Showing posts from January, 2022

The Dangerous Illusion of Being Diversified

Are you diversified? The other day a woman mentioned that she had read that diversifying would reduce risk, so she had bought a bunch of different ETFs to ensure she was diversified. At that time, she didn’t know about the fact sheet that every ETF has and that it’s possible to see a list of the stock holdings in an ETF. It turned out that there were major overlaps, the holdings were basically the same, and she wasn’t diversified as she thought she was. This story reminded me of one of my first experiences being a speculator. In my mid 20’s I invested in microcredit. I supported small, female businesses in Africa by giving a credit and in return earning a small interest. I knew about diversification, so I invested in multiple African countries and in many different areas of business (delis, hair salons, tailor, agricultural business etc.). To me it was more about contributing to these ladies, rather than getting my money back.  Overall, it went well - a few loans defaulted but overall

Buffett’s investing advice: Favorable long-term prospects

Warren Buffett has these 4 key qualities he looks for in a business: I can understand the business Has Favorable long-term prospects Operated by honest and competent people Available at a very attractive price. And these are topics I write about and dive into on the blog, on social media and teach in my investing course. If you click on each topic above you’ll find more information in articles I wrote and for today I’ll dive into #2: Long-Term Prospects. What does that mean and how can we know if the business will be profitable long-term? For this article I’m referencing the work of Philip A. Fisher, a 20th century American investor and author, who’s investing technique Warren Buffett is highly influenced by. It’s also learnings that I have applied myself, and I have seen for myself that this works. According to Fisher some companies aim at gaining the maximum possible profit immediately and with a short-term horizon. Other companies deliberately limit immediate profits in order to bui

Why Is The Stock Market Down Today?

This week the S&P500 posted a loss of 2% - which in a long-term perspective is really nothing at all. It’s a tiny correction. But what I see on social media is panic and questions like:  Does this mean that it’s a good time to invest? Some experts foresee a crash in the stock market due to inflation, what’s your advice?  I’m down 27% and as a beginner this is not motivating. What should I do? Why did some investors get triggered by this news and consequently trigger a drop in the stock market? First of all, the market is in red because earlier this week the American Federal Reserve (also known as the Fed) released their meeting minutes suggesting an increase in interest rates at an earlier time than they’ve previously communicated. It's a domino effect happening: the Fed raise interest rates, a company's cost of capital goes up, this increases the discount rate in the stock analyst models, which then decreases the valuation of the company's stock price. The analysis'