In recent years, it is too easy to invest in all sorts of vehicles. There are too many.
Almost Infinite
The universe of what one potentially could invest in is seemingly close to infinite. Well, not quite, but it seems that way sometimes. We read about all kinds of companies and technologies and sectors all the time in the financial press. It is so tempting to throw money at everything that seems hot at the time.
And that’s part of the problem. Everything seems hot at one time or another. And of course that means that everything has its turn at being out of favor. If one’s goal is to buy and then eventually sell, one would hope things would be hotter later so its price can rise by the time we are ready to sell.
Information overload
One of the ways we stay unsettled and stressed is by the onslaught of an overload of information from the media, especially the financial press. From articles that are rewritten press releases, to statistics that purport to show that a certain investing method is perfect, or a tsunami of charts and graphs and footnotes… it is easy to get drawn into a kaleidoscope of high activity.
And it is on the verge of getting worse, as the financial media is on the cusp of an avalanche of articles written by AI. These will attempt to tempt us with poor logic, wrong-headed notions, and bad advice. Unchecked it will debase actual human-written and human-researched essays.
What’s An Investor To Do?
While the AI scenario seems like a new phenomenon, it seems simply the latest version of the latest “The Great Newest New Thing” that captivates the press periodically. In it’s never-ending quest to sell something to the public. The financial industry is forever promoting and publicizing. Promoting and publicizing whatever it can, whenever it can.
Strong is a public that can resist the slickest advertising. Unfortunately, in general we are not a strong public. Witness the FOMO motivation that has fuelled crypto-currencies, many of which were scams from the moment they were launched.
Or the hoards that seem to pile onto the latest flash (“meme” stocks), all hoping for a big score. Since everyone seems to be after he same thing, it is likely many will not realize their goals.
Benefits
I like to think that dividend investing is the opposite of the majority of investing and speculative hype that professional Wall Street companies engender.
While dividend investing requires patience and holding long term, and it avoids the buy-and-sell pandemonium that overtakes most. But it is possible to go a little overboard even with dividend investing.
Diversification
Not putting all one’s eggs in one basket is a basic tenet of dividend investing. But then, how much is too much or too little diversification? As in all important questions, the answer is it depends.
The size of one’s portfolio, one’s risk tolerance, the state of the economy, the business prospects of individual companies, one’s interest in certain sectors and not others, and so on, all contribute the highly personalized decision of what is a proper diversification mix.
And so, along with a too small diversification, it is possible to hold a too-large set of companies. In so doing one gets close to “buying the market,” namely getting the broad coverage of some mutual funds. This may or may not be a good thing.
But one could do worse. (That means it is not all bad.) While holding for dividends is the goal, having too many companies means ones’ focus is blurred. One inevitably will own some plodders rather then all growers. But since we never know in advance which companies will later blossom, it makes sense to have a moderately wide set of holdings. It also can reduce risk when a single company fails: one still has other assets. I’d suggest knowing one’s comfort level when diversifying.
What is appropriate for you when diversifying? Let me know here.
“Portrait of a Man” was painted in 1654 by Govaert Flinck. Courtesy Minneapolis Museum of Art.
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