another post from the weekend STT cos its worth learning from theses discussions.
This time from Sharks. Thanks.
'In terms of nihilism's and anton chigurghs posts on small caps, I always understood that their success (or failure) rate was the very reason they are called speculative stocks, so no surprise that this category is a risky proposition.
But hence most mainstream advice on investing in small caps is that it should be part of a larger portfolio strategy which includes predominantly less risky asset classes, and spec stocks in total should make up a small proportion of our overall portfolio. In fact investing in small caps should be an exercise in diversification itself - if the failure rate is 9 in 10 then the idea being split your small cap stock allocation into 10 and invest in 10 on the basis that the 1 in 10 successful stock will make up for the under performance of the other 9 in 10.
I suspect many of us lose sight of that perspective because we feel with thorough research and due diligence we can improve those odds. Still, from my general reading of HC threads over the years I get the distinct feeling a lot of posters do not practice much in the way of risk management via diversification, and to make matters worse, compound that risky approach by not exercising much in the way of risk management during trades (i.e. by using stops to manage losses) either. Its no wonder many investors do not do so well - many of us unfortunately learn the hard way. The key to becoming successful at trading/investing is surviving through that period of ignorance when we don't apply good practices until such time as we lose enough money that those losses penetrate the learnings through our thick skin..."
