Nobody can be certain which asset/market will be bought/sold aggressively.
So I think it is not necessary to diversify for the sake of doing so, because it is like laying many bets all over the roulette table as opposed to a few high conviction bets; you may have a higher probability of winning something on every spin, but that doesn't increase your probability of being a net winner after 10 spins or so.
Nevertheless, I do think that it is useful to explore as many stocks/markets as possible. If successful investing is indeed a game of uncovering diamonds in the rough, then having more places to search can only mean higher chances of a good find.
Yet, because foreign stocks/markets are in contexts/environments which are different to any outsider -- and which said outsider may hence not fully understand/appreciate -- there is a higher probability that the outsider's evaluation of a foreign stock may be erroneous. It is the same reason why most businesses fail when they expand into foreign markets, and why most of them try to find a local partner to mitigate such an event.
The solution to this is to spend yet more time to study and research -- in addition to prospecting the individual stocks -- the foreign context/environment you're going into. Unless this is your job, it is not likely that an average investor will have the time/energy/competence to do the necessary due diligence when investing in a foreign market. It is the same argument against active stock-picking; why do it unless you're sure that you can get a better outcome than the less stressful alternatives (hire a professional, buy an etf, put it in fixed deposit, etc)?
---
In any case, there are lots of stock-picking websites/personalities on the internet, but few have demonstrated to be able to consistently pick winners. And even far fewer have been around for more than a few years. Every few years, a correction will come, and some will be taken out. They come and they go. Especially at risk are those whose portfolio picks are similar to everyone else's; a sign that demand (and hence price) for those few stock are nearer to their highs than their lows. Every year there are different stocks/sectors that people crowd into, and the outcome has always been bad for the latecomer. Now, once more, the fashionable stocks are REITs.
Those that have survived a long-time invariably hold diversified blue-chip portfolios, and tend to be more reticent in making heroic statements (e.g. this stock has the potential to make xxx%!!). Achieving 15-20% p.a. returns over a prolonged period of time is immensely harder than the charlatans will have you believe. Your (final) returns are only as good as the last investment decision you made.
---
Judging by their p/e and yield, many of the US index stocks are, to me, very overbought. I have seen some comments here with similar views. I think Mike Burry is probably right, but who knows when the correction will come, and the level of damage it will have. All the recession talk in 2019 didn't depress the local market. And the trade war/protest in Hong Kong didn't stop Hang Seng from making a good finish.
It has been 10 years into the 'bull market.' So are financial markets bursting this year, or next?
Happy New Year, and good luck, to one and all.
Homepage
PR Newswire
