Hey guys, it's sasha, the accepted wisdom in the world of investing is that you have to diversify your portfolio. Diversification, reduces your risk and exposes you to more potential on picking those winners. But what if i told you that the way that almost everyone seems to diversify their portfolio is bad for their investing performance, because i keep seeing a lot of people talk about this in different investing communities and social media. And the big problem is that in almost every case that i see people misunderstand what diversifying your portfolio actually means and when they go and do diversify, they end up losing out and not getting the investing returns that they should be getting in this video.

I will explain why diversifying your portfolio is a bad strategy when you do it this way, and i'll also explain how you can diversify your portfolio in the right sort of way. Unfortunately, not the sort of way that most people seem to end up doing it. First, off before the usual comments show up, i am not here to advocate a yolo approach on your favorite stock. I am not a fanboy of any particular specific one company and i myself do not go in on just one stock for 100 of my portfolio, even if i have a particularly strong conviction.

So this won't be one of those videos telling you that you just need to jump all in on tesla or whichever other company. Don't you worry about that? But here is what is the wrong version of diversification? I see people who hold 50 stocks in their portfolio, sometimes they hold 100 stocks or more and it gets wacky people like a bit of this and they go and buy a bit of that. They heard that company a is particularly good because they watch the youtube channel and they go and add it to the mix. Then they heard that company b is going to the moon, so they go and invest 10 hundred dollars into company b2 and the most common sort of wisdom out.

There seems to be that diversifying your portfolio into all of these different companies is somehow good. You're exposed to a whole lot of different industries, different companies, different potential upsides. Your risk is also mitigated, but here is the problem. You do not understand what it is that you are investing your money into.

This is really critical. I'm going to repeat it you if you do this, do not understand what it is that you are investing your money into, because let me give you some basic numbers: let's say: you're a normal retail investor like me and let's say you hold 50 just 50 different Stocks if it gets more, it is worse right. It is impossible impossible for you to keep on top of each of those 50 stocks and keep an outlook for other stocks that you might want to buy. For example, let's say you're deciding to pick your stocks and if you are deciding to pick your stocks, your objective is to beat the market right.

Otherwise, why would you be picking them if you don't want to beat the market? All you have to do is just go and invest in the s. P. 500. Zero time wasted.

Zero worries, zero things to think about. You don't have to do anything. Just put your money into the market and bang you get market returns with zero effort. But if you are deciding that you are going to go and pick stocks, presumably you are doing it because you think that you're in the five percent who can do better than the market, otherwise you wouldn't be doing it right, we're all in that five percent right.

Well, if you are in that five percent, who are great investors and who can over time, consistently beat the market? That means that you obviously do your own homework. You properly assess each individual stock. When you go and buy it, you also have a valuation model for that stock and you have your target price because remember, if you don't have those things, you're, not investing you're, just gambling, because you are putting money into things blind. So you have your model.

You have your target price and you go and review and update. Presumably this model, perhaps at least once a quarter, and then you have a refreshed target price and sometimes maybe you'll have to do it more frequently. If some major news comes out that affects that particular company, you also read their quarterly report right because it has all that crucial information that has the financials. It has snippets of crucial data that you need and, of course you go and listen to their quarterly call, because they might say something in that that you won't hear or see anywhere else.

So let's say that you're a bright spark. You are very talented and you can take just 20 minutes. Let's go with 30 minutes. Come on.

You can't do it 30 minutes to read the entirety of the quarterly report, the sec filings and everything else that happens in the quarter. To get all the data you need from it, you also take that one hour to listen to their quarterly shareholder call, and you take just 30 minutes to review your investing model and target price per company. So that's two hours of your time per quarter per company and if you hold 50 stocks, that is 100 hours per quarter. But then, let's presume that you dedicate at least an hour of your time over that entire quarter.

To read, watch and listen to news or some important updates about that company. Again, you are super efficient. You can process all of that information in just one hour, because you are that good. That is another 50 hours that you need to now add for a total of 150 hours per quarter on just managing that amazing diversified portfolio of yours, i'll do the math for you, that is 11 and a half hours per week, that you need to spend just To make sure you know and understand, what's happening with your stocks that's per week, including all the festive season holidays and everything else.

Now i am going to take a wild guess in saying that 99 of these active investors who have 50 stocks or more do not spend 11 hours every single week, actively analyzing their stocks. So those investors are dropping the ball. They basically have no idea how the company that they are investing in is performing, because it would have to take that amount of time to just be get a very basic understanding, and they also don't have an updated target price, which means they have no idea whether They should sell a stock or when they should sell the stock, but here is the worst bit the market is doing all of that work. So if you were invested in the stock market, your share of companies that are doing well would actually gradually go up as a result of those etfs through balancing their portfolios over time and successful companies grow and therefore you get a larger share of them, and you Would also automatically through having your investment in that etf, sell out of bad investments for exactly the same reason, so by being a cool super smart stock, picking investor with your diversified portfolio, you're just playing a blind gambling game and hoping it works out.

Okay, but actually losing to the market in the process. Now it is a good idea to diversify to some degree and hold a few stocks, but there is a limit and we all have our own time commitments. We all have our own abilities, so we will all have our limits. You want to pick a tight group of winners companies that you think have serious potential companies that you think can deliver.

You really good results because remember if you're picking these stocks, you want them to do better than the average market return. You don't want a random selection of 200 stocks with a 10 investment each, where you can't even remember why it is that you invested in half of them by the way. Let me know in the comments below how many stocks you hold and why. I would be really interested to hear your thoughts now.

It is a good idea to diversify in terms of industries to some degree, but it is also a good idea to be very selective and pick stocks in industries that you expect to boom expect to do particularly well. So naturally, that means that your stock selection is probably going to be somewhat limited. If you are good at doing your picks, you want to understand what the company you are investing in does. If somebody out there goes and asks you, what does that company that you have shares and do you better be able to give a very detailed description of their business model and how it works? And hopefully you should know the pricing as well, because if you don't know how are you able to make any kind of proper determination whether that company will do better or worse than the market? How do you know? How do you even set a target price and over time as you grow your investing portfolio, you will reach a whole other sort of diversification play investing in different asset classes.

This is a great strategy for mature investors, a healthy mix of stocks, property business investments and perhaps in some situations, commodities and other papers as well. Those can be very powerful at navigating the ups and downs of the market, and some of them can yield even better returns in the stock market through things like leverage, but you can freely park your worries about diversifying between different asset classes. Until you have something to diversify your one thousand dollar, investing portfolio is not really the time to be doing that buying a twenty dollar share in a reit does not make you a property investor. So there you have it.

If you enjoyed this video, don't forget to smash the like button for the youtube algorithm. Thank you so much for watching. I really really really appreciate it and, as always i'll see you guys later, you.