Everyone's money is limited, so should investment be centralized or decentralized?

The statement "whether investment should be concentrated or decentralized" is slightly misleading. It seems to say that, we must choose a standard answer between two choices. But in fact, whether centralized or decentralized, we can make money.

For example, Warren Buffett always has a very concentrated position. Billions of dollars of capital may be invested in a dozen companies. Many ordinary families have more than 70% and 80% of their assets in one house. Many people have accumulated a lot of wealth because of this "concentration".

On the contrary, many well-known investors obtained a large amount of profits by decentralized investments. The most classic example should be Peter Lynch. During his 13 years as a fund manager of Fidelity Magellan, he obtained 29% annualized yield.

However, his investment style is not centralized investments. His portfolio often has hundreds of stocks at the same time. Due to his extraordinary diligence, he has a better understanding of many companies than the average market level.

Both centralization and decentralization can make it. Which one should we choose?

The answer is very simple. Are you more suitable for concentration or decentralization? This is what really need you to consider.

As we all know, if we buy a bad-quality asset, the result will be terrible. But what we are more likely to ignore is that even if we buy a very high-quality asset, the process of holding is often very difficult.

In general, there are three difficulties in concentration:

First, when the price performance is low, you can still stick to your belief;

Second, you can stand loneliness when other stocks and other assets perform well;

Third, when the price begins to return to value, you can choose a good time to sell.

If you bought Starbucks for $15, but later it fell to $5 or $6 and you didn't sell it. Would you sell it for $30? If you sell it, the profit from 30 dollars to 100 dollars has nothing to do with you.

If you feel that you don't have the ability to centralize money at present, then the decentralized investment is a better choice.

In addition to asset decentralization, we should also consider the industry decentralization. A typical example is investing in many similar catering companies. Unfortunately, they are encountered heavy losses because of the pandemic. If the investment industry is too concentrated, it may undergo a greater challenge.

In addition to industry risk, another common risk is geographical risk. For example, there is a concept in the investment called "home bias", which refers to the phenomenon that investors prefer to invest their money in their local market rather than the global market.

" Home bias " is a global phenomenon. For example, according to the data of ordinary investors in Canada, about 70% of their stocks are invested in the local market. But in fact, the total market value of Canadian stocks accounts for less than 3% of the global stock market. If the Canadian stock market performs not well or the stock market of the neighboring United States risees better, these people will miss the opportunity to make money.

In addition to investing in the domestic market, we can also invest American stocks, Hong Kong stocks, German DAX, bonds, gold, crude oil and other tools to form a more balanced portfolio, which will be beneficial to our long-term returns.

（Writer：Laurro）