Most investment counsels I have seen make an assumption that if the investment performs well, then any financier can make good money out of it. In other words, theexternal factorsalone decide the return.
I beg to differ. Consider these for example:
– Have you ever heard of an instance where two property investors bought matching properties side by side in the same street at the same time? One makes serious money in hire with a good tenant and sells it at a respectable profit later; the other has lower lease with a bad tenant and sells it at a complete loss later . They can be both using the same property management agent, the same selling agent, the same bank for finance, and getting the same guidance from the same investment consultant.
– You may have also seen share stockholders who purchased the same shares at the same time, one is compelled to sell theirs at a loss due to private circumstances and the other sells them for a profit at a better time.
– I have even seen the same builder building 5 matching houses side-by-side for 5 investors. One took 6 months longer to build than the other 4, and he ended up having to sell it at the wrong time due to personal cash flow pressures while others are doing much better financially.
What's the sole difference in the above cases? The speculators themselves (i.e. Theinternal factors).
Over the years I have reviewed the monetary positions of about a thousand investors personally. When folk ask me what investment they should get into at any actual moment, they anticipate me to compare shares, properties, and other asset classes to recommend them the best way to allocate their money.
My response to them is to always ask them to go back over their track record first. I might ask them to list down all the investments they have ever made: money, shares, options, futures, properties, property development, property re-building, and so on. And ask them to tell me which one made them the most cash and which one failed to. Then I advise to them to adhere to the winners and cut the losers. In other words, I tell them to invest more in what has made them good money in the past and stop investing in what has not made them any cash during the past (presuming their money will get a 5% return per year sitting in the bank, they have to at least beat that when doing the comparison).
If you take a little time to do that exercise for yourself, you will very swiftly discover your favourite investment to take a position in, so that you can focus your resources on getting the best return rather than allocating any of them to the losers.
You may ask for my rationale in selecting investments this way rather than looking at the hypotheses of diversification or portfolio management, like most others do. I simply believe the law of nature governs many things beyond our scientific understanding; and it's not smart to go against the law of nature.
As an example, have you ever realized that sardines swim together in the sea? And in a similar fashion so do the sharks. In a natural forest, similar trees grow together too. This is the assumption similar things attract each other as they have affinity with one another.
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