Hey guys, it's sasha, there has been a worrying new trend in the world of investing of going all in on a particular stock. I've seen this more and more people declaring that they are a one stock sort of investor and they push all of their chips in on that one bet, and they will tell you that you should do that too or you're going to miss out. This is particularly popular with stocks that have a big following like tesla or palantir. There is a growing number of people on social media who strongly advocate that you should only invest in just one stock.

There are twitter accounts out there youtube channels that actively promote this way of thinking, and the problem is that mathematically. This is a really bad strategy, even if you absolutely love the stock and believe very strongly in this future, and in this video i will explain why it is a really bad strategy. I will show you the numbers and i'll walk you through the specifics of why mathematics tells you not to do it, but if you want to invest in more than one stock and you live in the uk, the cheapest investing platform out there is lightyear. Who is the sponsor of today's video lightyear is brand new and it's the only investing app in the uk that lets you invest completely for free.

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They will literally pay you to invest, so if you want to try light year out and collect that ten dollar bonus go and use my link in the description now it is tempting. I know when you see a stock with a massive upside to just go all in. It is very easy to get into one of those echo chambers on twitter, where every tweet you read is telling you how amazing tesla is and how it's definitely going to become the first quadrillion dollar company, and i am investing in some of these popular companies. So i see this a lot.

People falling into this trap a lot first, let me tell you about the maths that might make you think a bit different, maybe mass that you haven't thought about. When you invest in a company, you make a very specific calculated decision. You identify a stock where you expect the sum of future cash flows to be greater than the amount of money that it costs you to buy. That share.

You are trying to find a company where you can go and buy two dollars of tomorrow for one dollar today, and if you believe that you found this sort of company, then you must also, at the same time, believe that the market hasn't figured it out. Yet because if it did, you wouldn't be able to go and get that good deal, two dollars would cost two dollars, so you go and buy the shares, and then you wait. You wait for one of two things to happen. Either you wait for those cash flows to turn up and cover your initial purchase, or you wait for the share price to go up once the market twigs on to whatever it is that you saw that they didn't see.

Waiting for the cash flows is a pretty slow way of getting your return, because you're gon na have to hold that stock for a few decades. So usually, you will make your return by waiting for the share price to go up instead. But when will the share price go up? Well, even if you are absolutely right in your assessment, it is impossible to tell when the share price might actually reach your target. Whenever you hear someone saying that they are certain that a particular stock will hit a specific price at a very particular point in time like in six months, the stock will cost x.

You know that that person is full of rubbish because nobody knows which way the market is going to go. You can apply mass to your valuation, but you can't predict exactly when that valuation might come to fruition. So if you are right, the stock market might go and realize in just a few months, or it could take a few years and you don't have any control over that. You just have to wait.

If you are invested in just one stock. You put your fate squarely in the hands of chance and you just have to sit there and wait for the market to agree with you. But if you are invested in a number of different companies where you feel all of them have substantial upsides, then some statistical magic happens. So, let's say you're invested in five or ten different companies that all have identical upsides in your valuation and somewhat similar risk profiles.

Let's say that you are right with your valuation for each one, if you're not that is a whole other conversation and if you're not right with one stock, it is even worse. Your yolo move. All in is going to look really dumb, but let's say that you are not wrong. Let's say that you are right.

There will be a natural statistical distribution across time of when the stock market will end up agreeing with you. There are a million factors that affect this there's natural market volatility, news macro economic cycles, specific company, catalyst, blah blah blah. It is pretty unlikely that the stock market will agree with your valuation at the very next day after you buy the shares, because something monumental has to happen for the collective thinking to change that quickly, but also, even if you are right, it is unlikely that it's Going to take 10 to 20 years for the market to agree, because presumably those cash flows that you have accurately forecasted are going to get verified through the quarterly reports and the evidence is going to become more and more compelling for others to eventually agree with your Valuation, so on average, is going to be somewhere in between, but sometimes companies go and shoot quicker than average, because there is that distribution. Sometimes you will go and invest in a company, and the market only takes a few months to agree.

This does happen. Just last year i was talking about amd stock when i was sitting at just over 70 and literally just a few months later, that share price more than doubled. I also bought a lot of lucid motors shares when you could pick them up for 16 or 17 and made a lot of videos on my channel about that, and then they go and shoot up to 55. Now i didn't see that very peak, because i sold at 41, which was my target price, but at the same time, in the same period, tesla is the biggest position in my portfolio and exactly one year ago, tesla shares traded at 849.

So in the last 12 months, tesla has gone up just 8.5 percent. Now it could easily have been the other way around as well. You could never predict which stock is going to go on a big run and hit your target price territory and which one will not. But if you are invested in a number of different stocks, the likelihood is that one or two of your stocks are going to go on a run sooner than average.

I might have a 200 upside on tesla in my model, but say only a 60 upside on amd, for example, but amd could go and collect all of that smaller upside for whatever reason more quickly. Let's say this year, while tesla sits around trading sideways and if you have a portfolio of several different companies, that means that you will be cashing. Those runs earlier on in that distribution on average. So let's say one of your 10 stocks goes in a run and hits your price target.

You will go and sell because you no longer see an upside. You take that money and you redistribute and wait for the next runner. This way you take advantage of being able to manually pick out the stocks earlier on in that distribution of share price growth. So your average time to peak is going to be lower than the average because of that overall distribution, because every time you pick off the early riser you're going to take the profits from that gain and buy more of the rest of your investments before they go Up so essentially, you can front run the gains from the average position to the point when the early stocks peak and you don't have to guess which one is going to go up.

That's the beauty of statistics, because you can invest in more than one stock. The next really important point that people often miss is that the market might just not agree with your valuation. This also happens, and it happens a lot. You might see the bright future and, as the quality reports turn up providing data that backs it up.

You can see it more and more clearly, but the stock market can easily be swayed by macro reasons: fear rotation between sectors, blah blah blah. They might have a different way of valuing they just might never agree, or at least it can take a very long time. So you can bind the stocks of the most phenomenal business and the stock market might just sit there, ignoring it for years below multiples, and you might not make a return. There might be other asset classes that people prefer to put their money in maybe bond yields are higher, property is hot or whatever, and if that is your only investment that can feel incredibly frustrating you might be right, but if the share price doesn't go up, it Doesn't matter how right you are, you might feel the world is against you, or maybe that life is unfair, but the only reason you're going to get punched in the face is because you put all of your eggs in one basket and then imagine if you actually Turn out to be wrong, because even the best investors will be wrong.

Like 40 of the time it happens, the company that looked amazing in every single way turns out to have committed large-scale fraud or the latest product, completely tanks, or they lose focus and take the eye of the ball. The world changes new industries come to replace the industry there and whatever. If that is your only investment, you might be staring at decades of investing just going completely down the toilet. I don't know you're, probably aware of this risk, seeing as you're picking stocks in the first place, rather than investing in the s p 500 index.

But this risk goes to a whole different level when you are all in on one stock, no matter how amazing that company might look. At the time now, emmanuel alaska wrote a very influential book on the philosophy of chess and in that book he said that if you see a good move in a game of chess, you should pause and look for a better one. This is an incredibly useful bit of advice in investing. You might see a company that has phenomenal potential and you might feel there's just nothing even remotely close to it.

If you go all in on that one company, it is very easy to become blind to other investing opportunities and sometimes those other investing opportunities might be even better. Not that you would know, because by that point you've already put on the blindfolds, and you don't see anything outside of that one stock. You should never close off your peripheral vision and stop analyzing and stop considering new stocks, because that is a very quick route to stagnation and to not doing very well in the stock market and unlike chess, investing is a game without hard and fast rules. What works? One decade might not work at all the next decade, basing your decisions based off what happened in the past is surprisingly a pretty inefficient way of predicting the future sure history repeats itself.

We get cycles and we can learn a lot of lessons from it, but the cognitive confirmation bias we all have can be very dangerous. We see everything going well in the stock market and everything going up 80 in the year and suddenly everyone is really happy to buy in thinking that it's just going to continue doing the exact same thing next year. We then see a market drop and we irrationally go and sell and don't want to buy the same stocks at a 50 discount compared to when we were very happy buying them, because we are sure that it's gon na go down even more. Basing your investing strategy on opportunities, numbers and logic is the way to do it.

Don't base your investing strategy on made-up rules, accepted wisdom or crowd opinion, sometimes all of those things align with numbers and logic, in which case great everyone's a winner, but often they do not and keep that thought at the forefront of your mind at all times. If you found this video useful, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later, you.