{"id":4027,"date":"2018-03-13T12:54:18","date_gmt":"2018-03-13T12:54:18","guid":{"rendered":"http:\/\/www.cityfalcon.com\/blog\/?p=4027"},"modified":"2018-03-16T10:18:58","modified_gmt":"2018-03-16T10:18:58","slug":"the-complete-guide-to-concentrated-stocks-value-investing-play-to-win","status":"publish","type":"post","link":"https:\/\/www.cityfalcon.ai\/blog\/es\/investments\/the-complete-guide-to-concentrated-stocks-value-investing-play-to-win\/","title":{"rendered":"La gu\u00eda completa para inversiones de valor en acciones de cartera concentrada: jugar para ganar"},"content":{"rendered":"

Daring. This is how most of the people would describe concentrated value investing. Getting head to head with high-speed rail could certainly be thrilling and exciting, but in modern financial markets where everything is decided in a brink of a second, this could lead to a complete disaster \u2013 or would it? Let\u2019s take a look at how great focused investors snatch a victory from the jaws of defeat.<\/p>\n

As with this blog entry, we will be analyzing portfolios with few heavily lifted bets. Such strategies in the investment world are known as \u201cfocus investing\u201d or \u201cconcentrated investing\u201d. Evidently and to our surprise, several research studies even back up their outperformance as a whole.<\/p>\n

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Image Source: Pixabay<\/p><\/div>\n

\u201cGo for the jugular,\u201d Soros advising Druckenmiller, just a day before pound’s devaluation.<\/em><\/p>\n

The basic reasoning of concentrated investing is in fact, pretty simple, it goes just as the saying goes: \u201cwinner takes it all\u201d and it is in tandem with the world of poker. You see, they both have the same underlying rule of thumb: minimize your losses and extract the maximum there is out of your opportunities. Despite this, academic data suggests, that most of the investment funds fail to accomplish just that \u2013 extract the maximum there is out of given opportunities. Not only that, they also fail to prepare for the worst \u2013 take a look at their continuous underperformance, Jeez. Sadly, given the highly competitive field fueled by cognitive biases and strict regulations – it is likely to continue\u2026<\/p>\n

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Lessons of holdem<\/em> poker: <\/strong><\/h2>\n

In poker, every betting interval requires the player to either check, raise or fold<\/em>. In investing terms, that would mean either to add to the current position, maintain it as it is or cut the losses and get out<\/em>. The probability of winning hand can be predetermined during the flop<\/em> stage, just as the game begins, and the hands are assigned either as the \u2018bad\u2019 ones \u2013fold, or \u2018good\u2019 ones \u2013 check. Shares obtained at inadequate levels can be compared to the bad hands of poker, sure you can win with them, but the likelihood of favourable outcome is small. Over time, such chances<\/em> or \u2018Dame Fortuna tunes\u2019<\/em> as B. Graham<\/strong> would call them, would considerably diminish as the number of trials increased, hence, the investor or the experienced poker player should always prefer to play with the \u2018good\u2019 hands given \u2013 an\u00a0investor should act upon obtaining adequately priced company shares, as it increases the likelihood of winning over time.<\/p>\n

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“Fortune Wheel \u2013 Fortunes Cards”
Image Source: Pixabay<\/p><\/div>\n

The early betting stage of poker is where it gets interesting though. Given the right \u2013 \u2018good\u2019 cards, an experienced player will seize the opportunity with an adequate bet. The bet is placed to the extent that if the loss, in fact, occurred it would not leave the player without a further bankroll to bet, or a beggar on the street. It would however considerably diminish his war chest. A loss to 3-17% is considered a standard in such scenarios. For a grinding gem hunting investor, the stop-loss order is often placed within this range. <\/em><\/p>\n

The same rule of thumb applies when a focused investor finds out an opportunity in a market – a so-called \u2018good\u2019 card, an undervalued share of a company. He starts to engage in a \u2018buildup\u2019 process. First, acquiring a small, but significant stake given the information obtained and unveiled at the time, calmly yet patiently waiting and progressing to the later stage, engaging in buying activities as odds swing in favour and conviction increases. \u201cEvery battle is won\u00a0or lost\u00a0before\u00a0it’s\u00a0ever fought”. <\/em><\/strong>As Sun Tzu would quickly point out.<\/p>\n