The 2009 World Wealth Report from Capgemini and Merrill Lynch, a survey of high net wealth speculators around the globe that have US$1 million of net financial wealth excluding their primary residence, outlines where these folks invest their money.
Normally the 10,000,000 folk worldwide that fit this definition of having ‘high net wealth’, have 29% of their capital invested in shares, 31% in bonds, 17% in readies, 18% in real-estate and 6% in alternatives like hedge funds, commodities and non-public equity. If the planet’s wealthiest folk take such a diversified approach perhaps the remainder of us should also consider it.
Diversification also is applicable to share portfolios. Own a selection of corporations, but don’t over-diversify, or as Peter Lynch the great Fidelity fund boss, calls it de-worse-ification. Having mentioned that Lynch used to hold more than seven hundred corporations in his fund, but advises private investors hold maybe 20-40 firms.
Stressing top quality shares is a technique that continues to sound correct. It is commonplace to see folk new to shares to head directly for the hopeful end of the market to buy little firms or shares trading at a few pennies.
While not quite as exotic as this, high-quality firms, like bigger, blue chip corporations that have experienced management and have a record of delivering growing profits and dividends, do incline to outperform long shots.
When times are good and the market is rising, quality does incline to lag, but when the unavoidable troublesome times roll around, quality shines and long shots can frequently fall into deep black holes.
Selling is something backers should be ready to do, but only reluctantly. Warren Buffett has in the past related his preferred holding period for shares is for good. What this actually means is that long term backers should sit thru times of short term share price weakness or volatility if they’re ok with the fundamental essentials of the business they own.
However, this doesn’t suggest share financiers can ignore bad news. If a company appears to be facing tough long term issues, be ready to sell.
Include some smaller companies. While blue chips should make up the core of a share portfolio, leave a little bit of room for some fascinating little corporations. Though higher-risk, they offer more expansion potential. It can be wise to search for smaller corporations which have the features of blue chips in each way aside from size.
Buy integrity. As famous US financier Philip Fisher has declared “there are too many decisions out there to trouble with firms that are not run by fair, tenacious people”.