Then those people will likely stay in the 10-20 million dollar range for the remainder of their lives. A true investor will pick about 7-10 stocks that he really likes and put a good portion of his net worth on those stocks. The more money you have in cash, the more money you're losing. An article I read in 2014 noticed that many investors were still losing money despite most of the big companies shooting through the roof yet many were not making money and it was because they had too much of their money in cash. After the 2008 Great Recession investors got scared and started hoarding money.
Plus the reason why you'd put 5% of your assets in a single stock is because you should not honestly understand and review 50-100 companies, you can't read all their quarterly reports and follow all of them all the time. An article I read recently stated why good investors stick to a low number of stock companies that they can truly understand and read all their financial reports and understand every single thing about that company inside and out, and you can't do that with 50 companies.
"No More than 10
"Any more than ten and you'll have to spend too much time doing homework," said the Mad Money host.
Jim Cramer thinks homework is the lifeblood of successful investing and it involves far more than reading the latest earnings report released 4 times a year.
An active investor must always be aware of developments that impact the company as well as the entire sector. That can range from a spike in input costs such as sudden rise in the price of oil or corn to a shift in sentiment that could generate new legislation that either aides or harms a company.
"You've got to spend at least a couple of hours a week on this kind of research," said Cramer. Successful investing involves taking responsibility for the stock which you chose.
If you hold a full time job, and hold more than 10 stocks Cramer just doesn't think you'll have enough time to do all you need to do to be successful.
No Less Than 5
Diversification is an important part of Jim Cramer's strategy for success; it's the equivalent of not putting all your proverbial eggs in one basket.
Quite simply, if you're holding less than 5 stocks, Cramer believes your risk isn't spread out, properly."
So of course you see less than 5 is not good for diversifying your stock, but over 10 is too complicated, so if you had 10 million dollars you should put 5% of your net worth in each stock ( that you TRULY believe in and do ALL your homework on this stock ) 5% in each stock X 10 = 50% of your net worth in stocks ( which is a great amount )
So your friends are idiots. How much of Bill Gates net worth or Warren is in stock? more than 50% by far and Bill Gates portfolio is not very diverse, meaning he has a good portion of his money ( more than 5% ) in some companies. For example his trust "Berkshire Hathaway remains Bill Gates’ largest position, accounting for 56.9% of the trust’s portfolio." Yet it is too risky for your friends to put 5% in a company, then they'd laugh? o.o
They need to put at least 50% of their money in stocks and only pick 10 stocks or so which would be 5% of their net worth in each stock. If not they have too much money laying around doing nothing and Warren himself said he HATES money. Berkshire Hathaway reported 90B in cash on hand this last quarter and he himself said
"I hate cash," Buffett said in an interview that aired Friday on "Squawk Box," one day before Berkshire's annual meeting in Omaha, Nebraska.
"I mean we are investing," he said. "But [cash] is a holding position until you find something else. But the very fact that interest rates are that low makes it hard for us to buy other things because other people buy things with borrowed money, and borrowed money is so cheap."
So you basically told me that they would laugh at the suggestion. I laugh at the fact they didn't put 5% of their net worth in Netflix, Coca cola, Amazon, Wal-mart, Apple, McDonald's, Domino's, 5 years ago. If you had 10 million dollars and invested $500,000 in each of these companies 5 years ago ( 50% of your net worth at 10 million )
Dominos - 17,301 shares for 500k 5 years ago - $3,582179 today
Apple - 6,239 shares - $958,385
( These do NOT include any dividends from any stock )
I don't need to go on, you get the point, if you invested 5 million 5 years ago in the big companies you would probably have over 15 million in your portfolio and the other 5 million, if you wanted to invest 4 million in real estate and 1 million to save for a rainy day, that is very reasonable.
So I laugh at your friends for not thinking like Warren Buffett and taking risks, and that's why your friends are who they are ( who are they? ) and Warren Buffett is.... Warren Buffett... he took the risk and put 75% of his entire net worth in Geico because it was something he believed it ( yes 75% not the laughable 5% you mentioned your friends are scared of )
I really don't need to go on any further, I'm telling you, invest in big companies, don't invest in penny stocks where you might lose everything, these are big companies that have been around for 100 years and heck even if you picked Facebook, Apple, Netflix, BP, Sears, and JCPenney, your losses from Sears and JCP would not be nearly as much as your gains from FB and Apple.
I do hope 5 years ago you could've seen the fall of these big companies coming though, hell, I knew internet was here to stay in 2005 at the age of 15 when I went to a seminar on internet shopping and the guy was throwing these big numbers around "by 2008 there will be 90 billion spent on internet shopping! this is growing! Amazon is expecting to grow huge in the next 3 years" or something like that, and I thought that this would of course destroy the malls in the USA and big outlet stores. I was able to put two and two together but at 15 I was more interested in girls and playing video games I didn't care about stock. If I was 40 in 2005 and knew what I know today and learned the things I learned I would've invested in Amazon. And if I was able to put two and two together at 15, I know intelligent investors had to be able to put two and two together by 2005.