class, there are more breakdowns that categorize each investment like market capitalization, sectors, geographical locations etc. etc.

But in practicality, asset allocation is to diversify depending on an investor's risk tolerance.
Each asset class has anticipated risk and return based on historical averages.

Based on how much risk an investor is willing to take, a portfolio can be broken down within several categories to provide diversification and balance.
Read 9 tweets
ShadowInvestor™ Profile picture
Apr 7
Quick thread on Price-to-Rent Ratio?

The price-to-rent ratio can be helpful for gauging whether or not an area is “fairly” priced, or if it’s in bubble territory.

To determine the price-to-rent ratio in a given area, divide the median home price by the median annual rent.
Generally, a price-to-rent ratio higher than 21 means it’s cheaper to rent in that area.

As of 2019, the price-to-rent ratio in San Francisco is over 50, the highest in the US.
For every $1,000 you’d spend in rent, you’d have to pay $601,362 to buy something comparable.
e.g. a place that rents for $4,000/mo. would cost roughly $2.4M to buy.

At that rate, it’s cheaper to rent than to own, as the estimated monthly mortgage payment would be around $10,000.
Read 7 tweets
ShadowInvestor™ Profile picture
Apr 5
What is value investing?

Value investing is a long-term investment strategy used by investors to seek out stocks that are trading for less than their intrinsic or book value.
Just like online shoppers keep tabs on their favourite items and buy them when they go on sale, value investors track down stocks they think are being undervalued by the stock market.

Investors analyse and use various metrics to find the right valuation of the stock.
They believe the market overreacts to good and bad news that result in stock price movements disproportionate to the company’s long-term fundamentals.

This offers them an opportunity to buy stocks at a discounted rate.
Read 4 tweets
ShadowInvestor™ Profile picture
Mar 20
Thread on Short Selling.

Short selling is what investors do when they want to bet against a stock.

It’s the opposite of a long position (where they bet the value of the stock to go up over time).

So how do you make money on a failing company?

Take this fictitious example:
Shadow thinks the value of drug company ShadowPharma is overinflated, and that it will soon report that it's trials for its new drug were a failure.

Shadow approaches institutional investor Shadow Capital, which owns ShadowPharma stock to borrow 1 million of their shares.
Shadow Capital agrees, and charges Shadow a monthly fee of $5 million until he returns the shares.

Shadow takes ShadowPharma's shares and immediately sells them for the going rate of $100 each, depositing $100 million in his account.
Read 10 tweets
ShadowInvestor™ Profile picture
Mar 19
Quick thread on why TIME IN THE MARKET is better than TIMING THE MARKET?

Data from JP Morgan's Asset Management shows from January 2nd, 2001 to December 31st, 2020, for the S&P500, seven of the 10 best days occurred within two weeks of the 10 worst days.

Let me repeat that.
Seven of the 10 best days are current within two weeks of the 10 worst days.

So what do realise from this data?

Not only could you not time the market, but there's a good chance that if you try to time the market, you may miss those good days.
In times of panic or anxiety, sometimes investors may rush to sell.

ShadowInvestor™ encourages investors NOT to get out of the market, STAY INVESTED in the market.

Because if we go back to the stat & you go back to January 2nd, 2001 through year-end 2020,
Read 8 tweets
ShadowInvestor™ Profile picture
Mar 18
Mindset Moment 🧠

Sheesh, If you’ve been an active investor in the markets over the last 6 months, you don’t need ShadowInvestor™ to tell you what a hell of a ride it’s been.

Fears of rising rates and a slowing economy has completely flipped the switch on investor sentiment.
And that’s triggered a sell-off that’s seen the average tech stock fall by 37%.

We'll focus on tech for today but markets in general are looking heartbreaking & this could apply to you.

Pandemic favourites like Zoom & Peleton are down about ~80% and Australian tech about ~90%🤯
But despite the recent declines it’s easy to forget just how long this tech bull run has been going for.

Take e.g. ARKK, The famous tech ETF from @CathieDWood is down ~50% since this time last year.

But despite this, the ETF is still up ~40% from 2yrs ago (AKA pandemic).
Read 5 tweets

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