Or, why you don’t need all stars in your portfolio to win.
What is common to Barcelona FC, San Antonio Spurs, New Zealand All Blacks etc? They are all or were Champions. You don’t have to be a sports enthusiast to see the commitment value and drive that these teams exert. If these names were stocks, they would all be ten-baggers!! But if you take the team members, would you know, for example, anyone from Barcelona other than Lionel Messi? Or perhaps Tim Duncan from Spurs and Richie Macaw from the All Blacks? It is not as though the entire team is composed of the topmost names of that sport to make them consistent winners and champions.
What you really need is consistent performance as a team. For that each player has to complement the other. Investing or trading is not too dissimilar. Most people, when they talk about their portfolio, tend to speak of their best winner. But the overall return of the portfolio is the total return from all the component stocks of the portfolio. People seldom talk or even perhaps acknowledge to themselves, that they hold five duds for every one good stock in their portfolio. While one or two of them may perform well, the others tend to drag the value of the portfolio down. Barcelona doesn’t get to win as many matches because Messi scores. They also have to defend and save goals and coordinate plays and take corners etc in order to keep winning. That is team work. Individual brilliance is necessary, no doubt, but cannot substitute for a cohesive team work.
In quite the same way, we should pack our investing portfolios with a number of stocks that perform varyingly but consistently. Our trading portfolio, likewise, should be composed of stocks that are trending in the market. Likes and dislikes do not play a role. Fashionable or popular does not dictate the choice. Performance, at all times, is the only factor that matters.
I find too many searching for the 5-or 10-bagger stock all the time, completely overlooking the scores and scores of 10% baggers and 25% baggers that are strewn in front of their noses. These are the perennial losers of the market who always want one Lionel Messi to deliver all the World cups every season! Similarly, I find traders wasting their time and energy and money chasing after non trended stocks or worse- being on the wrong side of a right stock- in expectation that their reckoning is superior to that of the market.
Correct stock selection accompanied by consistent action, adhering to trading and investing values and a drive to be a winner is what makes for a successful market player. It is not really very difficult. But you have to be ready to work for it. Therein lies the rub. I am reminded of a saying by Jim Twentyman, “Defy human nature, do the work yourself”. Every member of the aforementioned sports club does not leave it to the others. They all work diligently and together to achieve success. If we bring those principles to work, there is no reason why we should not succeed in the market.