Something to think about when you invest.

[G_V_V]

People often tell us not to put all our eggs in one basket. It's so natural though, birds do it and move faithfully our creator chose to put all of life as we know it on one tiny little nest called earth.

[DR_1]

what makes you believe that there is only life on earth....your mind is confined to one dimension

[G_V_V]

I said, "as we know it." If you know of any life elsewhere I will be ecstatic to hear it. Please no religion or philosophy as I have been reprimanded from discussing it on this forum. I would however be willing to discuss the prose and cons of diversifyng investments.

[louisg]

Birds do it, because it's the most sensible way of ensuring maximum utility. Having one nest for two eggs is surely the correct strategy for a couple of birds who want to maximize the chances of both eggs/chicks surviving. Dad/mom must hunt for food while the other is protecting the eggs/chicks from predators and keeping the eggs/chicks warm, etc. However, when it comes to investing, surely putting ALL ones capital in one share(basket) would not be the wisest strategy to implement. Although it's the best strategy to maximize ones return if one chooses the best performing share during ones investing time frame, it also maximizes the downside if one gets it perfectly wrong.Unforeseen circumstances (black swan) may wipe your investment out. If ones first rule in investing is to preserve capital (Buffett,Soros,Rogers, etc) then putting all your eggs in one basket is surely the incorrect strategy.

[Spoegs]

Apparently you can diversify away a lot of market risk with as few as 15 carefully chosen shares. To build on your analogy - think of it as a tightly clustered community of nests with a well managed central administration department, with every nest's best interests at heart. I really hope this helps.

[G_V_V]

Thanks, it certainly does make sense but what happens when the big crash happens. Look at Lehman Brothers and the like who had fingers in ever pie. Then suddenly a nest in Gold becomes the only safe haven.

[G_V_V]

If only the world community of investing could be as warm hearted and trusting as two doves, it sure is a cruel world out there, and like cold blooded creatures it is better to have many eggs spread all over the place, which reminds me of the squirrel who hides it's nuts all over the place for safe keeping. Regarding the analogy of not putting all of one's eggs in one basket as an investing strategy would not the squirrel's analogy be more appropriate? Or does it imply that it is dangerous to place all the eggs one has collected that day in a single basket for fear of dropping the basket and hence breaking all the eggs. What do you think, is it time to put all of one's investment in a single nest egg of gold?

[THRESHOLD]

There are many bird of many species - each with a nest. Nature has built in obsolescence and redundancy it seems. As for the individual bird - he (or she) has no inner angst; no need to delve into philosphy or pontificate on the merits of diversifying risk for that matter. They live, eat, sleep... sometimes their nests fall out of trees. If one fails - it makes no difference in the greater scheme of things; nature is a heartless mistrss. Being higher order animals we work a little harder to ensure our personal safety and that of our "Nest Egg."

[G_V_V]

True, and yet we learn so much from animals--what to do and not do in the case of investing.

[Quakedog]

If it works for you by all means!

[Spoegs]

Yes and to use an analogy from nature, think of Lehman brothers as a hail storm - which bird's nest is likely to best survive a hail storm? I'd suggest that a swallow's nest built under the eaves of a house is most likely to survive a hail storm. Then you need to go and look at the market and ask yourself which stock looks most like a swallow's nest built under the eaves of a house and invest in that. And remember one swallow doesn't make a summer. I really hope this helps.

[#12]

OK - but your analogy is not bird / egg / nest related - come on Louisg, you can do better than that! (lol). Maybe something like - all eggs in one nest makes it easier for snakes to reach, or something. Also, birds can always lay more eggs - and if they are of a feather ... - nope, can't think how to use that one

[louisg]

I doubt it was LB's diversification that destroyed it, but rather excessive GEARING that wiped them out. "Black swan" events occur a lot more often when gearing is used. Gear 10-1 and a 10% move wipes you out.A 10% move will occur a lot more often than a 100% (no gearing)move. Derivatives - "Caveat emptor"

[louisg]

The squirrels circumstance is different to the doves', hence a different strategy. GOLD, not for this investor. If the proverbial really hits the fan, I have bigger problems than worrying about my wealth. For me, it's investing at a fair or better price in quality companies who pay an increasing dividend over the longer term. The increasing divi will ensure an increase in the share price over the longer term.

[Spoegs]

So what you are saying is - Look for swallows nests that have been built using cash and not borrowings from the bank? What if the swallows didn't have cash to start off with and had to take a bond? This is very complicated and is confusing me now. I'm going to just give all my money to my Liberty Financial Adviser I'm sure they know what's happening in the swallows housing market.

[louisg]

Personally I have virtually no gearing. Gearing is fantastic on the way up, but does a lot more damage on the way down than it does good on the way up. Your first million is always going to be more important than your second and so on. I'm in the camp that believes that preserving one's capital should be the investors primary goal. "Rule Number One: Never lose money. Rule Number Two: Never forget Rule Number One." ... Warren Buffett. Wealth creators suffer from "DIMINISHING UTILITY", whereby each subsequent million derives less benefit to the investor. Adding another million to your other 50 is hardly going to enhance your lifestyle as much as a million would benefit a pauper. There must come a point to each of us when there is no point in earning any more money. Imagine putting your money in a pyramid shaped piggy bank. One derives more benefit at the base of the pyramid than at any other subsequent level.(Maslow comes to mind). In Wall Street 2, the one character asks the other "What's your number". Perhaps we should ask ourselves that question.

[G_V_V]

Well I remember my dad giving me a Kruger Rand in 1967, it was worth about R20 then. The industrial market was about 200, you do the maths.

[G_V_V]

By the way I still have the Kruger Rand.

[G_V_V]

Invest in hard comomdities? Diamond are a girls best friend, lol, the more the better and will make a great summer.

[G_V_V]

How stupid of them don't you think so?