lundi 12 octobre 2015

The benefits of diversification.

A lot of investors talk about their stock like other people talk about religion: with too much conviction.

It happens in various ways: all the way while they own their stock, after an acquisition, after a decision made by the government, or simply because they want to pump their fucking shares on any occasion.

Other people are the same, the other way: they hate so much a stock that they jump on every occasion to put down the stock. If the stock drops a lot, they'll write or say: "I told you so!". If they are financial analysts, they'll write a short thesis after a big drop, jumping on the occasion to get some exposure in a tumultuous period.

Both ways make me sick like I've got the fucking Ebola. It makes me want to shit my guts and die.

A little exageration here, but, come on, versus the stock market and many many stocks, we are all blind or we have a very limited view about internal affairs of a business.

Have you read the thesis of Citron Research about Valeant? Or the writing on Seeking Alpha about Nobilis Health? Both of these are out in a period where almost everybody is anxious about what will happen with Healthcare stocks. I can't take these writings seriously but it looks like a lot of people do.

I could be excited and tell myself that it's a good period to buy more. But I still have a lot of money invested in these stocks.

More, I say to myself that the people who bought these stocks are easy to manipulate. Didn't they do their due diligence before buying? Do they doubt so much about their choices that any negative review make them feel nervous at the point to selling their shares with a loss?

Nothing new here, I've already written about how much market reactions make me ill. But I have to be honest here: With about 50% of my portfolio in Healthcare stocks, I've been too concentrated in the last few months. I'm sick about market reactions, but my sickness is partially due to myself.

I still believe a lot in healthcare stocks. But 50% is too much. Maybe the proportion should be 25 to 35% and not much more. I however think that this sector should be the largest in a portfolio. It's defensive and agressive at the same time. You'll get a low beta too. And as time goes by, more and more people will get ill and more and more people will die, simply because more and more people live on earth.

2 commentaires:

  1. It drives me crazy that retail investors make their buy and sell decisions on an opinion they read in an article or hear on BNN. I mean really, can't they just look at the fundamentals and make their own decisions? And then once a whole bunch of people sell, the price starts to fall, margin kicks in which means more shares sell and before you know it the stock is down over 50%. Ridiculous. People lose money beacuse they give so much power to one individual.

    I see so many buying opportunities, but like you I am overweight in healthcare so I'm reluctant to put more money in the same names, as no company is foolproof. So, for now, I'm still watching and waiting. It'll be good to get the election behind us as the uncertainty probably is affecting the markets as well.

    BTW I'm curious about your comment about health care stocks having low betas? Right now they are soo volatile I would think it would be the opposite.

  2. The beta is the volatility of a stock related to the volatility of the stock market in the long term. We are going through an exceptional period of fear VS healthcare in my opinion. So, yes, their beta is probably very high these days but not so high usually.