What Moby Dick Can Teach Us About Investing
For many investors, the allure of “the big one” is hard to resist. A quick Google search of the phrase “big stocks you’re missing out on” yields over 55 million results!
The temptation is understandable for the adventurous investor. Watching gains increase on the hottest stock-du-jour makes a lot of people dream of wealth as they mentally calculate what enough Bitcoin shares would do for their portfolio.
The problem is that a big stocks carries big risks. High dividends are not always indicators of high performance, operationally speaking. A product that you are excited about does not indicate future profits for the company. Industry dominance is no guarantee of persistence. A company can be in distress and still pay big dividends… for a while. When they have to cut dividends, it means losses for their investors. Then there are all the other risk factors stocks are subject to: general market value risk, economic risk, and the like.
No one gets rich chasing the big one
The fact is, chasing big stocks and big dividends can be big fun for people that can afford the wealthy whose portfolios can afford to take a hit. But when you are investing with long term serious money it takes a lot of time and guesswork, and the higher level of individual security risk is not for most people. Going after the big one is not a way to build wealth.Instead of going for the big one, why not just try to earn what you deserve for providing your capital to the market.
Fish for smaller catches, and more of them
A few big stocks positions are not what you're looking for in a diversified portfolio. A portfolio with a good mix of the right mutual funds thousands of securities will give you most of the benefits of stock ownership with far less risk. For most of us, that means selecting not the stocks themselves but doing significant research and due diligence to pick the right fund managers at the right cost. Academic research has shown this is the best way to gain the highest returns, over time, at the lowest risk because it allows your money to grow without making your investment too vulnerable to any single stock.to be historically more reliable than picking a few stocks.
The market is a turbulent sea, and when it turns, you can wind up like Captain Ahab if you are obsessed with going after the “Moby Dick” of stocks – you could lose your ship. Don’t let your portfolio become the Pequod. Going after smaller fish, and more of them, helps you build a portfolio that can weather the storms and keep your ship secure.