The vast majority of ordinary investors do not beat the market because they have no edge. They know nothing except what they read in The Wall Street Journal, heard from their broker or discovered in a blog. That means they have no edge over the vast majority of other participants in the stock market. They buy stocks only when they’re fully and fairly priced by everybody else. Ordinary investors always arrive at the party after the insiders had the real fun. Or they go home before before the serious partying begins.
William Bonner founded the Oxford Club to give committed investors a good chance to learn about opportunities in time to buy them before the talking heads on TV talk about them. In an article the Oxford Club published recently, they explain the four foundations for investing success.
The third principle is to pay attention to your position sizes. This is an aspect to risk management too many investors ignore. The first principle is diversification to protect your portfolio from risk, but you must pay attention to positions sizes. You can’t really say you are properly diversified if you own 100 shares of ten diversified stocks, but 5,000 shares of Google. In reality, the main part of your retirement is riding on Google.
The solution is to put about equal amounts of money into a broad, diversified basket of assets. In time, some of those assets will go up in price faster than others. Some will go down sometimes. On a regular basis you should rebalance your portfolio. That means you sell off some of your bigger winners and use them to buy more of the assets that have not increased so much.
This seems counterintuitive, but it forces you to sell assets when they’re highly priced and buy when they’re low.
More investment advice from the Oxford Club: https://energyandresourcesdigest.com/