Don’t put all the eggs in one basket. This is why we all need to have a portfolio, not bet on a single stock.
3 key elements you should know:
Asset allocation. This is the key element. Statistics shows almost 90% of your portfolio performance is decided by your asset allocation. You should design your asset allocation based on your expected return, expected holding period, level of risk that you are willing to bear.
Market timing: buy at the lowest price, sell at the highest price. Sounds good. Can you do that consistently? If not, (I can’t), then don’t be bothered by trying to time the market. Just split the investment by buying regularly (dollars cost averaging). If you try to time the market, be careful with opportunity cost, which is to lose the opportunity to buy in while waiting for an entry price. Another tip is to stick to your asset allocation portion by rebalancing.
Security selection: this is the element draw people’s attention the most. But it is the least important one contributing to portfolio performance. The reason is simple, if we are investors, not traders (refer to this), then we make profit from underlined business operation. Warren Buffet said, just buy stocks with OK business performance and at a OK price and stick to it. Let the business generate its profit which will be reflected in stock price eventually. This then will be a sure-win game for you.
1 thought on “3 key elements in portfolio management”