Interest rates: let's put numbers on the long term vs. short term impact
The lower the interest rates the less relevant current temporary fluctuations in earnings are for the value of a business. Equally, the lower the interest rates the more important it is to understand the future earnings prospects of a business. This is a well-known fact, but putting some numbers to it could help to get a clearer sense of it... Read more
Stock portfolio diversification: some thoughts
Diversification is a type of protection for an investor’s portfolio against some risks. But, we should ask: what are these risks we are trying to protect the portfolio from? In terms of portfolio returns, there are only two types of risks: excessive volatility and underperformance. I do not discuss volatility as, for long term investors (multiple years), time takes care of Mr. Market. Underperformance is the risk to worry about. Underperformance includes total loss of value: no one would argue that a -100% return is not underperformance... Read more