I am relatively new to investing and have been struggling with how to diversify my stock portfolio. Coming from tech industry I naturally have a tech heavy portfolio. If I don't understand other sectors that well, is there a good way to deepen my understanding?
Ask HN: Should one diversify their stock portfolio
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Re: Ask HN: Should one diversify their stock portfolio
#2Yes
Re: Ask HN: Should one diversify their stock portfolio
#3Yes
Re: Ask HN: Should one diversify their stock portfolio
#4Depends on what you have in mind when you say diversification.
Easiest way to get started in other sectors is to google for stock analysis articles. They are written regularly for the major sectors and they will talk about the biggest/most interesting players, where they stand in the industry terms in recent developments, competitive advantages and risks.
With that said, dividing a portfolio across sectors isn't necessarily diversifying. Last year covid basically dragged the entire market down with it (and it's not exactly an anomaly for the entire market to swing in tandem). So if you're looking for resilience against that kind of risk you want to look into other investment vehicles (bonds, retirement funds, real estate, etc)
Or, if you're in the market for high risk asset types, but want things that do not track the stock market, you can consider looking into forex or cryptocurrencies (though beware, these are not for the faint of heart).
Re: Ask HN: Should one diversify their stock portfolio
#5Consider using a "target retirement fund", they have different ones that are based on the expected retirement year, and the mix gets more conservative as that year approaches. Vanguard has a series of them, for example VFIFX for 2050 or VTTSX to 2060. These can be purchased through low cost brokerages other than Vanguard, if you like.
You can also get a financial advisor, to help select investments, at the cost of ~1.5%/year.
I have some money in each of these options, plus my own picks that I manage.
Re: Ask HN: Should one diversify their stock portfolio
#6You should diversify your skillset instead.
Re: Ask HN: Should one diversify their stock portfolio
#7One option is that you stop picking and researching stocks yourself and you purchase index funds, which track the whole of the market. The idea here is that active decisions can be really good or really bad, and you either have to research them yourself or pay a higher management fee for someone who will actively manage a portfolio. Tracking the market is cheaper, generally performs well but not extraordinarily well over time, and makes everything much more passive. A really good short book that makes these arguments if you’re interested is Tim Hale’s Smarter Investing.
Re: Ask HN: Should one diversify their stock portfolio
#8To answer your second question: Most to all public companies release annual reports (e.g. 10-K) where they explain what they do and what they are planning to do. To deepen your understanding of other sectors I would recommend reading/skimming a couple of these annual reports. I think this will give you a good start understanding what a sector is doing and also specifically how a company in the sector is doing.
For example, you want to know more about oil? Read some of the annual reports of the biggest oil companies:
1. SNP - https://f.hubspotusercontent20.net/hubfs/527622/0-Assets/Inv...
2. PTR - http://www.petrochina.com.cn/ptr/ndbg/202104/eafc059543d2429...
3. RDSA - https://reports.shell.com/annual-report/2020/
4. BP - https://www.bp.com/content/dam/bp/business-sites/en/global/c...
5. XOM - https://corporate.exxonmobil.com/-/media/Global/Files/invest...
Re: Ask HN: Should one diversify their stock portfolio
#9baseline suggestion: don't try to actively manage your own investment portfolio and pick stocks. don't outsource management of your portfolio to active managers that charge high fees. outsource your investment to a diversified low-fee passively managed fund (e.g. those popular low fee diversified vanguard ETFs that use market cap weighting). Such passive investment approaches seem kind of dumb (like, surely one could do better by considering the fundamental economic value of businesses, not merely their market cap) but the average investor will end up wealthier by investing in passive ETFs.
One big downside of trying to manage your portfolio yourself is that you have many more opportunities to make unforced errors (particularly behavioural errors), e.g. trading based on emotion, trading based on poor decision making, etc. If you outsource investment decisions to an organisation with a disciplined process and low fees then you prevent yourself from making many of these errors.
https://en.wikipedia.org/wiki/A_Random_Walk_Down_Wall_Street
https://www.bogleheads.org/RecommendedReading.php
On another hand, if you do want to learn more about how to evaluate individual companies:
http://aswathdamodaran.blogspot.com/
https://www.berkshirehathaway.com/letters/letters.html
https://news.morningstar.com/classroom2/course.asp?docId=142...
http://www.efficientfrontier.com/ef/401/fisher.htm
https://twitter.com/WallStCynic
All that said, research has shown that individual stock selection has a relatively minor contribution to overall investment portfolio return compared to other factors such as asset allocation and (especially) the amount you invest in the first place.
Re: Ask HN: Should one diversify their stock portfolio
#10Just because you come from the tech industry does not mean you know something special about the tech companies, their business prospects, financials and how attractively they are priced.